THE COMMISSIONER OF INCOME TAX vs. SHRI. HOSAGRAHAR

I.T.A. NO.601 OF 2019 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 5TH DAY OF MARCH, 2021 PRESENT THE HON'BLE MR. JUSTICE SATISH CHANDRA SHARMA AND THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ I.T.A. NO.601 OF 2019 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX INTERNATIONAL TAXATION 4TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA BENGALURU-560095 2. THE INCOME-TAX OFFICER INTERNATIONAL TAXATION, WARD-1(1) 4TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA BENGALURU-560095

... APPELLANTS (BY SRI. K.V. ARAVIND, ADVOCATE-PH) AND: SHRI. HOSAGRAHAR VISVESVARAYA JAGADISH 1835, CAMBRIDGE ROAD ANN ARBOR MI 48104, USA

... RESPONDENT (BY SRI. BHARADWAJ SHESHADRI, ADVOCATE-PH)

THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED

I.T.A. NO.601 OF 2019 2 22.04.2019 PASSED IN ITA NO.1544/BANG/2017, FOR THE ASSESSMENT YEAR 2013-2014 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW SATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.1544/BANG/2017 DATED 22.04.2019 FOR ASSESSMENT YEAR 2013-2014 ANNEXURE-C CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, INTERNATIONAL TAXATION, WARD-1(1), BENGALURU AND ETC. THIS APPEAL COMING ON FOR ORDERS THIS DAY THIS DAY, SATISH CHANDRA SHARMA. J., DELIVERED THE FOLLOWING: JUDGMENT 1. The present appeal is arising out of the order passed by the Income Tax Appellate Tribunal dated 22.04.2019 in ITA No.1544/Bang/2017. 2. The facts of the case reveal that the assessee is a non-resident Indian and derives income from the capital gains and filed return of income showing the income as nil. The case of the

I.T.A. NO.601 OF 2019 3 assessee was selected for scrutiny and a notice was issued under Section 143 (2) and 142(1) of the Income Tax Act (hereinafter referred to as the 'the Act', for brevity). The asessee filed a reply and the assessing officer noticed that the assessee has sold the immovable property along with sister for a total consideration of Rs.11,00,50,000/- and the assessee's share was worked out to Rs.6,90,00,000/- and after claiming cost inflation index and improvement of Rs.13,49,752/- long term capital gain determined at Rs.6,76,02,248/-. Against the long term capital gains, the assessee has claimed exemption under Section 54F by investment in residential property at New York. The assessee filed his submissions supporting the investments made outside the country. The assessing officer has disallowed the claim and

I.T.A. NO.601 OF 2019 4 determined the taxable capital gains of Rs.6,76,02,248/-, against which, an appeal was preferred under Section 143(3) of IT Act and the Commissioner of Income Tax (Appeals) has allowed the appeal. Being aggrieved, the revenue has preferred an appeal before the Tribunal and the Tribunal dismissed the appeal of the revenue as well as cross objection of the assessee. 3. This Court after hearing the learned counsel for the parties has framed the following substantial questions of law: 1. "Whether, on the facts and circumstances of the case and in law, the Tribunal is right in law in setting aside the disallowance made under section 54F of the act even though the assessee has not fulfilled the conditions set out in the said section to avail benefit under the said provision as the assessee has invested in property outside India which cannot be said that assesse has satisfied the conditions set out in the said section?"

I.T.A. NO.601 OF 2019 5 2. "Whether, on the facts and in the circumstances to the case, the order passed by the Tribunal can be said as perverse in nature since the Tribunal has relied upon amended provisions of section 54F applicable with effect from 1-4-2015 relevant to assessment year 2015-16 onwards and not applicable to assessment year 2013-14 which is subject matter in the instant case?" 4. The learned counsel for the assessee has straight away drawn the attention of this Court towards the judgment delivered by the Division Bench of this Court in the case of Commissioner of Income Tax vs. Vinay Mishra reported in [2020] 121 taxmann.com 243 (Karnataka) involving similar issue. Paras 6 to 8 of the aforesaid judgment reads as under: "6. We have considered the submissions made by learned counsel on both the sides and have perused the record. Admittedly, the dispute in the appeal pertains to Assessment year 2009-10 i.e., prior to amendment of Section 54F of the Act by the Finance Act, 2014 w.e.f. 01.04.2015. The seminal issue, which arises for consideration in this appeal is whether an

I.T.A. NO.601 OF 2019 6 assessee was required to purchase a residential house within India for the purposes of claiming exemption under Section 54F of the Act. Before proceeding further, we deem it appropriate to take note of relevant extract of Section 54F(1) of the Act as it existed prior to and post amendment w.e.f. 01.04.2015: Prior to 01.04.2015: 54F (1) [Subject to the provisions of sub- Section (4), where, in the case of an assessee being an individual or a Hindu Undivided Family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (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 (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- Post 01.04.2015 54F(1) Subject to the provisions of sub- Section (4) where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the

I.T.A. NO.601 OF 2019 7 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 (hereafter in this section referred to as the new asset), the capital gain shall be dealt within in accordance with the following provisions of this section, that is to say.- Thus, it is evident, that requirement of construction of a residential house in India in order to claim exemption under Section 54F(1) of the Act has been incorporated w.e.f. 01.04.2015. 7. Before proceeding further, we may advert to certain well settled legal principles. The Supreme Court in 'GOVIND DAS vs. I.T.O', (1976) 1 SCC 906 held that unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Edn.) and reiterated in several decisions of this Court as well as English courts is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new

I.T.A. NO.601 OF 2019 8 liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only. The aforesaid principle was quoted with approval by the Supreme Court in 'Vatika Township P. Ltd.', supra. It is a cardinal principal of law that law to be applied is that in force in the Assessment year, unless otherwise provided expressly or by necessary implication. [See: 'Reliance Jute & Industries Ltd. vs. Commissioner of Income Tax', AIR 1980 SC 251]. The aforesaid view was quoted with approval in 'CIT vs. Sarkar Builders', (2015) 57 taxmann.com 313/232 Taxman 731/375 ITR 392 (SC). 8. The relevant extract of CBDT Circular No.1/2015 dated 21.01.2015 reads as under: 20.5 Applicability: These amendments take effect from 1st April, 2015 and will accordingly apply in relation to Assessment year 2015-16 and subsequent Assessment years. Thus, it is axiomatic that residential property, for which investment is made needs to be situated in India for the purpose of claiming exemption under Section 54F from Assessment year 2015-16 only and not prior to that period. In the instant case, the investment in a residential house was made in USA prior to 01.04.2015, whereas, the requirement of making an investment in a residential

I.T.A. NO.601 OF 2019 9 house, which was incorporated by way of amendment, came into force w.e.f. 01.04.2015. In the light of aforesaid well settled legal principles as well as the memorandum of objects of Finance Act, 2014, which clearly provide that amendments will take effect from 01.04.2015 and will apply to Assessment year 2015-16 onwards as well as the CBDT's Circular dated 21.01.2015, it is evident that amendment incorporated in Section 54F(1) of the Act is prospective in nature. Similar view has been taken in 'Leena Jugalkishor Shah (supra), 'Dipankar Mohan Ghosh (supra) and Anurag Pandit (supra). We concur with the view taken by Delhi, Gujarat and Madras High Courts. 5. The Division Bench of this Court has held that the assessee has made investment in a residential house in USA (foreign country) prior to 01.04.2015 and would be entitled to claim exemption under Section 54F in respect of investment made in a house property in USA (foreign country). In the light of the judgment delivered by Division Bench of this Court, as the controversy involved has already been adjudicated, the questions of law are answered

I.T.A. NO.601 OF 2019 10 against the revenue and in favour of the assessee. 6. Appeal stands dismissed. Sd/- JUDGE

Sd/- JUDGE Prs*