2015 (8) TMI 212 - AT - Income Tax

Claim of exemption u/s.54 denied - investment made in residential house situated outside India - Held that - The Finance (No.2) Bill, 2014 brought an amendment in Section 54, wherein sub-section (1), for the words constructed, a residential house , the words constructed, one residential house in India has to be substituted w.e.f. 1st day of April, 2015. Thus, it is clear from the amendment so brought for claiming exemption u/s.54, that new residential house should to be constructed in India only w.e.f. assessment year 2015-2016.. However, the assessment year under consideration is 2010-2011 i.e. much prior to the amendment so brought in Finance (No.2) Bill, 2014. There is no reason to decline exemption u/s.54 during the A.Y.2010-11 under consideration. As during the year under consideration, assessee was entitled for exemption u/s.54 even if investment was made in residential house situated outside India, provided that assessee has to comply with other conditions of Section 54. Since the AO has out-rightly declined exemption on this plea without examining the other conditions of Sec.54 so as to make assessee eligible, we accordingly restore the appeal to the file of the AO for verifying other conditions to be fulfilled for grant of exemption u/s.54 in both the appeals of the assessees. The AO is also at a liberty to verify actual acquisition of house property outside India, in terms of transfer deeds so executed in favour of assessee. - Decided in favour of assessee for statistical purposes

Summary

Issues:
Appeals against CIT(A) order for AY 2010-2011 - Decline of claim of exemption u/s.54.

Analysis:
The appeals were filed against the CIT(A) order for the assessment year 2010-2011 regarding the decline of the claim of exemption under Section 54. The main contention revolved around whether the assessee was entitled to claim exemption under Section 54 for an investment made in a house property situated outside India. The AO had disallowed the exemption based on the location of the property.

The Tribunal considered various precedents and interpretations of Section 54 to determine the eligibility of the assessee for the exemption. The AR referred to a Tribunal decision in the case of Mrs. Prema P. Shah, emphasizing that the location of the house property should not exclude the assessee from claiming the benefit if all other conditions of the section are met. The DR highlighted decisions in favor of exemption for investments made in new residential houses outside India.

The Tribunal analyzed the provisions of Section 54F and noted that there was no explicit requirement that the new residential house should be situated only in India. Referring to decisions from different benches, it was established that exemption could be applicable even if the residential house was acquired outside India. The Tribunal emphasized that the legislative intent did not restrict the exemption to properties within India.

The Tribunal also discussed an amendment in Section 54 brought by the Finance (No.2) Bill, 2014, which specified that a new residential house should be constructed in India for claiming exemption. However, this amendment was effective from the assessment year 2015-2016, not applicable to the assessment year under consideration (2010-2011). Therefore, the Tribunal held that the assessee was entitled to the exemption under Section 54 for the investment made in a residential house outside India, provided all other conditions were met.

As the AO had denied the exemption without examining whether the assessee fulfilled the other conditions of Section 54, the Tribunal directed the AO to verify the compliance with all conditions and the actual acquisition of the house property outside India. The appeals of both assessees were allowed for statistical purposes, and the matter was remanded back to the AO for further verification.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the claim of exemption under Section 54 for investments made in residential houses situated outside India, subject to meeting all other conditions specified under the section.