ITO (IT) 2(3)(1), MUMBAI vs. PAMELA PRITAM GHOSH, MUMBAI

ORDER

PER N.K. PRADHAN, AM

s read as under:

1. Whether on facts and circumstance of the case, the Ld. CIT(A) has erred in allowing deduction under section 54 for investment of capital gain in purchase of new residential house in Australia and thus allowing the shifting Mrs. Pamela Pritam Ghosh India to a foreign country, whereas, provisions of Income-tax Act extends to India only and not extra territorial?

2. Whether on facts and circumstance of the case, the Ld. CIT(A) has erred in granting the exemption u/s 54F even when the assessee has not deposited the safe consideration amount in the capital gains bank account whereas the Hon’ble Bombay High Court in the case of Humanyu Suleman Merchant ITA 545/M/2002 has held that the un-utilized amounts would be subject to the charge of capital gain tax, unless they are deposited in specified bank account as notified in terms of Section 54F(4) of the Act?

3. Whether on facts and circumstance of the case the Ld. CIT(A) has erred in holding the indexation year of cost of acquisition to be 1981-82 without appreciating that the house property at Chennai was inherited by the assesses on 10.06.2001 i.e. only after her mother's expiry?

3. We begin with the 1st ground of appeal. Briefly stated the facts are that the assessee had inherited house property in Chennai (1/4th share) from her mother which was sold on 31.01.2011 for Rs.7,57,65,350/-. However, mother held the property from a date prior to 01.04.1981. The assessee had taken the Fair Market Value (FMV) of the property as on 01.04.1981 at Rs.9,70,000/- (1/4th share at Rs.2,42,500/-) based on the order of the Assistant Commissioner, Urban Land Tax, Egmore Madras. The assessee increased the FMV as on 01.04.1981 by taking the indexation benefit right from 1981 and arrived at indexed FMV at Rs.17,24,175/- for her 1/4th share in the house property. Thus the Long Term Capital Gains (LTCG) was Rs.7,40,41,175/- (Rs.7,57,65,350/- minus Rs.17,24,175/-). Then the assessee purchased a house property in Australia for Rs.3,52,69,829/-by making payment in the months of August and September 2011. The possession of the house was obtained Mrs. Pamela Pritam Ghosh 30.09.2011. The assessee had submitted the original return of income on 20.06.2011 in which she had not claimed any exemption u/s 54 of the Act. Subsequently, she filed the revised return of income on 24.07.2012 in which exemption u/s 54 was claimed for Rs.3,52,69,829/- being cost of house purchased in Australia. The information that the house was purchased in Australia was mentioned in the revised computation of LTCG on sale of house property filed with the revised return of income. However, the AO denied the benefit of exemption u/s 54 by observing that the same is not available in respect of house purchased outside India. 3.1 The Ld. DR relies on the order of the ITAT ‘F’ Bench Mumbai in the case of Shri Farhad Bottlewalla v. ACIT for the AY 2008-09 (ITA No. 1761/Mum/2012). On the other hand, the Ld. counsel of the assessee relies inter alia on the decision in Leena Jugalkishore Shah v. ACIT (2017) 392 ITR (Guj) and the order of the Ld. CIT(A). 3.2 We find that the above issue has been decided by the Hon’ble Gujarat High Court in Leena Jugalkishore Shah (supra). In the said case, the assessee, a non-resident Indian, disposed of property situated in India and purchased a residential house in the United States of America. The AO held that the residential house purchased outside India was not subject to tax in India within the meaning of section 54 of the Act and thus disallowed the claim of deduction. The CIT(A) and Tribunal confirmed this. On appeal by the assessee, the Hon’ble High Court held allowing the appeal that :

Mrs. Pamela Pritam Ghosh United States of America out of the capital gains on sale of the plot in India and thus she had fulfilled the conditions stipulated in section 54F of the Act. The assessee invested the capital gains in a residential house within the stipulated time. There was no condition in section 54F of Act at the relevant time that the capital gains arising out of transfer of capital asset should be invested in a residential house situated in India. The language of section 54F of the Act before its amendment was that the assessee should invest capital gains in a residential house. It was only after the amendment to section 54F of the Act by the Finance (No. 2) Act, 2014, which came into force with effect from April 1, 2015 that the assesses should invest the sale proceeds arising out of sale of capital asset in a residential house situated in India within the stipulated period. When section 54F was clear and unambiguous, there was no scope for importing into the statute words which were not there. Moreover, when the language of a taxing provision was ambiguous or capable of more meanings than one, then the court had to adopt the interpretation which favoured the assessee. The benefit of section 54F before its amendment could be extended to a residential house purchased outside India and hence the claim of exemption was to be allowed.” As in the instant case, as the assessee has invested capital gains in purchase of residential house prior to amendment to section 54F of the Act by the Finance (No. 2) Act, 2014, which came into force w.e.f. April 01, 2015, the exemption is allowable. In view of the direct decision of the Hon’ble Gujarat High Court on the present issue, we are not adverting to the orders of the Tribunal cited by the Ld. counsels. Thus the 1st ground of appeal is dismissed.

4. Now we turn to the 2nd ground of appeal. The AO has observed that the assessee has not deposited money in Capital Gains Bank Mrs. Pamela Pritam Ghosh Account Scheme (CGBAS). In this regard the Ld. DR relies on the decision in Humayun Suleman Merchant v. CCIT (2016) 73 taxmann.com 2 (Bom). 4.1 On the other hand, the Ld. counsel of the assessee relies on the decision in CIT v. K. Ramachandra Rao (2015) 277 CTR 522 (Karn), Fathima Bai v. ITO (2009) 32 DTR (Karn) 243, CIT v. Ms. Jariti Aggarwal (2011) 339 ITR 610 (P&H), CIT v. Rajesh Kumar Jalan (2006) 286 ITR 274 (Gauhati) etc. Further, the Ld. counsel submits that the decision in Humayun Suleman Merchant (supra) supports the case of the assessee. In the above case the assessee sold a plot of land on 29.04.1985 for a consideration of Rs.85.33 lakhs. Thereafter, on 16.07.1996, the assessee entered into an agreement to purchase a flat for a consideration of Rs.69.60 lakhs. The assessee paid two instalments of Rs.10 lakhs each on 17.07.1996 and 23.10.1996 to the developer/builder, i.e. before the due date for filing of return of income u/s 139(1), i.e. 31.10.1996. On 01.11.1996 the petitioner paid to the developer a further instalment of Rs.15 lakhs for purchase of flat pursuant to the agreement dated 16.07.1996. On 04.11.1996 the assessee filed his return of income for the assessment year 1996-97. This was after the due date of filing the return of income. On 13.03.2001, the AO passed an assessment order determining the net consideration at Rs.75.39 lakhs. Thereafter, the AO allowed a proportionate exemption of Rs.31.55 lakhs (out of Rs.35 lakhs paid till the filing of return) from capital gain tax in terms of section 54F. However, the balance consideration which was payable for purchase of Mrs. Pamela Pritam Ghosh 16.07.1996 was brought to tax under the head ‘Capital Gains’ on account of assessee’s failure to deposit the unutilized consideration for purchase of the flat in specified bank accounts in accordance with the scheme of the Central Government as provided u/s 54F(4). On appeal the CIT(A) recorded the fact that the appellant had obtained possession of the new flat on 27.01.1997. However, the order of the AO dated 13.03.2001 was not disturbed. On further appeal, the Tribunal dismissed the appeal of the assessee. On appeal filed by the assessee, the Hon’ble High Court held that the Tribunal was right in holding that the AO had rightly computed the deduction u/s 54F, restricting the investment in new asset at Rs.35 lakhs and thus, restricting the exemption u/s 54F proportionately to the amount invested. The Ld. counsel submits that the assessee had filed her original return of income on 20.06.2011 and disclosed a LTCG on sale of residential house property at Chennai therein. Thereafter, she filed a revised return of income on 24.07.2012 enclosing therein a revised computation of total income and revised computation of LTCG on sale of residential house property at Chennai in which exemption u/s 54 amounting to Rs.3,52,69,829/- was claimed in respect of house purchased in Australia. It is stated that the assessee had remitted an amount of Rs.9 lakhs to Australia on 04.03.2011 and further remitted Rs.2,90,00,000/- on 11.08.2011 and also remitted Rs.2 crore on 04.06.2012 from her Standard Chartered Bank Account. The Ld. counsel submits that the photocopies of relevant pages of the Standard Chartered Bank Account statement were filed with the AO. Thus it is Mrs. Pamela Pritam Ghosh Australia well within the available time of two years i.e. well before 31.01.2013 at a cost of Rs.3,52,69,829/- for which exemption u/s 54 should be given to her. 4.2 We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In the case of Humayun Suleman Merchant (supra), the Hon’ble Bombay High Court has held that (i) amounts subject to capital gain on sale of capital asset for purpose of exemption has to be utilized before date of filing of return of income, (ii) mandate of section 54F(4) is clear that the amount which has not been utilized in construction and/or purchase of property before filing return of income, must necessarily be deposited in an account duly notified by Central Government, so as to be exempted, (iii) where assessee had filed return of income and entire amount which was subject to capital gains tax had not been utilized for purpose of construction of new house nor were unutilized amounts deposited in notified Bank Accounts in terms of section 54F(4) before filing return of income, the AO has rightly computed deduction u/s 54F, restricting exemption u/s 54F proportionately to amount invested. In Humayun Suleman Merchant (supra), it has been held that where the amounts of capital gains is utilized before filing the return of income in purchase/construction of a residential house, then the benefit of exemption u/s 54F is available.

Mrs. Pamela Pritam Ghosh In CIT v. K. Ramachandra Rao (2015) 56 taxmann.com 163 (Karn), it has been held that the assessee having invested entire sale consideration in construction of a residential house within three years from the date of transfer, he could not be denied exemption u/s 54F on the ground that he did not deposit said amount in capital gains accounts scheme before due date prescribed u/s 139(1). In CIT v. Ms. Jagriti Aggarwal (2011) 339 ITR 610 (P&H), the assessee sold her house property for 45 lakhs and claimed deduction u/s 54 of the Act. The AO declined the claim holding that the assessee failed to deposit the amount in the capital gains account scheme and also failed to purchase house property before the due date of filing the return of income. The Commissioner (Appeals) held that the assessee had purchased the new residential property on January 02, 2007 and the due date according to section 139(4) was March 31st, 2007 and thus, the assessee had complied with the provisions of section 54 of the Act. This order was confirmed by the Tribunal. On appeal by the revenue, the Hon’ble High Court held, dismissing the appeal, that the sale of the asset had taken place on January 13, 2006, falling in the previous year 2006- 07, the return could be filed before the end of the relevant assessment year 2007-08 i.e. March 31, 2007. Thus, sub-section (4) of section 139 provides the extended period of limitation as an exception to sub- section (1) of section 139 of the Act. Sub-section (4) was in relation to the time allowed to an assessee u/s sub-section (1) to file the return. Therefore, such provision was not an independent provision, but relates to the time contemplated under sub-section (1) of section 139. Therefore, sub-section (4) had to be read along with sub-section (1).

Mrs. Pamela Pritam Ghosh Therefore, the due date for furnishing the return of income according to section 139(1) of the Act was subject to the extended period provided under sub-section (4) of section 139 of the Act. In Rajesh Kumar Jalan (supra), it is held that from a reading of sub- section (2) of section 54 of the Act, it is clear that only section 139 has been mentioned therein, in the context that the unutilized portion of the capital gains on the sale of property used for residence should be deposited before the date of furnishing the return of income u/s 139 of the Act and section 139 cannot mean only section 139(1) but it means all sub-sections of section 139. In the instant case, the assessee filed her return of income for the impugned assessment year on 20.06.2011 declaring the total income of Rs.6,90,42,239/-. Subsequently, she revised her return of income on 24.07.2012 at a total income of Rs.3,37,72,410/-. In the revised return of income, the assessee claimed exemption u/s 54 of the Act. As per the details filed in the Paper Book (P/B) at page 10, the assessee remitted an amount of Rs.9,00,000/- to Australia on 4th March 2011 and further remitted Rs.2,90,00,000/- on 11 August 2011 and also remitted Rs.2 crore on 4th June 2012 from her Standard Chartered Bank Account. In view of the above factual scenario, we follow the ratio laid down in aforementioned decisions and dismiss the 2nd ground of appeal

5. Finally, we come to the 3rd ground of appeal. In the instant case the assessee had inherited the house property at Chennai from her mother who expired on 10.06.2001. The assessee’s mother had Mrs. Pamela Pritam Ghosh 24.03.1946. Therefore, the assessee had claimed indexation from the financial year (FY) 1981-82 since her mother held her property from a date prior to 01.04.1981. However, the AO gave the benefit of cost indexation only from FY 2001-02. 5.1 In appeal the Ld. CIT(A) relying on the judgment of the Hon’ble Bombay High Court in the case of CIT v. Manjula J. Shah (2013) 355 ITR 474 (Bom) held that the assessee was right in taking 01.04.1981 as the date of acquisition and also applying it as the date for working out the indexation cost. 5.2 Before us, the Ld. DR relies on the order of the AO whereas the Ld. counsel of the assessee relies on the decision in Manjula J. Shah (supra) and the order of the Ld. CIT(A). 5.3 We have heard the rival submissions and perused the relevant materials on record. We find that the above issue has been decided by the Hon’ble Bombay High Court in Manjula J. Shah (supra). In that case the assessee’s daughter, the previous owner, originally acquired the capital asset (flat) on January 29, 1993, and the assessee acquired the flat under a gift deed dated January 02, 2003, without incurring any cost. The assessee sold the capital asset on June 30, 2003, for Rs.1.10 crores. According to the AO, the asset was held by the assessee from February 01, 2003, and, therefore, the cost inflation index for 2002-03 would be applicable in determining the indexed cost of acquisition for the AY 2004-05. The Commissioner (Appeals) held that the LTCG had to be determined by computing the indexed cost of acquisition with reference Mrs. Pamela Pritam Ghosh 1993-94 instead of the cost inflation index for the AY 2002-03 as held by the AO. This was confirmed by the Tribunal. On appeal, the Hon’ble High Court held that: By applying the deeming provisions contained in Explanation 1(i)(b) to section 2(42A) the assessee was deemed to have held the asset from January 29, 1993, to June 30, 2003, by including the period for which the asset was held by the previous owner and, accordingly, held liable for long-term capital gains tax. While computing the capital gains, the indexed cost of acquisition had to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset. Facts being identical, we follow the above decision of the Hon’ble Bombay High Court and uphold the order of the Ld. CIT(A). Thus the 3rd ground of appeal is dismissed.