VIKRAM LULLA,MUMBAI vs. ITO (IT) 3(1)(1), MUMBAI

1. On the facts and circumstances of the case and in law the Commissioner of Income Tax (Appeals) [CIT(A)] erred in confirming the order of the Assessing Officer [AO] in disallowing the claim of exemption u/s 54 of the Income Tax ITA.No.1627/Mum/2017 Vikram Lulla Assessment Year-2012-13 Act, 1961, being capital gains arising from the sale of a residential house in India, and the same invested in another house property in Hong Kong.

Briefly stated, the assessee being non-resident individual reflected Long Term Capital Gain [LTCG] of Rs.411.69 Lacs from sale of a Flat No.25A, Maher Apartment Co-op. Hsg. Society and claimed deduction u/s 54 on the strength of investment in another house property situated at Hong Kong. However, Ld. AO primarily relying on the decision of Ahmedabad Tribunal rendered in Leena J.Shah [6 SOT 721] opined that the deduction u/s 54 was not available to the assessee against investment made outside India. Consequently, deduction u/s 54 was denied to the assessee and taxable LTCG was assessed @ Rs.411.69 Lacs.

Aggrieved, the assessee contested the same without any success before Ld. CIT(A) vide impugned order dated 28/11/2016 wherein the stand of Ld. AO got confirmed against which the assessee is in further appeal before us.

At the outset, we deem it fit to reproduce relevant statutory provisions as contained in Section 54, as they stood at the relevant time:- 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,— ……. (emphasis, being supplied by us) The words ‘constructed a residential house’ has been substituted with the words ‘constructed, one residential house in India’ by Finance Act, ITA.No.1627/Mum/2017 Vikram Lulla Assessment Year-2012-13 2014 w.e.f 01/04/2015. Upon careful analysis of the same, we find that the words in India has been brought to the statute w.e.f. 01/04/2015 only and prior to that there was no restriction as such with respect to the location of the property before the aforesaid deduction could be claimed by the assessee. The stated amendment, in our opinion, being substantive in nature, was only prospective in nature and was not applicable for the assessee at the relevant point of time, the AY being 2012-13. Prior to the aforesaid amendment, in our view, there was no bar for the taxpayer making investments outside India in residential house property to get the benefit of deduction u/s. 54 provided other conditions are fulfilled.

So far as the decision of Ahmedabad Tribunal rendered in Leena J.Shah as relied upon by the lower authorities is concerned, we find that the aforesaid decision has already been reversed by Hon’ble Gujarat High Court vide Leena Jugalkishor Shah Vs. ACIT [72 Taxmann.com 185 14/06/2016] and therefore, the same could not help revenue in any manner. As per Hon’ble court, prior to the amendment the only stipulation was to invest in a new residential property and there was no scope for importing the requirement of making such investment in a residential property located in India. We find that the stipulations as to investment, in Section 54 & 54F are pari-materia the same.

The revenue has not disputed that fact that the investment in Hong Kong has been made by the assessee in a residential property out of the impugned capital Gains. In view of the stated position, we are of the considered opinion that the assessee was entitled for the deduction u/s 54 on account of aforesaid investments. Our view is duly fortified by the ITA.No.1627/Mum/2017 Vikram Lulla Assessment Year-2012-13 catena of judgment rendered by this Tribunal, few of which are listed below:-

Resultantly, the assessee’s appeal stand allowed in terms of our above order. Order pronounced in the open court on 12th September, 2018.