2018 (9) TMI 873 - AT - Income Tax

Exemption u/s 54 - LTCG - investment outside India - Profit on sale of property used for residence - capital gains arising from the sale of a residential house in India, and the same invested in another house property in Hong Kong - Held that - The words constructed a residential house has been substituted with the words constructed, one residential house in India by Finance Act, 2014 w.e.f 01/04/2015. Upon careful analysis of the same, we find that the words in India has been brought to the statute w.e.f. 01/04/2015 only and prior to that there was no restriction as such with respect to the location of the property before the aforesaid deduction could be claimed by the assessee. The stated amendment, in our opinion, being substantive in nature, was only prospective in nature and was not applicable for the assessee at the relevant point of time, the AY being 2012-13. Prior to the aforesaid amendment, in our view, there was no bar for the taxpayer making investments outside India in residential house property to get the benefit of deduction u/s. 54 provided other conditions are fulfilled. As decided in Leena Jugalkishor Shah Vs. ACIT 2016 (12) TMI 351 - GUJARAT HIGH COURT prior to the amendment the only stipulation was to invest in a new residential property and there was no scope for importing the requirement of making such investment in a residential property located in India. We find that the stipulations as to investment, in Section 54 & 54F are pari-materia the same. The revenue has not disputed that fact that the investment in Hong Kong has been made by the assessee in a residential property out of the impugned capital Gains. In view of the stated position, we are of the considered opinion that the assessee was entitled for the deduction u/s 54 on account of aforesaid investments. We direct Ld. AO to allow the aforesaid deduction u/s 54 to the assessee to the extent of investment made. - Decided in favour of assessee

Summary

Issues:
1. Disallowance of claim of exemption u/s 54 of the Income Tax Act, 1961 for capital gains invested in a house property in Hong Kong.
2. Interpretation of statutory provisions of Section 54 regarding the location of property for claiming deduction.
3. Applicability of precedents and judgments in similar cases.
4. Reversal of decision by the Hon'ble Gujarat High Court regarding the availability of deduction u/s 54 for investments made outside India.
5. Discrepancy between the decision of the Ahmedabad Tribunal and the subsequent judgment of the Hon'ble Gujarat High Court.

Issue 1:
The appeal contested the disallowance of the claim of exemption u/s 54 of the Income Tax Act for capital gains invested in a house property in Hong Kong. The assessee, a non-resident individual, had claimed deduction u/s 54 based on an investment in a house property in Hong Kong. The assessing officer denied the deduction based on a decision of the Ahmedabad Tribunal, which was later reversed by the Hon'ble Gujarat High Court. The denial of deduction was the subject matter of the appeal.

Issue 2:
The interpretation of statutory provisions of Section 54 was crucial in determining the eligibility of the assessee for the deduction. The relevant provisions allowed for the deduction if a residential house was purchased or constructed within a specified period. The amendment specifying the location of the property as "in India" was prospective and not applicable for the assessment year in question. Prior to the amendment, there was no restriction on investing outside India to claim the deduction u/s 54.

Issue 3:
The relevance of precedents and judgments in similar cases was highlighted during the proceedings. The decision of the Ahmedabad Tribunal, which was relied upon by the lower authorities, was overturned by the Hon'ble Gujarat High Court. The judgments of the Tribunal supported the assessee's claim for deduction u/s 54 based on investments made in a residential property in Hong Kong.

Issue 4:
The reversal of the decision by the Hon'ble Gujarat High Court regarding the availability of deduction u/s 54 for investments made outside India was a significant factor in favor of the assessee. The court clarified that prior to the amendment, the only stipulation was to invest in a new residential property, without specifying the location within India.

Issue 5:
The discrepancy between the decision of the Ahmedabad Tribunal and the subsequent judgment of the Hon'ble Gujarat High Court was crucial in determining the validity of the denial of deduction by the assessing officer. The Tribunal directed the assessing officer to allow the deduction u/s 54 to the assessee to the extent of the investment made in the residential property in Hong Kong, thereby allowing the appeal and providing relief to the assessee.