VAIJANTHI MAHAVIR OZA,MUMBAI vs. INCOME TAX OFFICER(IT)-3(3)(1), MUMBAI

आयकर अपीऱीय अधिकरण “F” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपीऱ सं./I.T.A. No.5799/Mum/2017 (नििाारण वर्ा / Assessment Year: 2014-15) बिाम/ Vaijanthi Mahavir Oza, Income Tax Officer- C/o. Chhajed & Doshi, (International Taxation)- 101, Hubtown Solaris, 3(3)(1) v. N.S Phadke Marg, Room No. 1628, Near East West Flyover, 16th Floor Andheri (E), Air India Building Mumbai- 400069 Mumbai स्थायी ऱेखा सं./ PAN: ABEPO5631J (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) .. Assessee by: Shri. Piyush Chhajjed Revenue by: Miss. Deepika Arora (DR) सुनवाई की तारीख /Date of Hearing : 09.01.2019 घोषणा की तारीख /Date of Pronouncement : 03.04.2019 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member: This appeal, filed by assessee, being ITA No. 5799/Mum/2017, is directed against appellate order dated 23.06.2017, passed by learned Commissioner of Income Tax (Appeals)-57, Mumbai (hereinafter called “the CIT(A)”), for assessment year 2014-15, the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 23.12.2016 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”) for AY 2014-15.

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detailed assessment order dated 23.12.2016 u/s 143(3) of the 1961 Act denying the benefit of deduction u/s. 54 of the Act to the assessee for investment made in a residential property situated outside India , by holding as under:- “ 9. Disallowance of claim of deduction u/s 54 of I T Act for Investment in new residential house outside India In this case, the assessee has claimed deduction u/s 54 of I T Act on the entire Capital Gain arrived by investing in purchase of new residential house at Michigan, USA. The claim of the assessee is disallowed for the detailed reasons and discussion in the subsequent paras: 9.1 It is seen in many cases that non-resident individuals of Indian origin, who on having inherited residential property in India, sell it and transmit the money abroad through banking channels and buy a residential property outside India. They then go on to make a claim of benefit under section 54 on the capitals gains arising to them. 9.2 In such cases, the assessing officers are generally disallowing the claim on the basis of the following: i. By making a reference to section 1 of the Act which relates to Short title, extent and commencement of the Act and mentions that the Act extends to the whole of India. The AO's view is that the assessee cannot claim benefit of section 54 for purchase of residential house in a foreign country to which the Act does not extend. ii. By relying on the decision of Hon'ble ITAT 'F' Bench Mumbai in the case of Shri Farhad Bottlewalavs ACIT 18(3), Mumbai in ITA No. 1761/Mum/ 2012 for AY 2008- 09, wherein claim of benefit u/s 54F was denied to the assessee. iii. By relying on decision of Hon'ble ITAT 'D' Bench, Ahmedabad in the case of Leena J Shah vs ACT, Circle- 1(1), Baroda reported in (2006) 6 SOT 721 (Ahd.), wherein the claim of assessee while reinvesting in property outside India was not allowed u/s 54F. iv. On the basis of these decisions, the AO makes an argument in favour of interpretation of the provisions of the Act in a holistic manner and in the appropriate context, to arrive at its proper meaning, that is, the context of section

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whatever sources derived anywhere outside India in case of a 'resident', but in case of a 'non-resident', it only uses the words 'in India'. The impact of this is two-fold. First, section 4 gets inextricably and intrinsically linked to section 5, and second, the charging sections under different heads get precluded from including the word in India' as it would prevent the charge of income accruing or arising from anywhere outside India in case of residents. it is only by virtue of section 5 that the separation is made in case of residents and non-residents. Both these sections in turn are linked with section 14 of the Act, which provides that there has to be a separate charge for income classified under each of the five heads of income and also for computation of 'total income'. Thus, section 14 also links charge and total income together, thereby bringing section 5 into play. In other words, the structure of the Act is such that there is no need to mention the words 'in India' in the charging sections - they are automatically read into them by virtue of section 5(2) of the Act in case of non- residents. As section 54 is mentioned in the charging section in case of the head of income 'capital gains', that is, in section 45, it is part of the charging section and thus, automatically includes the words 'in India' in case of non- residents on account of provisions contained in section 5(2) of the Act. This is elaborated at length in the following paragraphs. 9.4(i) A reference is first made to section 5(2) of the Act, which provides for the Scope of Total Income in the case of a non-resident: (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which — (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Thus, the total income in case of a non-resident includes all income from whatever source derived, but all such income should either be received or deemed to be received in India or accrue or arise or deemed to accrue or arise in India. Section 2(24) of the Act provides an inclusive definition of the word, 'income' and as per section 2(24)(vi) of the Act, income includes ‗any capital gains chargeable under section 45' of the Act. Section 45(1) of the Act provides this charge in case of capital gains as follows:

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Thus, any item of income must fall under one of these heads of income in order to be chargeable, and, also for the purpose of computation of 'total income'. If there is any income which falls outside these heads of income, there should be a separate charge for the same (as is done in case of certain items of income included while aggregating the income - by way of sections 68 to 69D of the Act, which provide for a separate charge for such items). 9.4(iii) The first step thus involves the characterisation of income – under what head of income it can be put. If the income is of the nature of salaries and it is to be placed under the head "Salaries" then for chargeability of income under this head and its computation, the provisions contained in Chapter IV-A of the Act shall apply. 9.4(iv) By way of example, it can be seen that section 15 of the Act is the charging section for income under the head 'salaries'. In this context, the following are regarded as chargeable: i. any salary due to an assessee from an employer in the previous year, whether paid or not; [s.15(a)] ii. any salary paid or allowed to an assessee in the previous year by or on behalf of an employer, though not due or before it became due; [s.15(b)] iii. any arrears of salary paid or allowed to an assessee in the previous year if not charged to tax for any earlier previous year.[15(c)] Thus, what is important for charging an amount to tax under section 15(a) is whether it is in the nature of salary and whether it has become due to the assessee (whatever may be his status - resident or non-resident) and it has no relation to the place where it has become due. The place where it has become due and the place where service has been rendered do not form a basis of charge under section 15 of the Act. Had the Parliament thought it relevant, the statute would have taken a form which reflected such thought. 9.4(v) This is also borne out by the phraseology of the charging sections for all other heads of income. Thus, i. in case of the head "income from house property", the charging section (s.22) mentions that 'the annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the

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purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property'. ii. In case of the head of income ''profits and gains of business or profession", the charging section (s.28) mentions that the 'following income shall be chargeable to income-tax under the head "Profits and gains of business or profession", — (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year.;..... iii. In case of the head of income "capital gains", the charging section (s.45) mentions that 'any profits or gains 'arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections .... Be chargeable to income-tax -under the head "Capital gains" and shall be deemed to be the income of the previous year in which the transfer took place‘. iv. In case of the head of income "income from other sources", the charging section (s.56) mentions that 'income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources"', if it is not chargeable to income-tax under any of the heads specified in section 14, items A to F. It can be seen that none of these charging sections for respective heads of income mention that the income should accrue or arise 'in India'. In other words, there is no condition or presumption that the income should 'accrue or arise' in India. 9.4(vi) As already mentioned above, the reason for this is imbedded in, and intrinsic to, the charging section for the Income Tax Act, 1961. Section 4 of the Act provides a charge of income-tax for 'total income' of a person. Thus, section 4 has a direct connect with section 5 of the Act which provides for the scope of total income (the definition of ‗total income' in section 2(45) of the Act defines it to mean the total amount of income referred to in section 5, computed in the manner laid down in the Act, thereby, as mentioned earlier, linking section 14 to section 5). Section 4 of the Act does not mention that the charge is for 'total income' accruing or arising only 'in India'. Hence, the charging sections for respective heads of income are foreclosed and precluded from using any different 8

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phraseology. The Act has been made to tax global income of residents. This is made clear not in section 4 of the Act, but in section 5(1) of the Act, which states that: 5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which - (a)is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year: Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. Thus, while the wording of section 5(1)(a) and 5(1)(b) is exactly similar to section 5(2) which deals with total income of non-residents, section 5(1)(c) allows for inclusion of income from whatever source derived accruing or arising anywhere outside India in case of a person who is a resident of India. It is evident that it is for this reason, there is no mention of the words 'in India' in any of the charging sections. 9.4(vii) Thus, in case of non-residents, the words 'in India' has to be read in the charging sections automatically by virtue of section 5(2) of the Act and there is no requirement of providing it separately for non-residents. Only in case of residents, when the Legislature is of the view that the word 'India' is to be inserted for serving any specific objective, it does so by amending the Act. 9.4(viii) Reference to section 54 (and other such related sections beginning from section 54A to 54H, as and when existing on the statute book) has been made in the charging section while providing for charge of income under the head 'capital gains' (s.45), hence, the words 'in India' has to be automatically inserted therein when dealing with the income of non-residents. These sections (that is, section 54, and other such sections) are not by way of deductions per se, but form a part of the charge itself. This is evident from the fact that in all the charging sections related to different heads of income, the allowable

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deductions are provided separately. In other words, the allowable deductions are contained in a separate section and not in the charging section itself. This is presented below in a tabular form.

SI. Head of income. Charging Section (s) in which provision made for allowable deductions section 15 1 16 (under the head 'deductions from salaries salaries

2 Income from 22 24 (under the head 'Deductions from house property income from house property ) 3 Profits and gains 28 29 (under the head 'Income from profits of business or and gains of business or profession, how profession computed'). Section 29 provides that it has to be computed in accordance with provisions contained in sections 30 to 43D. 4 Capital gains 45 48 (under the head 'mode of computation') 5 Income from 56 57 (under the head 'deductions') other sources

As mentioned above, while the allowable deductions are mentioned separately and are not included in the specific charging section under each head of income, the charging section in case of 'capital gains' itself contains reference to section 54, thereby, making it a part of the basis of charge itself. Thus, the conjoint reading of section 4, section 5(2) and section 14, in case of non-residents, clearly requires that section 45 along with section 54 are also to be read conjointly with the provisions of section 5(2) of the Act in 10

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case of non-residents. To put it differently, the words 'in India' are automatically read into section 45 and section 54 in case of a non-resident person. There is no requirement of separately mentioning the same. 9.4 (ix) These aspects of the charging sections of the Act read conjointly with provisions of section 5(2) of the Act in case of non-residents were not presented before higher judicial authorities and have not been considered in the decisions referred in the beginning of this Note. 9-5(i) It has already been mentioned above that reference to section 54 is made in the charging section 45, and hence it is a part of the charging section in relation to capital gains. It is now necessary to cite section 54 of the Act as it stood in AY 2012-13: "Profit on sale of property used for residence. 54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed a residential house, then, instead of the capital gain being charged to income- tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, — (i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its 11

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transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. (2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub- section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub- section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub- section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then, — (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid." 9.5(ii) As has been mentioned above, section 45, the charging section in case of capital gains, deems such income to be the income in the previous year in which the transfer of capital asset takes place. Section 54(1) , when it uses the words 'then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section', it qualifies and modifies this charge. It actually acts to change the timing of the charge of capital gains in two stages. This change is subject to significant conditions to be observed by both the assessee and the Revenue, which

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bear great import in case of examination of applicability of section 54 in relation to non-residents. The conditions imposed by section 54(1) of the Act are of two types and are examined below for highlighting their import while applying them in case of non-residents: i. If the amount of capital gain is greater than the cost of new asset purchased or constructed, then the difference of the two is to be taken as income of the previous year of capital gain. But an additional condition is imposed, that of computing the capital gain arising on transfer of the new asset within three years of its purchase or construction. In the case of such an eventuality, the capital gain is to be computed by taking the cost of the asset so transferred as Nil. Taking the case of a non-resident who has sold residential house in India and purchased or constructed a new residential house outside India, the implication of this condition would be to extend the jurisdiction of the IT Act, 1961 over a non-resident on transfer of a capital asset in form of an immovable property situated outside India for purpose of charging income under the head capital gains and also providing for its cost of acquisition to be Nil. However, as mentioned above, the conjoint reading of section 4 with section 5(2) of the Act strictly prohibits this action and is abhorrent to this idea. ii. If the amount of capital gain is equal to or less than the cost of new asset purchased or constructed, then there would no income in the previous year of capital gain. But again an additional condition is imposed, that of computing the capital gain arising on transfer of the new asset within three years of its purchase or construction. In the case of such an eventuality, the capital gain is to be computed by taking the cost of the asset so transferred by reducing it by the capital gains arising from the transfer of the original asset. Again, taking the case of a non-resident who has sold residential house in India and purchased or constructed a new residential house outside India, the implication of this condition would be to extend the jurisdiction of the IT Act, 1961 over a non-resident on transfer of a capital asset in form of an immovable property situated outside India for purpose of charging income under the head capital gains and also providing for its cost of acquisition to be reduced by capital gains arising to the non-resident from transfer of property situated in India. However, as mentioned above, the conjoint reading of section 4 with section 5(2) of the Act strictly prohibits this action and is abhorrent to this idea.

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9.5(iii) The anomalies appearing above arise only when the provisions of section 5(2) of the Act are not taken into account. When we import the provisions of section 5(2) into section 54 read with section 45, it becomes evident that the application of section 54 in case of non-residents can only be made when the new asset is purchased or constructed in India. Then only can the conditions imposed in section 54 be applied jurisdictionally and be given effect to. This aspect is of great significance, because if the new asset so constructed or purchased is transferred after three years, these two conditions are not applicable for both residents as well as non-residents. Thus, the test for applicability of the provisions of section 54(1) of the Act in a case is actually dependent upon whether it can be applied when the new asset is transferred within 3 years. As mentioned above, this test fails in the case of a non- resident if he or she constructs or purchases a new residential house outside India and transfers the same within 3 years of purchase or construction. 9.5(iv) Even in a case where the Tax Treaty applies, the situation remains the same. For example, the India-UK DTAA allows for taxation of income from capital gains in accordance with provisions of Domestic Law. As mentioned above, the IT Act, 1961 prohibits taxation of income from assets situated outside India in case of non- residents. In any case, a Treaty does not provide for the charge of income - that is only provided by the Domestic Law of a Contracting State. Treaty only acts as a sieve allowing some items to continue to be charged in the source State and some not. As the Domestic Law of India itself prohibits charging of income arising from capital gains outside India in case of a non-resident, there is no jurisdiction over such taxation as envisaged in section 54 (1) of the Act for three years over the new asset and its transfer. This anomaly withers away if the words 'in India are read into section 54 read with section 45 on account of provisions of section 5(2) of the Act in the case of a non- resident. 9.6(i) When the Finance (No.2) Act, 2014 inserted the words 'in India' into section 54(1) of the Act with effect from 01.04.2015, so far as non-residents were concerned, this insertion was only clarificatory in nature. On account of section 5(2) of the Act, these words were already operating there in the background. Thus, in case of non- residents, evidently, its impact is retrospective and not prospective. Even otherwise, the Memorandum to clauses 22 and 24 of the Finance (No.2) Bill, 2014 states that 'the

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benefit was intended for investment in one residential house within India'. 9.6(ii) It has also been mentioned above that when the words 'in India' are not read into section 54(1) of the Act, anomalous situations arise by way of extension of jurisdiction of the Act over non-residents in case of transfer of new assets located outside India. In the case of Fiduciary Shares & Stock P. Ltd. vs ACIT in ITA No.321/Mum/2013 for AY 2009-10, Hon'ble ITAT 'F' Bench, Mumbai has held that the amendment made in Explanation to section 73 of the Act by the same Finance (No.2) Act, 2014 with effect from 01.04.2015 is clarificatory in nature and will apply retrospectively as if it is not construed as such, certain piquant situations arise which cannot be supposed to arise. Hon'ble ITAT 'F' Bench, Mumbai have referred to the decision of Hon' ble Apex Court in the case of Allied Motors Pvt. Ltd vs CIT (224 1TR 677) in this regard as follows: "5.6.3 In the case of Allied Motors Pvt. Ltd. vs. C1T (224 1TR 677), the question before the Hon'ble Apex Court was whether Sales Tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant Sales Tax Law should be disallowed under section 43B of the Act. The Income Tax Officer disallowed the deduction of Sales Tax collected by the assessee for the last quarter of the accounting year as the same was paid in the subsequent year. The aforesaid difficulty was cured by the insertion of the first proviso w.e.f. 01.04.1988. The Hon'ble .Apex Court held that when a proviso is inserted to remedy unintended consequences and to make the provision workable, the proviso which supplies an obvious omission in the section and which is to be read into the section to give it a reasonable interpretation, it could be read as retrospective in operation to give effect to the section as a whole. The Hon‘ble Apex Court held that the first proviso to section 43B of the Act was curative in nature and hence retrospective in operation, i.e. w.e.f. 01.04.1984 from when the section was brought on the statue." 9.6(iii) It needs to be mentioned here that in case of section 54(1), the amendment has been inserted by the same Finance (No.2) Act, 2014 with effect from 01.04.2015 and it has been shown above in para 7 that if it is not given clarificatory nature in case of a non-resident (even otherwise, the words 'in India' are operating in the background, without the insertion), anomalous situations arise. Thus, the words 'in India' are present there from the 15

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very beginning in case of non-residents. In other words, in case of non-residents, the new asset purchased or constructed has to be 'in India' for application of section 54 in their case. 9.7 The arguments outlined in detail above were not presented before Hon'ble ITAT Benches in the decisions mentioned earlier. Thus, these have not been considered by Hon'ble ITAT. In light of what has been outlined above in paras 4 to 6, it is evident that provisions of section 54 can apply in the case of a non-resident only when the new residential house is purchased or constructed in India by virtue of conjoint reading of sections 4 and 5(2) and section 14 of the Act and thereby importing its meaning into section 54 read with section 45 of the Act. In fact, the words 'in India' are already present in section 54 of the Act when applying it in the case of a non-resident and thus, the new residential house has to be purchased or constructed in India to give effect to the provisions of this section in the case of a non-resident. Considering the above discussion, the claim of the assessee regarding exemption u/s 54 of the I T Act , 1961 is hereby disallowed and the entire Capital Gain is taxed accordingly‖ 4. Aggrieved by an assessment framed by the AO u/s 143(3) of the 1961 Act, vide assessment order dated 23.12.2016, the assessee filed first appeal which stood dismissed by Ld. CIT(A) vide appellate order dated 23.06.2017 ,by holding as under:- ― I have considered the facts of the case and submission made by the assessee. The AO has made detailed discussion in the assessment order on the subject. He has discussed the at length the case laws relied on by the assessee on this subject and they cannot be accepted for the reason that an appeal was filed in the High Court and for technical reasons ( monitory Limit) these appeals could not be pursued by the department. It is also to be highlighted the contrary decision of ITAT in the case of Leena J. Shah Vs. ACIT 6 SOT 721 Ahmedabad which decided that the investment made out side India did not come under the purview of section 54 of the IT. Act 1961. The AO has also mentioned the intention of the legislature while introducing the provision u/s. 54F of the IT Act 1961 and importantly the applicability of provisions of the IT. Act

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1961. On the other hand the Assessee cited the case laws in support of its contention, that amount invested in purchasing the property out side India is eligible for deduction u/s 54 of the IT Act 1961. After careful consideration of the facts of the case, what emerges is, whether the assessee is eligible to claim deduction u/s 54, even if he / she invests the amount/ purchases a property abroad. In my opinion it is not the intention of the legislature, as the deduction allowed to the assessee is to encourage housing for self and also construction activity in India. The section is intended to give impetus to the construction of residential houses. If these provisions are interpreted on the basis of the rules of the purposive interpretation and legislative intent, the benefit of this section can be made available only when the purchases/construction of the residential house in India, it is not for any other purpose. The above view has been fortified by the amendment brought in IT Act 1961. The changes in section 54 of the IT. Act, 1961 are discussed as under 1. The provision of section 54 prior to its amendment in the Finance (No. 2) Act, 2014 introduced recently reads as under: ____________________Section 54.(1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, ____________________

The proposed amendment reads as under- In section 54 of the Income-tax Act, in sub-section (1), for the words "constructed, a residential house", the words "constructed, one residential house in India" shall be substituted with effect from the 1st day of April, 2015. There has been similar amendment to section 54F of the Income-tax Act and the amendment reads as under—

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In section 54F of the Income-tax Act, in sub-section (i), for the words "constructed, a residential house", the words "constructed, one residential house in India" shall be substituted with effect from the 1st day of April, 2015 ( clasuse 24 of the Finance Bill. Thus, the amendment to these two sections by replacing words "constructed, a residential house", with the words" constructed, one residential house in India" was perhaps necessitated by the reason that these are contrary decision. They are : (i) Mrs. Prema P. Shah v. ITO [2006] 100 ITD 60 (Mum.) (ii) Vinay Mishra v. Asstt. CIT (2013) 141 ITD 301/3O taxmann.com 341(Bang. -Trib.). The above decisions held that : There was nothing to suggest that the new residential property acquired should be situated in India, However, the view in favour of Revenue was expressed in the following cases holding that the residential property acquired should be situated in India. (i) Leena J. Shah (supra) (ii) Farhad Bottlewala v. Asstt. CIT [ITA No.1761/Mum/2012]-Order, dated 31-08-2012. The Tribunal in Farhad Bottlewala's case (supra) noted the distinction brought out by the Mumbai Bench between the provisions of sections 54 and 54F in the case of Girish M. Shah - a decision rendered by subsequent Mumbai Bench of ITAT following Mrs. Prema P. Shah (supra) - and following the decision of the Ahmedabad Bench in the case of Leena J. Shah (supra) held in favour of the Revenue. Thus, it is very clear that, in order to clear the controversy arising out of these decisions because the purpose of introducing these exemptions was not to incentivize the taxpayers purchasing the residential accommodations for investment purposes rather than for their own self- accommodations the amendment to these sections was thought of, Moreover, the amendment seems to fall in line with the following observations of the Supreme Court in the case of Padmasundara Rao vs. State of Tamil Nadu [2002] 255 ITR147 which were to the following effect— "Two principles of construction - one relating to casus omissus and the other in regard to reading the statute as a whole appear to be well-settled. Under the

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first principle a casus omissus cannot be supplied by the Court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the Legislature. "An intention to produce an unreasonable result", said Danckwerts L. J. in Artemiou vs. Procopiou [1966] 1 QB 878 (CA) "is not to be imputed to a statute if there is some other construction available". Where to apply words literally would "defeat the obvious intention of the legislation and produce a wholly unreasonable result" we must "do some violence to the words" and so achieve that obvious intention and produce a rational construction (per Lord Leid in Luke vs. IRC [1964] 54 ITR 692/[1963] AC 557 where at page 577, he also observed: "this is not a new problem, though our standard of drafting is such that it rarely emerges.". In view the above, as there are contrary decisions on the subject, though the latest decision of the ITAT is in favour of the revenue, the amendment to the statute set at test the controversy. In the light of the amendment and also following the decision of Hon'ble ITAT in the cases of Leena S. Shah & Farhad Bottlewala (Supra) the stand taken by the AO is upheld that deduction u/s. 54 is not available when investment in property is made outside India, thus, the ground of appeal No. 2 of the appellant is dismissed. 5. Aggrieved by the appellate order dated 23.06.2017 passed by learned CIT(A) , the assessee has filed an appeal before tribunal. The learned counsel for the assessee has contended before the tribunal that the assessee has claimed deduction u/s 54 of the 1961 Act from long term capital gains earned by the assessee. It was submitted by learned counsel for the assessee that the assessee has reinvested the capital gains in a residential property outside India. It was submitted that the benefit of deduction u/s 54 of the 1961 Act was denied to the assessee on the grounds that the investment in new residential property is made in a property situated outside India. It was

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submitted that the impugned assessment year is AY 2014-15 and the amendment was made in Section 54/54F of the 1961 Act wherein deduction for the investments in the residential house property shall be only allowed if residential property is situated in India, vide Finance Act 2014 w.e.f. 01.04.2015. Thus it was submitted that this condition of investing in residential property situated in India has been imposed w.e.f. assessment year 2015-16 and the impugned assessment year under consideration being AY 2014-15, the assessee cannot be denied benefit of deduction u/s. 54 of the Act. The assessee placed reliance on the decision of Hon’ble Gujarat High Court in the case of Leena Jugalkishor Shah v. ACIT reported in (2017) 392 ITR 18 (Guj) , wherein Hon’ble Gujarat High Court decided the issue in favour of the tax-payer by holding that deduction u/s 54F shall be allowed for purchasing a residential property outside India. The assessee also relied upon the decision of Mumbai-tribunal in the case of Ashok Keshavlal Tejuja v. ACIT (2018) 91 taxmann.com 28 (Mum -Trib) , where one of us being Accountant Member was part of the Division Bench which pronounced the said order and deduction u/s 54F was allowed for making investment in a residential property situated outside India. The assessee also relied upon the ruling passed by Authority for Advance Rulings, New Delhi in Dipankar Mohan Ghosh, in re. (2018) 401 ITR 129(AAR-New Delhi), which AAR held in favour of the tax-payer on this issue. The assessee also relied upon the decision of Mumbai Tribunal in the case of ITO v. Mr. Nishant Lalit Jadhav, ITA no. 6883/Mum/2014 , order dated 26.04.2017 for assessment year 2011-12, ITAT Chennai Bench decision in ITO (International Taxation- 2(1)), Chennai v. Mrs. Saroja Naidu in (2017) 88 taxmann.com 784 (Chennai), and decision of Mumbai-tribunal in the case of ITO v. Shri Farokh Jal Deboo in ITA no. 4650/Mum/2013 and ITA no. 3478/Mum/2013 , vide common order dated 05.02.2016, wherein in all these cases decision had been taken in favour of the tax-payers on this issue . The assessee has also relied upon decision of Mumbai- tribunal in the case of Dhun Jehan Contractor v. ITO in ITA no.

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7058/Mum/2013 , vide orders dated 13.05.2015 and also decision of Mumbai-tribunal in the case of ITO v. Shri Anil P. Mukhi in ITA no. 6803/Mum/2010, vide order dated 16.02.2012 wherein the decision has been taken in favour of the taxpayers on this issue. The assessee also submitted that amendment was made by Finance Act 2014 w.e.f. 01.04.2015 in Section 54 / 54F of the 1961 Act, which amendement will apply accordingly to assessment year 2015-16 and subsequent assessment years, wherein after the aforesaid amendment now deduction u/s 54/54F of the 1961 Act shall be allowed if the new residential property is situated in India . Our attention was drawn to the circular of the department which is reproduced here under: “ Capital gains exemption in case of investment in a residential house property The existing provisions contained in sub-section (1) of section 54, inter alia , provide that where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three year after the date of transfer constructs, a residential house then the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Act. The existing provisions contained in sub-section (1) of section 54F, inter alia, provide that where capital gains arises from transfer of a long-term capital asset, not being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax. The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid sub-section (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India. It is further proposed to amend the aforesaid sub-section (1) of section 54F so as to provide that the exemption is available if the investment is made in one residential house situated in India.

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These amendments will take effect from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years.‖ 5.2 The said decisions as well copy of the aforesaid circular are placed in paper book filed by the assessee with the tribunal, which is placed in file. The Ld. DR on the other hand had relied upon the appellate order passed by Ld. CIT(A) and prayed that the appellate order of learned CIT(A) be upheld . 6. We have considered rival contentions and perused the material on record including cited case laws. We have observed that the assessee has sold property in India on which long term capital gains arose and the assessee claimed deduction u/s. 54 of the Act with respect to investment made in the residential property situated outside India in Michigan, USA. The authorities below have denied the deduction u/s 54 of the 1961 Act on the ground that no deduction can be allowed u/s. 54 if the new residential property in which investment is made is situated outside India . We have observed that vide Finance Act 2014 an amendment has been made in Section 54 of the 1961 Act w.e.f. 01.04.2015, which shall be applicable for assessment year 2015-16 and subsequent assessment as provide in circular issued by CBDT , wherein it is stipulated that deduction u/s. 54 shall be allowed only when the new residential property in which investment is made for claiming deduction u/s 54 of the 1961 Act is situated in India . We are presently concerned with AY 2014-15 which is prior to AY 2015-16. It will be profitable at this stage to reproduce Section 54(1) of the 1961 Act both prior to its amendment by Finance Act, 2014 as well post amended section, which are reproduced hereunder: Pre-amended Section 54(1) of the 1961 Act

“Profit on sale of property used for residence. 54. [(1)] [Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term

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capital asset ***], being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of [one year before or two years after the date on which the transfer took place purchased], or has within a period of three years after that date constructed, a residential house, then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,— **** ****‖ Amended Section 54(1) of the 1961 Act , as amended by Finance Act, 2014 w.e.f. 01.04.2015 Profit on sale of property used for residence. 54. (1)] [Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset [***], being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of [one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date [constructed, one residential house in India], then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

The Memorandum to Finance Bill (No. 2) of 2014 while bringing amendment to Section 54/54F of the 1961 Act by Finance Act, 2014 , is reproduced hereunder: “ Capital gains exemption in case of investment in a residential house property The existing provisions contained in sub-section (1) of section 54, inter alia , provide that where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the

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assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three year after the date of transfer constructs, a residential house then the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Act. The existing provisions contained in sub-section (1) of section 54F, inter alia, provide that where capital gains arises from transfer of a long-term capital asset, not being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax. The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid sub-section (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India. It is further proposed to amend the aforesaid sub-section (1) of section 54F so as to provide that the exemption is available if the investment is made in one residential house situated in India. These amendments will take effect from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years.‖ Perusal of the amended provisions of Section 54 read with Memorandum to Finance Bill(No. 2) of 2014, clearly postulates that amendment was carried in Section 54 of the 1961 Act by Finance Act, 2014 wherein deduction is now made available for investment made in residential property situated in India. The circular also provides that amendment will take effect from 1st April 2015 and shall accordingly apply in relation to assessment year 2015-16 and subsequent assessment years. Section 54(1) was amended as we have seen both the unamended and amended provisions of Section 54(1) to carry out this proposed amendment. This casted an additional responsibility on the tax-payers to restrict their investments in new residential property situated in India and has to be held prospective unless clearly stipulated by law bringing amendment . The memorandum itself speak that the aforesaid amendment to Section 54(1) shall apply wef 24

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01.04.2015 and shall apply to assessment year 2015-16 and subsequent assessment year. Presently, we are concerned with AY 2014-15 which is prior to the assessment year 2015-16 from which the aforesaid amendment was brought into statute.

6.2 We have observed that Hon’ble Gujarat High Court in the case of Leena Jugalkishor Shah (supra) has decided this issue in favour of the tax-payer and it was held the said amendment in Section 54F is prospective in nature and prior to AY 2015-16 , the deductions u/s 54F shall be allowed for making investment in a residential property situated at outside India for the AY’s prior to AY 2015-16, by holding as under:- ― 9. We have heard learned counsel for the parties. We have perused the order of the Tribunal. There is no finding recorded by the authorities below that the appellant-assessee has not invested the sale proceeds in a residential house. It is also not in dispute that the appellant has not purchased the residential house in United States of America. In fact, she has purchased a residential house in U.S.A. out of the capital gain on sale of the plot in India and thus she has fulfilled the conditions stipulated in section 54F of the Income-tax Act. She has invested the capital gains in a residential house within the stipulated time. There was no condition in section 54F of the Income-tax Act at the relevant time that the capital gain arising out of transfer of capital asset should be invested in a residential house situated in India. The language of section 54F of the Income-tax Act before its amendment was that the assessee should invest capital gain in a residential house. It is only after the amendment to section 54F of the Income-tax Act by the Finance (No. 2) Act, 2014, which came into effect with effect from 1.4.2015 that the assessee should invest the sale proceeds arising out of sale of capital asset in a residential house situated in India within the stipulated period. Thus on a plain reading of section 54F of the Income-tax Act before its amendment by the Finance (No. 2) Act leaves no room for any doubt that the assessee should restrict her investment within India or outside India. The only condition was that the assessee should invest in a residential house. The Tribunal has wrongly interpreted section 54F of the Income-tax Act by holding that the assessee should purchase the residential house situated in India. Prior to 25

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amendment to section 54F of the Act, the only condition stipulated was investment in a residential house. When the section 54F of the Income-tax Act was clear and unambiguous, there is no scope for importing into the statute the words which are not there. Such importation would be not to construe but to amend the statute. If there is any defect in the Act, it can be remedied only by the legislation and not by judicial interpretation. 10. In the present case the assessee has purchased the residential house in U.S.A. out of the sale proceeds of the plot in India and thus she has fulfilled the conditions of section 54F of the Income-tax Act before its amendment by the Finance (No. 2) Act. Moreover, when the language of a taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt the interpretation which favours the assessee. Section 54F of the Act before its amendment was clear that the assessee should investment in a residential house. The language of section is clear and unambiguous. Therefore, we cannot import into the statute the words 'in India' as interpreted by the authorities. Thus, taking into consideration the above facts, we are of the opinion that benefit of section 54F before its amendment can be extended to a residential house purchased outside India. In that view of the matter, the appeal is allowed. The order of the Tribunal is set aside. We answer the question in favour of the assessee and against the revenue.‖ 6.3. We have also observed that the Mumbai-tribunal in series of judgement held in favour of the assessee and in the case of Ashok Keshvlal Tejuja (supra) wherein one of us being Accountant Member was part of the Division Bench who pronounced the said order , has held in favour of the tax-payer by allowing deduction u/s 54F of the 1961 Act for Ay 2011-12 for making investment in residential property outside India prior to amendment in provisions of Section 54F by Finance Act, 2014, by holding as under “ 5. We have considered rival contentions and perused the material on record including cited case laws before us . After hearing both the parties, we are of the view that there is an amendment by Finance Act 2014 in Section 54F, with effect from 01.04.2015 wherein the benefit of deduction u/s 54F will be allowed only when reinvestment in residential house property is made within India. Prior to the aforesaid amendment , there was no bar 26

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for the taxpayer making investments outside India in residential house property to get the benefit of deduction u/s. 54F provided other conditions are fulfilled. We are presently concerned with appeal for AY 2011-12 which is prior to amendment of Section 54F by Finance Act, 2014 w.e.f. 01-04-2015. There is no dispute between rival parties so far as compliance of the other conditions by the assessee as stipulated u/s 54F of the 1961 Act to get the benefit of deduction u/s 54F are concerned . The Hon‘ble Gujarat High Court in the case of Leena Jugalkishore Shah(supra) has allowed the deduction u/s. 54F to the taxpayer making investments outside India in residential house properties . The relevant portion of the decision of Hon‘ble Gujarat High Court in the case of Leena Jugalkishore Shah(supra) is reproduced here under:-

―9. We have heard learned counsel for the parties. We have perused the order of the Tribunal. There is no finding recorded by the authorities below that the appellant assessee has not invested the sale proceeds in a residential house. It is also not in dispute that the appellant has not purchased the residential house in United States of America. In fact, she has purchased a residential house in U.S.A. out of the capital gain on sale of the plot in India and thus she has fulfilled the conditions stipulated in section 54F of the Income-tax Act. She has invested the capital gains in a residential house within the stipulated time. There was no condition in section 54F of the Income-tax Act at the relevant time that the capital gain arising out of transfer of capital asset should be invested in a residential house situated in India. The language of section 54F of the Income-tax Act before its amendment was that the assessee should invest capital gain in a residential house. It is only after the amendment to section 54F of the Income-tax Act by the Finance (No. 2) Act, 2014, which came into effect with effect from 1.4.2015 that the assessee should invest the sale proceeds arising out of sale of capital asset in a residential house situated in India within the stipulated period. Thus on a plain reading of section 54F of the Income-tax Act before its amendment by the Finance (No. 2) Act leaves no room for any doubt that the assessee should restrict her investment within India or outside India. The only condition was that the assessee should invest in a residential house. The Tribunal has wrongly interpreted section

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54F of the Income-tax Act by holding that the assessee should purchase the residential house situated in India. Prior to amendment to section 54F of the Act, the only condition stipulated was investment in a residential house. When the section 54F of the Income-tax Act was clear and unambiguous, there is no scope for importing into the statute the words which are not there. Such importation would be not to construe but to amend the statute. If there is any defect in the Act, it can be remedied only by the legislation and not by judicial interpretation. 10. In the present case the assessee has purchased the residential house in U.S.A. out of the sale proceeds of the plot in India and thus she has fulfilled the conditions of section 54F of the Income- tax Act before its amendment by the Finance (No. 2) Act. Moreover, when the language of a taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt the interpretation which favours the assessee. Section 54F of the Act before its amendment was clear that the assessee should investment in a residential house. The language of section is clear and unambiguous. Therefore, we cannot import into the statute the words `in India‘ as interpreted by the authorities. Thus, taking into consideration the above facts, we are of the opinion that benefit of section 54F before its amendment can be extended to a residential house purchased outside India. In that view of the matter, the appeal is allowed. The order of the Tribunal is set aside. We answer the question in favour of the assessee and against the revenue.‖

The Mumbai tribunal has followed the decision of Hon‘ble Gujarat High Court in the case of Leena Jugalkishore Shah(supra) while deciding appeal in the case of the Nishant Lalit Jadhav(supra). No contrary decision of Hon‘ble High Courts and/or Hon‘ble Supreme Court is brought to our notice by Revenue. Respectfully following the decision of Hon‘ble Gujarat High Court in the case of Leena Jugalkishore Shah(supra) and also decision of the coordinate benches of ITAT,Mumbai in the case of Nishant Lalit Jadhav(supra), we allow the claim of the assessee for deduction u/s. 54F for investment made outside India in the residential flat in Dubai, UAE . As we have allowed the claim of deduction u/s 54F to the assessee for making 28

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investment in residential flat in Dubai, UAE . It is the say of the learned counsel for the assessee that the other grounds raised by the assessee in its memo of appeal filed with the tribunal related to the methodology adopted and valuation of the property used for computation of capital gains by the AO have become academic and did not require adjudication and hence we refrain from adjudicating the same. We order accordingly.

6.4. We have also held that in following cases , similar view have been taken by AAR/tribunal in favour of the assessee :- a) Advance Ruling, New Delhi in Dipankar Mohan Ghosh, in re. (2018) 401 ITR 129(AAR-New Delhi). b) Mumbai-tribunal in the case of ITO v. Mr. Nishant Lalit Jadhav, ITA no. 6883/Mum/2014 vide orders dated 26.04.2017 c) Chennai tribunal decision in the case of ITO v. Mrs. Saroja Naidu in (2017) 88 taxmann.com 784 (Chennai- trib.), d) Mumbai-tribunal decision in the case of ITO v. Farokh Jal Deboo in ITA no. 4650/Mum/2013 and ITA no. 3478/Mum/2013, vide common order dated 05.02.2016, e) Mumbai-tribunal decision in the case of Dhun Jehan Contractor v. ITO , vide order dated 13.05.2015 in ITA no. 7058/Mum/2013 f) Mumbai-tribunal decision in the case of ITO v. Anil P. Mukhi in ITA no. 6803/Mum/2010 , vide order dated 16.02.2012 6.5 . We have also observed that in two cases as is referred to by the AO in his assessment order, the tribunal has taken a view in favour of Revenue in the case of Shri Farhad Bottlewalla v. ACIT in ITA no. 1761/Mum/2012 for AY 2008-09 and decision of the Ahmadabad- tribunal in the case of Mrs. Leena J Shah v. ACIT reported in (2016) 6 SOT 721 (Ahm.) . But now that decision of Hon’ble Gujarat High Court in the case of of Leena Jugalkishor Shah(supra) is available , wherein the issue of allowability of claim of deduction u/s 54F with respect to

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investment made in a residential property situated out side India has been decided in favour of the tax-payer, we are bound to follow the aforesaid decision of the Hon’ble Gujarat High Court as the tribunal being All India body being inferior to Hon’ble High Court is bound by the Hon’ble Jurisdictional High Court decision and in case where their is no decision available of the Hon’ble Jurisdictional High Court , then the tribunal is bound to follow the solitary decision available of Non Jurisdictional High Court. 6.6. Thus, based on our above discussions , we have no reasons to take a different view . The said amendment is held to be prospective by Hon’ble Gujarat High Court in the case of Leena Jugalkishor Shah(supra) to be held applicable from AY 2015-06 and subsequent assessment years. Presently we are concerned with AY 2014-15 which is prior to aforesaid amendment in Section 54 of the 1961 Act and hence we are of the considered view that the assessee is entitled for deduction u/s. 54 of the Act on the investment made in residential property situated outside India from long term capital gains earned on sale of property situated in India.The appeal of the assessee is allowed We order accordingly. 7. In the result, appeal of the assessee in ITA no. 5799/Mum/2017 for AY 2014-15 is allowed. Order pronounced in the open court on 03.04.2019. आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 03.04.2019 को की गई Sd/- Sd/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, dated: 03.04.2019

Nishant Verma Sr. Private Secretary

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copy to… 1. The appellant 2. The Respondent 3. The CIT(A) – Concerned, Mumbai 4. The CIT- Concerned, Mumbai 5. The DR Bench, 6. Master File // Tue copy// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI