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Income Tax Appellate Tribunal, DELHI BENCH ‘D’: NEW DELHI
order dated 27.09.2017 passed by the Learned Commissioner of Income Tax (Appeals)-43, New Delhi {CIT(A) whereas the Cross Objection is preferred by the assessee. Both the appeal as well as the Cross Objection pertain to Assessment Year 2014-15.
2.0 The brief facts of the case are that the assessee is a non-resident Indian settled in the United Kingdom (UK). During the year under consideration, the assessee had sold her 1/3rd share in a residential house situated at A-9/30, Vasant Vihar, New Delhi vide sale deed dated 09.07.2012 for an amount of Rs.26,66,66,666/- being her 1/3rd share of the total sale consideration of Rs.80 Crores. This property had been received by the assessee by way of gift from her mother and long term capital gain was computed at Rs.24,85,07,748/- after reducing the indexed value of Rs.1,51,31,401/-. In respect of the capital gain so earned, the assessee had claimed exemption of Rs.50,00,000/- U/s 54EC of the Income Tax Act, 1961 (hereinafter called the ‘Act’) and a further exemption of Rs.3,75,95,937/- U/s 54 of the Act being a residential house purchased in UK. The Assessing Officer (AO) disallowed the claim of exemption u/s 54 on the ground that the purchase of a residential house outside India does not qualify for exemption U/s 54 of the Act. The Assessing Officer (AO) also made a disallowance of Rs.50,000/- being amount paid to an Advocate for conversion of property from leasehold to freehold and also an amount of Rs.5,60,000/- and Rs.2,00,000/- being stamp duty and Professional Charges respectively paid at the time of transfer of property in the name of the assessee. The long term capital gain was computed by the AO at Rs.24,47,59,930/- as against the returned capital gain of Rs.21,97,26,078/-.
2.1 Aggrieved by the assessment order, the assessee approached the Ld. First Appellate Authority, who was pleased to partly allow the assessee’s appeal by allowing the benefit of exemption claimed u/s 54 of the Act, but upheld the disallowance towards cost of improvement.
2.2 Now, both the assessee as well as the Department have approached this Tribunal. The Department has challenged the action of the Ld. CIT(A) in allowing the assessee’s claim of exemption u/s 54 of the Act whereas the assessee, in her Cross Objection, has challenged the upholding of disallowance of cost of improvement. The respective grounds taken by both the parties are as under:
Grounds of appeal filed by the Department:-
“(i) Whether on the facts and in the circumstances of the case, the CIT(A) has erred in allowing the deduction u/s 54 of the Act for purchase of property abroad, ignoring the fact that the Income Tax Act is applicable in India only and the intention of the legislature in introducing section 54 of the Act was to boost the Indian economy by promoting investment in housing sector.
(ii) Whether on the facts and circumstances of the case, the CIT(A) has erred in allowing the deduction u/s 54 of the Act for purchase of property abroad ignoring the fact that insertion of word 'in India' in section 54 by the Finance Act, 2014 was only clarificatory in nature to remove the confusion created by some judicial pronouncements.
(iii) The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal.”
Grounds of Cross Objection filed by the assessee:-
“1. Not allowing the claim of Rs.66667/- being 1/3 of Rs.200000/- paid to S.C. Nanda & Co., Advocates on account of professional charges paid towards conversion of property from leasehold to freehold and on account of getting the conveyance deed registered before sub-registrar of Assurances, New Delhi.
2. Not allowing the cost of stamp duty of Rs.560000/- and Professional charges of Rs.200000/- paid to S.C. Nanda & Co., Advocates towards the execution and registration of gift deed of property as cost of acquisition to the Appellant.
(B) The Assessee craves leave to add, alter or amend the grounds of Cross Objections at or before the hearing.”
3.0 The Ld. Sr. Departmental Representative (DR) submitted that the sole ground raised by the Department is challenging the assessee’s claim of exemption of Rs.3,75,95,937/- U/s 54 of the Act. It was submitted by the Ld. Sr. DR that the benefit of exemption u/s 54 is available only in respect of investment made in India and not outside India. It was argued that the intention of the legislature behind section 54 of the Act was to encourage investment in India as was evident from the amendment brought by Finance Act, 2014 wherein the word ‘in India’ was added to section
It was argued by the Ld. Sr. DR that the Ld. CIT(A) had, therefore, erred in allowing the benefit of exemption in respect of residential property purchased in UK.
4.0 The Ld. Authorized Representative (AR), on the other hand, while placing reliance on the order of the Ld. CIT(A) submitted that the issue of exemption U/s 54 of the Act with respect to investment in purchase of residential house outside India prior to the amendment to section 54 of the Act vide Finance Act, 2014 was no longer res integra and that the issue was settled by various judgments of the Hon’ble High Courts as well as the Co- ordinate Benches of this Tribunal. In this regard, he placed reliance on the judgment of the Hon’ble Delhi High Court in the case of Dipankar Mohan Ghosh reported in 401 ITR 129 (Delhi High Court). Reliance was also placed on a judgment of the Hon’ble Gujrat High Court in the case of Ms. Leena Jugalkishor Shah v.
ACIT [2017] 392 ITR 18 (Guj) and numerous other orders of the Tribunal in this regard.
5.0 With respect to the Cross Objection filed by the assessee, it was submitted by the Ld. AR that the assessee had paid stamp duty charges of Rs.5,60,000/- and Professional Expenses of Rs.2,00,000/- towards execution and registration of the property in her name and also another 50,000/- were paid to an Advocate for conversion of the property from leasehold to freehold and for registration of conveyance deed. It was submitted that this expenditure was very much a part of the cost of improvement. The Ld. AR highlighted that the genuineness of the impugned expenditure has not been doubted by the Lower Authorities. It was reiterated that since these expenses were incurred in connection with the house property sold and pertained to obtaining lawful position of the property, the same should be allowed.
6.0 Per contra, the Ld. Sr. Departmental Representative (DR) relied on the concurrent orders of the Assessing Officer and the Ld. CIT(A) and submitted that the incurring of this expenditure had not resulted in any addition to the value of the property and as such the same should not be allowed as cost of improvement.
7.0 We have heard the rival submissions and have also perused the material on record. As far as the Department’s appeal is concerned, the sole issue for our consideration is the validity of the claim of exemption u/s 54 of the Act in respect of investment made in purchasing the residential house outside India prior to the amendment to section 54 vide Finance Act, 2014. The fact of the property sold being in India and the investment being made in a residential house in UK is not in dispute. The Ld. CIT(A) has, while allowing the benefit of exemption, placed reliance on the judgment of the Hon’ble Gujrat High Court in the case of Leena Jugalkishor Shah v. ACIT [2017] 392 ITR 18 (Guj). The findings and observations of the Ld. CIT(A) are being reproduced herein under for the ready reference:-
“4.4 The assessing officer while disallowing the exemptions claimed under section 54 and 54F by the assessee has principally relied on the case of Leena J. Shah v. Asstt. CIT {2006} 6 SOT 721 (Ahd) stating that it was held by the Ahmedabad Bench of ITAT that for claiming exemption undersection 54F of the Act, a residential house purchase / constructed must be in India and not outside India. The assessee in this context has pointed out that the Hon'ble High Court of Gujarat has set aside the order of ITAT in the saidcase on 14-06-2016. The operative part of the Judgement is as under: "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 1.4.2015thatthe 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 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”
It was further held that “In the present case the assessee has purchased there sidentialhouse 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 ofmore 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 ambiguous. 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 he extended to aresidential 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" XXXX 4.5.1 The claim of deduction under section 54 by the assessee is basedon the premise that the section 54 do not specifically mention that the residential houses should be located in India for the purpose of grant of deduction. The Assessing Officer relied on the judgment of the Ahmedabad- Tribunal on Leena J. Shah where such investment out of India was found to benot eligible for deduction u/s 54F. The assessee in his submissions has pointed out that the aforesaid decisions on which the Assessing Officer has relied has been overturned by the Gujarat High Court and the position as on deed is that even in the case of Leena J. Shah, the deduction u/s 54F for investment out of India has been permitted. The issue of deduction u/s 54 for investment in residential properties was first introduced in the Budget through the Finance Bill 1982. The Finance Bill and the Memorandum in 1982 clearly mentioned in Para 20.2 as under:
“With a view to encouraging house construction, the Finance Act, 1982, has inserted a new section 54F to provide that where any capital gain arises from the transfer of any long term capital asset, other than a residential house, and the assessee purchases within one year before or after the date on which the transfer took place or constructs within a period of three years after the date of transfer, a residential house the capital gain arising from the transfer will be treated in a concessional manner as under: i. If the cost of the house that has been purchased or constructed is not less than the net consideration in respect of the capital asset transferred, the entire capital gain arising from the transfer will be exempt from tax. ii. If the cost of the newly acquired house is less than the net consideration in respect of the capital asset transferred, the exemption from long term capital gain will be granted proportionately on the basis of investment of net consideration either for purchase or construction of the residential house.”
4.5.2 The stated provision was to be effective from AY 83-84 and subsequent orders. It is also relevant to quote the speech of the hon. Finance Ministers while the presentation of budget in 1982. The extract is as under:
“88. There is an acute shortage of housing, and house building activity has to be given impetus. With a view to providing an incentive to taxpayers who do not own a residential house, I propose to exempt from tax long-term capital gains arising from the transfer of other assets where the net consideration is invested by the taxpayer in a residential house.”
4.5.3 It cannot be disputed that the intent of the above speech and the state sections were legislated to grant benefit for house property purchase in India. The construction of housing and the shortage of housing mentioned by the Finance Minister in his speech is and has to be construed to be within the geographical limits of India. So the sections and then intention certainly meant that the deduction would be eligible for investment in house property in India.
4.5.4 However, the plain reading of the section as it is under the statute, does not mention so. In a number of decisions, the Supreme Court has held that words cannot be read into the statute when the wording per se is clear. Here, the wording of the statute is absolutely clear. In the present case, even though the intention of the legislature was to grant benefit to investment in residential houses in India, the statute did not say so. In view of this position of the statute, the amendment was brought through the Finance Act 2014 to make the statute clear. The statute as it existed for AY 2012-13 could easily be interpreted in more than one way and therefore the interpretation taken by the assessee is one of the interpretations. The assessee can in no way be faulted to have taken a plain literal interpretation of the section.
In view of the above discussion, it is clear that the provisions of section54 of the Income-tax Act 1961, as it existed before the amendment in 2014, did not specifically mandate that the acquisition of residential property should be in India for the purpose of claim of deduction from capital gains. Therefore the appeal of the assessee is upheld and benefit of section 54 is granted to the assessee against his income from capital gains. Therefore Ground (iv) to (xi) are decided in favor of the assessee.
The other grounds are rendered in fructuous in view of the finding on these grounds.”
7.1 We also note that an identical issue has been decided by the Hon’ble Delhi High Court in the case of Dipankar Mohan Ghosh reported in 401 ITR 129 (Delhi High Court) in Writ Petition (Civil)
9859/2019 and by the Hon’ble Kerala High Court in the case of CIT vs. Vinay Mishra reported [2021] 276 Taxmann.com.68 (Karnataka) and very recently Hon’ble Madras High Court in its judgment dated 22.07.2021 in the case of CIT vs. Saroja Naidu reported in [2021] 281 Taxamann.com 305 (Madras). The observations of the Hon’ble Delhi High Court in the case of Dipankar Mohan Ghosh (supra) are being reproduced herein under for a ready reference:-
“1. The challenge in the present writ petition preferred by the Revenue is to the order dated 22.12.2017 passed by the Authority for Advance Rulings in AAR No. 1356/2012. The said authority has held that the respondent/ applicant would be eligible for the benefit available under the provisions of Section 54 of the Income-Tax Act and to the extent of re-investment in residential property outside India, i.e. in London in this particular case.
The respondent assessee is a Non-Resident Indian. He sold his residential property bearing No. 1/26, Shanti Niketan, New Delhi and earned long term capital gain which was partially invested in purchasing the property, i.e. residential Flat
No. 47, Abingdon Court, Abingdon Villas, Kensington, London for a consideration of GBP 26,75,000 plus stamp duty and other expenses estimated at GBP 1,89,974.34 (Approx.), aggregating to GBP 28,64,974.34. The said consideration was paid out of remittances made by the respondent from India and the sale consideration received by him in respect of the aforesaid Indian asset. The authority arrived at its conclusion with regard to the respondent being entitled to exemption under Section 54 of the Act by placing reliance on the decision of the Gujarat High Court in Leena JugalKishor Shah Vs. Assistant Commissioner of IncomeTax, (2017) 392 ITR 18 (Guj.). The authority has noted that the Revenue has not assailed the said decision before the Supreme Court.
Reference has also been made to the Circular No. 01/2015 containing explanatory notes to the provisions of the Finance (No. 2) Act, 2014 whereby Section 54 of the Act was amended to specifically include the word “in India” in respect of the residential house acquired out of the long term capital gain earned by the assessee. The said explanatory note in terms provides that the said amendment would take effect from 01.04.2015 and would, accordingly, apply for the assessment year 2015-16 and subsequent assessment years. Thus, the said amendment is prospective and would not apply in the facts of the present case since the respondent sold the residential property in India and earned long term capital gain in the assessment year 2012-13 and invested the said gain in the same year for purchase of the property, as aforesaid, in London.
This Court has also had an occasion to deal with the said issue in titled The Commissioner of Income-Tax International Taxation-2 Vs. Anurag Pandit, decided on 14.05.2019.
5. In the light of the aforesaid, we are not inclined to interfere with the impugned order.”
7.2 Therefore, in light of the above said judgments of the various Hon’ble High Courts including the jurisdictional High Court, we are of the considered view that the amendment introduced in Section 54 of the Act vide Finance Act, 2014, which mandates purchase or construction of residential house in India, is prospective in nature operational only with effect from 1st April, 2015 i.e., Assessment Year 2015-16 and it will not affect the eligibility of claim in respect of investment made outside India prior to such amendment. In the present appeal, the investment in purchase of residential house in UK was made in July, 2013 and as such the claim of exemption u/s 54 of the Act in respect of such investment is allowable.
Accordingly, we find no reason to take a view different from the view taken by the Ld. CIT(A) on the issue and we uphold the same. The grounds raised by the Department are dismissed.
8.0 As far as the Cross Objection of the assessee is concerned, it challenges the action of the Ld. CIT(A) in upholding the disallowance of expenses claimed by the assessee towards cost of improvement. We note that in the assessment order, the Assessing Officer has not disputed the genuineness and the nature of expenditure so incurred. We also note that the expenses such as registration expenses, conversion charges, stamp duty and professional fee are inextricably linked with the property in question and, therefore, the same had been incurred for the purpose of the sale transaction. It is very much apparent that the costs incurred towards stamp duty and registration of the gift in the name of the assessee was an essential pre-condition for the purpose of obtaining the legal title of the property and its further sale. Further, the charges incurred for conversion of leasehold to freehold also had to be incurred for the purpose of enhancing the sales consideration value of the property sold and, therefore, it can be safely concluded that the impugned expenditure was a legitimate cost of improvement. We are of the considered opinion that cost of improvement is of wide amplitude and it would take into its fold all kinds of expenses incurred for the improvement of the impugned property. Therefore, we set aside the order of the Ld. CIT(A) on the issue and direct the Assessing Officer to allow the claim of assessee in this regard. Accordingly, grounds raised in the Cross Objection stand allowed.
9.0 In the final result, the appeal of the Department is dismissed whereas the Cross Objection of assessee is allowed.
Order pronounced on 27th September, 2021.