2022 (3) TMI 1337 - AT - Income Tax

Disallowance u/s 54F - assessee has sold the immovable property within the definition of capital asset in India - reason for denying benefit of 54F by the AO as well as the Ld.CIT(A) was solely on the ground that the assessee has reinvested the amount in USA in the residential house property - HELD THAT - In our considered opinion, once, the assessee invested the long term capital gain in buying the residential house either in India or outside India prior to 01.04.2015, the assessee is entitled for exemption. The literal meaning of construction of a residential house used in section 54 cannot be restricted to only purchasing or constructing or acquiring a residential house within India . In our considered opinion, the golden rule of interpretation as envisaged in law is required to be applied. In our view, when the statue is clear and unambiguous, then the Tribunal or court should refrain from adding any meaning or word which has not been provided by the statute, to the provision , while interpreting the section . Undoubtedly, the word used in section 54 is a residential house and not a residential house in India , therefore, it will be violation of literal interpretation of statute, if we read a residential house as residential house in India. The Tribunal is bound to interpret the law within four corners of statute and refrain from inserting any word in the statute and it would amount to legislating the Act. - Appeal of assessee allowed.

Issues Involved:
1. Denial of exemption under Section 54 of the Income-tax Act, 1961 for investment in a new residential house property outside India.
2. Charging of interest under Sections 234A, 234B, and 234C of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 54 for Investment Outside India:

The primary issue concerns the denial of exemption under Section 54 of the Income-tax Act, 1961, for the reason that the investment in the new residential house property was made outside India, specifically in the USA. The assessee, an NRI, sold immovable property in India and claimed exemption under Section 54F for the long-term capital gains by reinvesting in a residential house in the USA. The Assessing Officer (AO) issued a notice under Section 148, stating that the assessee is not eligible for the exemption since the reinvestment was made in a house property situated outside India, and income from such property is not chargeable to tax in India under Section 54F of the Act. The AO's assessment was based on the interpretation that the exemption is intended to encourage housing and infrastructure needs within India.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that the legislative intent behind the exemption is to promote housing within India, as clarified by the CBDT Circular No.1/2015 dated 21.01.2015. The CIT(A) relied on various decisions of the Hon’ble Supreme Court to support this view.

However, the Tribunal found that the language of Section 54F for the Assessment Year (A.Y.) 2010-11 did not specify that the residential house must be situated in India. The Tribunal noted that the amendment specifying the location of the residential house to be in India was introduced only from 01.04.2015 and is prospective in nature. The Tribunal referred to the decisions of the High Courts of Karnataka, Delhi, and Madras, which supported the view that prior to the amendment, the exemption under Section 54F could be claimed for investments made in residential properties outside India. The Tribunal concluded that the literal interpretation of the statute should be applied, and the phrase "a residential house" should not be restricted to properties within India.

2. Charging of Interest under Sections 234A, 234B, and 234C:

The second issue pertains to the charging of interest under Sections 234A, 234B, and 234C of the Income-tax Act, 1961. The assessee contended that the AO was incorrect in charging interest under these sections, and the CIT(A) was also incorrect in confirming the levy of interest. However, this issue was not elaborated in the Tribunal's order, as the primary focus was on the main issue of exemption under Section 54F.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that for the A.Y. 2010-11, the exemption under Section 54F could be claimed for reinvestment in a residential house outside India. The Tribunal emphasized that the statute did not specify the location of the residential house for the relevant assessment year, and the amendment introduced from 01.04.2015 is prospective. Therefore, the assessee was entitled to the exemption claimed under Section 54F. The Tribunal did not provide a detailed analysis on the issue of charging interest under Sections 234A, 234B, and 234C, as the primary issue was resolved in favor of the assessee. The appeal of the assessee was allowed, and the order was pronounced in open court on 28th March 2022.

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