2022 (8) TMI 485 - AT - Income Tax

Exemption u/s 54F - Scope of amendment been brought in Section 54F vide Finance Act, 2014 - Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house - whether the assessee is eligible for exemption u/s 54F in case of investment of capital gains through purchase of residential property outside India or not? - HELD THAT - We have gone through the amendment brought out by the legislature wherein it was mentioned that with effect from 01.04.2015 for claiming benefit of exemption from payment of capital gain accruing on account of sale of property, the assessee must invest in a residential house in India. Thus, this amendment provides that prior to 01.04.2015 the investment made by assessee in residential property outside India were eligible for exemption under section 54/54F. Substituted for constructed, a residential house by Finance (No. 2) Act, 2014 w.e.f. 01.04.2015 Since, the amendment is not said to be retrospective in nature, as the amendment was brought by Finance Act, 2014 and made applicable in relation to Assessment Year 2015-16 and subsequent Assessment Years and since all the conditions laid down u/s 54F are satisfied by the assessee to avail the exemption, we hereby allow the claim of the assessee for exemption u/s 54F. Appeal of assessee allowed.

Summary

Issues involved:
Whether the assessee is eligible for exemption u/s 54F in case of investment of capital gains through the purchase of residential property outside India or not?

Analysis:
The appeal was filed by the assessee against the order of the ld. CIT (International Taxation) regarding the taxation of capital gains from the sale of a property. The Assessing Officer initially treated the proceeds as short-term capital gains but later allowed a deduction claim under section 154, resulting in a refund. The main issue was whether the assessee, a non-resident of India, was eligible for exemption under section 54F for reinvesting the capital gains in a residential property outside India.

The ld. CIT set aside the Assessing Officer's order, citing the Finance Act, 1982, which inserted section 54F to encourage house construction, implying investment in a residential house in India. The CIT emphasized that the words "in India" were crucial in interpreting section 54F, indicating that the new asset should not be situated outside India. The CIT's decision was based on the legislative intent to promote investment in residential houses within India.

The Tribunal reviewed similar cases where investment in residential property outside India was allowed for exemption under section 54F. The Co-ordinate Bench of ITAT Bangalore and the High Court of Gujarat had previously ruled in favor of such investments, emphasizing that section 54F did not specify the location of the residential property for reinvestment. However, an amendment in the Finance Act, 2014, made it mandatory to invest in a residential house in India for claiming exemption under section 54F, effective from April 1, 2015.

Considering the non-retrospective nature of the amendment and the satisfaction of all conditions under section 54F by the assessee, the Tribunal allowed the claim for exemption under section 54F. The decision was based on the legislative changes post-2015, which required investment in a residential house in India to avail of the exemption. Therefore, the appeal of the assessee was allowed, and the judgment was pronounced on July 13, 2022.