2020 (9) TMI 96 - HC - Income Tax

Exemption u/s 54F - investment made in the house property in USA - scope of amendment incorporated in Section 54F(1) - whether an assessee was required to purchase a residential house within India for the purposes of claiming exemption under Section 54F? - HELD THAT - Residential property, for which investment is made needs to be situated in India for the purpose of claiming exemption u/s 54F from Assessment year 2015-16 only and not prior to that period. In the instant case, the investment in a residential house was made in USA prior to 01.04.2015, whereas, the requirement of making an investment in a residential house, which was incorporated by way of amendment, came into force w.e.f. 01.04.2015. In the light of aforesaid well settled legal principles as well as the memorandum of objects of Finance Act, 2014, which clearly provide that amendments will take effect from 01.04.2015 and will apply to Assessment year 2015-16 onwards as well as the CBDT's Circular dated 21.01.2015, it is evident that amendment incorporated in Section 54F(1) of the Act is prospective in nature. Substantial question of law framed by this court is answered in the affirmative and against the revenue.

Summary

Issues:
1. Interpretation of exemption under Section 54F of the Income Tax Act for investment in a house property in the USA.
2. Applicability of the amendment to Section 54F made by the Finance Act, 2014 w.e.f. 01.04.2015.

Issue 1: Interpretation of exemption under Section 54F for investment in a house property in the USA:
The appeal pertains to the Assessment year 2009-10, concerning the denial of exemption for an investment made in a residential property outside India. The Assessing officer denied the exemption and created a demand based on the premise that the investment was made in a property outside India. The Commissioner of Income Tax (Appeals) upheld this decision, stating that the investment should be made in India to claim the exemption under Section 54(1) of the Act. However, the Income Tax Appellate Tribunal held the assessee entitled to exemption under Section 54F of the Act, leading to the current appeal by the revenue. The key question was whether the assessee needed to purchase a residential house within India to claim the exemption under Section 54F of the Act.

Issue 2: Applicability of the amendment to Section 54F made by the Finance Act, 2014:
The revenue argued that the assessee was not entitled to exemption as the property was not purchased in India, emphasizing that any ambiguity in the exemption provision should favor the revenue. They referred to Circular No.346, the Finance Act, 2014, and a Supreme Court decision. Conversely, the assessee contended that the amendment made by the Finance Act, 2014 was prospective in nature and cited relevant case laws to support their stance. The Court examined the relevant provisions pre and post the amendment w.e.f. 01.04.2015, highlighting that the requirement of constructing a residential house in India was incorporated post the amendment.

The Court, after considering the arguments and legal principles, concluded that the amendment to Section 54F of the Act was prospective in nature, effective from 01.04.2015. As the investment in the residential house in the USA was made prior to this date, the requirement of investment in a residential house in India did not apply. Citing legal precedents and circulars, the Court held that the amendment only applied from Assessment year 2015-16 onwards. Consequently, the appeal was dismissed, affirming that the exemption did not extend to the investment made in the USA before the effective date of the amendment.