2016 (12) TMI 351 - HC - Income Tax

Eligibility of section 54F benefit - whether benefit will not be available if the residential house is purchased or constructed by the assessee outside India? - Held that - The Tribunal has wrongly interpreted section 54F of the Income-tax Act by holding that the assessee should purchase the residential house situated in India. Prior to amendment to section 54F of the Act, the only condition stipulated was investment in a residential house. When the section 54F of the Income-tax Act was clear and unambiguous, there is no scope for importing into the statute the words which are not there. Such importation would be not to construe but to amend the statute. If there is any defect in the Act, it can be remedied only by the legislation and not by judicial interpretation. In the present case the assessee has purchased the residential house in U.S.A. out of the sale proceeds of the plot in India and thus she has fulfilled the conditions of section 54F of the Income-tax Act before its amendment by the Finance (No. 2) Act. Moreover, when the language of a taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt the interpretation which favours the assessee. Section 54F of the Act before its amendment was clear that the assessee should investment in a residential house. The language of section is clear and unambiguous. Therefore, we cannot import into the statute the words in India as interpreted by the authorities. Thus, taking into consideration the above facts, we are of the opinion that benefit of section 54F before its amendment can be extended to a residential house purchased outside India. In that view of the matter, the appeal is allowed. The order of the Tribunal is set aside. We answer the question in favour of the assessee and against the revenue.

Summary

Issues Involved:
1. Applicability of Section 54F of the Income-tax Act, 1961, to residential houses purchased outside India.
2. Interpretation of the term "residential house" in Section 54F before its amendment by the Finance (No. 2) Act, 2014.
3. Legislative intent and the scope of judicial interpretation in tax statutes.

Issue-wise Detailed Analysis:

1. Applicability of Section 54F of the Income-tax Act, 1961, to Residential Houses Purchased Outside India:
The primary issue revolves around whether the benefit under Section 54F of the Income-tax Act, 1961, is available to an assessee who purchases or constructs a residential house outside India. The Tribunal and the lower authorities had denied the benefit, interpreting that the residential house must be situated in India. However, the court observed that at the relevant time, Section 54F did not explicitly restrict the location of the residential house to India. The amendment by the Finance (No. 2) Act, 2014, which introduced the restriction, was effective from 1st April 2015 and thus not applicable to the assessment year in question.

2. Interpretation of the Term "Residential House" in Section 54F Before Its Amendment by the Finance (No. 2) Act, 2014:
The court noted that the language of Section 54F before the amendment was clear and unambiguous, stating that the assessee should invest in a "residential house" without specifying that it must be in India. The court emphasized that the statutory language should be interpreted as it is, without importing words that are not present. The court referenced the Explanatory Notes to the Finance (No. 2) Act, 2014, which clarified that the amendment to restrict the benefit to residential houses situated in India was prospective and applicable from the assessment year 2015-16 onwards.

3. Legislative Intent and the Scope of Judicial Interpretation in Tax Statutes:
The court highlighted principles of statutory interpretation, particularly in tax laws, where ambiguity should be resolved in favor of the assessee. The court cited precedents from the Supreme Court, including Commissioner of Income-tax, West Bengal-I v. Vegetable Products Ltd. and Smt. Tarulata Shyam and others v. Commissioner of Income-tax, West Bengal, to support the view that courts should not amend statutes by judicial interpretation but should interpret them as they are written. The court held that the Tribunal erred in interpreting Section 54F to include a restriction that was not present in the statutory language before the amendment.

Conclusion:
The court concluded that the benefit under Section 54F of the Income-tax Act, 1961, before its amendment by the Finance (No. 2) Act, 2014, was available for investment in a residential house irrespective of its location. The court allowed the appeal, set aside the Tribunal's order, and answered the question of law in favor of the assessee and against the revenue. The judgment underscores the principle that statutory provisions should be interpreted based on their clear language, and any ambiguity should be resolved in favor of the taxpayer.