ITO TDS 3 (1)(1), MUMBAI vs. RAYMOND HOMI KERMANI, MUMBAI

आयकर अपील�य अ�धकरण, मुंबई �यायपीठ,D,मुंबई । IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “D”, MUMBAI �ी संजय गग�, �या�यक सद�य एवं �ी अ�वनी तनेजा, लेखा सद�य, के सम�

Before Shri Sanjay Garg, Judicial Member, and Shri Ashwani Taneja, Accountant Member ITA NO.7097/Mum/2014 Assessment Year: 2011-12 ITO TDS 3(1)(1) Ms. Raymond Homi Kermani, R.No.139, 1st Floor, बनाम/ Arvind Sangave & Co. Scindia House, Ballard 37-4/, Shaviri Premises Chs Vs. Pier, N.M. Road, Ltd., Mumbai-38 R.S. Sapre Marge, Princes Street, Mumbai-400002 (Revenue) (Respondent) P.A. No. AAPPK3340Q Revenue by Shri B.S. Bist (Sr. DR) Respondent by Shri R.K. Kotain (AR)

सुनवाई क� तार�ख / 26/09/2016 Date of Hearing : 30/09/2016 आदेश क� तार�ख /Date of Order: आदेश / O R D E R Per Ashwani Taneja (Accountant Member): This appeal has been filed by the Revenue against the order of Ld. Commissioner of Income Tax (Appeals), Mumbai- 10 {(in short ‘CIT(A)’}, dated 28.08.2014 passed against

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assessment order u/s 143(3) dated 28.11.2013 for the Assessment Year 2011-12 on the following grounds: “1.On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of exemption u/s 54 of the I.T. Act by the assessee for the investment of Rs. 1,70,00,000/-, being the sale consideration of immovable property in India, in buying the residential apartment in New Zealand of Rs.1,68,17,223/- without appreciating the fact that the exemption is available only when investment is carried out in India. 2.On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the decision of Mumbai Tribunal in the case of Mrs. Prema P. Shah & Sanjiv P. Shah Vs. ITO(100 ITR 60(Mum)) without appreciating the fact that reference appeal u/s 260A of the I.T. Act, was earlier preferred, but later on withdrawn in this case on the ground of lower tax effect and not on Merit. 3.On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the exemption u/s 54 of the I.T. Act for the capital gain arising from the sale of residential property in India in investing the same in the residential apartment at 31, Finnety Ave Howick, Auckland , New Zealand without appreciating the fact that claim of exemption of Section 54F of the I.T. Act, has not been allowed by the Ahmedabad ITAT in the case of Leena J Shah 6 SOT 721(ITO Ahmedabad) ”

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Auckland, New Zealand, against the sale proceeds of residential house sold by the assessee in India. 3.1. During the impugned assessment year, the deduction has been denied by the AO which was subsequently allowed by the Ld. CIT(A). During the course of hearing, Ld. DR relied upon the order of AO and submitted that object of the legislation was to promote housing in India and therefore any investment made in acquiring the residential house outside India should not be eligible under the law for deduction u/s 54. 3.2. Per contra, Ld. counsel of the assessee submitted that there is nothing in section 54 which prohibits investments into house property located outside India and therefore deduction has been rightly allowed by Ld. CIT(A). It was further submitted by him that issue is covered in favour of the assessee on the basis of various judgment of the Tribunal. He placed reliance upon the following decisions of the Tribunal: 1. ITO v. Shri Farokh Jal Deboo (ITA No.4650 & 3478/Mum/2013 dated 05.02.2016, ITAT, Mumbai) 2. Shri N. Ranganathan v. ITO (ITA No.863/Mds/2014 dated 26.06.2014, ITAT, Chennai) 3. Mr. Girdhar Mohanani v. ITO (ITA No. 4591/Mum/2013 dated 06.05.2015 Mumbai) 3.3. We have considered the submissions made by both the sides as well as judgments placed before us. The brief background as culled out from the order of the lower authorities is that the assessee is a non-resident Indian settled in New Zealand. During the course of assessment proceedings, it was noted by the AO that during the year assessee had sold

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his residential plot at Dadar(E), Mumbai and claimed deduction u/s 54 on account of utilization of sale proceeds into acquisition of a residential plot at Auckland, New Zealand. The AO issued show cause notice to the assessee. The assessee submitted reply and justified its claim by relying upon the decision of the Tribunal in the case of Mrs. Prema P. Shah v. ITO 282 ITR 211 (ITAT, Mumbai). But, AO was not satisfied with the reply by the assessee. It was observed by him that while drafting beneficial provisions of section 54, the intention of the legislature was never to promote housing construction activities outside India and therefore the clear intention was to allow the deduction only if the sale proceeds were utilized into acquiring/constructing a residential house in India. He also distinguished the judgment of Mrs. Prema P. Shah as was relied upon by the assessee before him. He relied upon the another judgment of the Tribunal in the case of Leena J. Shah v. CIT (ITA No. 206/2006 by ITAT Ahmadabad) wherein it was held that deduction would be allowable only if new house was located in India and thus relying upon the said judgment he denied the benefit of deduction. 3.3. Being aggrieved, the assessee filed an appeal before Ld. CIT(A) and filed exhaustive details and evidences to substantiate its claim. The assessee submitted that as per law as contained in section 54, there is no restriction upon acquiring the house located outside India. The evidence with regard to acquisition of house was also submitted, after considering the details and evidences submitted by the

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assessee. The Ld. CIT(A) decided this issue in favour of the assessee by inter-alia observing as under: “I have considered the A.O’s order as well as the appellant AR’s submissions. Having considered both and also after taking note to the amendment to Section 54 and 54F by Finance (No.2) Act, 2014 in the Income Tax Act and also after taking note to the judicial precedents/decisions cited by the appellant’s AR in the submission, I am of the considered view that the A.O. was not correct in his action while denying the claim of deduction u/s 54 of the Act to the appellant merely on the reason that the appellant has made subsequent investment for making claim of decution u/s 54 outside India. Having taken note to the amendment in Section 54/54F by Finance Act, 2014, it is evident that the said denial of deduction by the AO is completely incorrect and unjustified. Having taken note to the said amendment to section 54, wherein 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 1st April, 2015. This legislative clarity of the legislation in the respective section i.e. section 54 clearly establishes that the said restriction of investment of capital gain to be made in India in residential house will merely be applicable after 01.04.2015. 10. Therefore, in my considered view, the action of the appellant in making the investment outside India in acquiring the said residential house for his own purpose qualifies under the provisions of law for deduction u/s 54 of the Act. My decision on this gets support from the decision of the jurisdictional Mumbai ITAT’s decision in the case of Mrs. Prema P. Shah & Sanjiv P. Shah v. ITO [100 ITD 60(Mum)] and ITO v. Girish M. Shah in ITA No.3582/Mum/2009. Further, even I find that another judgment of ITAT, Bangalore Bench in the case of Vijay Mishra vs. CIT in IT Appeal No.895(Bang.) of 2012 also supports my aforesaid decision. Even, while holding my decision in favour of the appellant based on aforesaid reasoning, I also derive strength with the judgment in the case of CIT vs. T.N, Arvinda Reddy reported in 120 ITR 46(SC) wherein the Hon’ble Judge of the Supreme Court of

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India Justice V.R. Krishna Iyer observed “if you sell your house and make a profit, pay ceaser what is due to him, but if you buy or build another, subject to the conditions of section 54(1), you are exempt. Thus, I consider it proper and appropriate to direct the AO to allow the deduction u/s. 54 of the Act to the appellant as claimed. In the result, the appellant’s appeal is allowed.

3.4. Thus, it is noted from the above that Ld. CIT(A) has considered the amendment made in section 54 wherein restriction has been bought into the statute by the legislature for location of new residential house in India, w.e.f. 01.04.2015. The Amendment has been held to be prospective and therefore it is not applicable on the facts of the case before us wherein impugned assessment year is 2011-12 and new residential house has been purchased on 1st June 2011. Further, relying upon the various decisions of the Tribunal, it was held by the Ld. CIT(A) that section 54 shall be eligible to the assessee in this case. It is further noted by us that before us, Ld. Counsel of the assessee has relied upon many judgment of the Tribunal on this issue and claimed the issue before us as covered with these judgments. 3.5. We have gone through these judgments and find force in the contention of the Ld. Counsel. It is noted that coordinate Bench in the case of Farokh Jal Deboo (supra) as recently analyzed entire law available on this issue and after considering various judgment available as on date as well as provisions of law and also the amendment made in the law, held that assessee is eligible for deduction u/s 54 on account of investment in acquiring residential house located outside

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India. Relevant part of observation of the Bench is reproduced below: “4.3.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited and placed reliance upon. We find that a similar issue has already been decided in the case of Ms. Dhun Jehan Contractor in ITA No. 7058/Mum/2013 dated 13.05.2015. In that case the Coordinate Bench, after considering the facts of that case at para 2 thereof, allowed the assessee's claim for exemption under section 54 of the Act on account of investment in the acquisition of a new property outside India. In doing so the Coordinate Bench followed the decision of another Coordinate Bench of this Tribunal in the case of Girdhar Mohanani and Smt. Varsha Girdhar in ITA Nos. 4591 & 4592/Mum/2013 dated 06.05.2015. In its order in the case of Ms. Dhun Jehan Contractor (supra) the Coordinate Bench at paras 6 & 7 thereof held as under: - "6. Having considered the rival submissions as well as the relevant material on record, we find that a similar issue has already been decided by the coordinate bench of the Tribunal in the case of Mr. Girdhar Mohanani & Mrs. Varsha Gird har in ITA Nos.4591 & 4592/Mum/2013 decided on 06.05.15 and the relevant finding in paras 4 to 9 is as under: "4. We have considered rival contentions and found that during the year assessee has claimed exemption u1s.54. Out of the sale consideration of Rs.87,37,2911-, assessee has deposited Rs.50 lakhs in capital gains in scheme account. Subsequently deposit was withdrawn during the assessment year 2010- 2011 under consideration and was invested in a flat in Dubai. As per AO assessee was not entitled for claim of exemption u/s. 54 in respect of investment made in house property outside India. 5. It was contended by Id. DR that CIT(A) has already considered the decision in the case of Dr. Girish M. Shah, Mrs.Prema P. Shah, Leena P. Shah, wherein it was ITA No.

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7058/M12013 Ms. Dhun Jehan Contractor 4 held that exemption is permissible, even if investment in new residential house is made outside India. 6. On the other hand, Id. AR relied on the decision of Bangalore bench of the Tribunal in the case of Virtay Mishra, 141 ITD 301, wherein it was held that provisions of Section 54F does not suggest that new residential house acquired should be situated only in India. Accordingly exemption was granted in respect of residential house acquired outside India. It was observed that on a plain reading of provisions of Section 54F one does not find anything therein to suggest that the new residential house acquired should be situated in India. The words "in India" cannot be read into section 54F, when Parliament in its legislative wisdorn has deliberately not used the words 'in India' in Section 54F, there was no reason to show that exemption will not be applicable in respect of house acquired outside India. Similarly, the Chennai Bench of the Tribunal in case of N.Ranganathan, 33 ITR(AT) 444 held that the profit on sale of property used for residential house (foreign house property) acquired outside India is eligible for exemption u1s.54. However, no contrary decision of Tribunal or Hon'ble High Court was brought to our notice suggesting that exemption will not be available in case residential house is acquired outside India. The Finance (No.2) Bill, 2014 brought an 7. amendment in Section 54, wherein sub-section (1), for the words "constructed, a residential house", the words "constructed, one residential house in India" has to be substituted w.e.f. 1st day of April, 2015. Thus, it is clear from the amendment so brought for claiming exemption u1s.54, that new residential house should to be constructed in India only w.e.f assessment year 2015-2016.. However, the assessment year under consideration is 2010-2011 i.e. much prior to the amendment so brought in Finance (No.2) Bill, 2014. There is no reason to decline exemption u1s.54 during the A. Y.2010-1 I under consideration. 8.The provisions contained in sub-section (1) of section 54 of the Income-tax Act, before its amendment by the

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Act, inter alia, provided 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 years 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 Income-tax Act. 9. In view of the above, we hold that during the year under consideration, assessee was entitled for exemption u1s.54 even if investment was made in residential house situated outside India, provided that assessee has to comply with other conditions of Section 54. Since the AO has out-rightly declined exemption on this plea without examining the other conditions of Sec.54 so as to make assessee eligible, we accordingly restore the appeal to the file of the AO for verifying other conditions to be fulfilled for grant of exemption u/s. 54 in both the appeals of the ITA No. 7058/M12013 Ms. Dhun Jehan Contractor 5 assessees. The AO is also at a liberty to verify actual acquisition of house property outside India, in terms of transfer deeds so executed in favour of assessee. We direct accordingly." 7. Accordingly, following the order of the co-ordinate bench of the Tribunal in the case of "Mr. Girdhar Mohanani & Mrs. Varsha Girdhar" (supra), we decide this issue in favour of the assessee and against the Revenue. AO is also at a liberty to verify fulfillment of other conditions of section 54 of Act." 4.3.2 Following the decision of the Coordinate Bench of this Tribunal in the case of Ms. Dhun Jehan Contractor in ITA No. 7058/Mum/2013 (supra), we hold that the assessee is entitled to be allowed exemption under section 54 of the Act in respect of the investment made in the purchase of the new residential property abroad in 151, Whispering Lane, Winona, Winona County, Minnwsota 55987, USA. The AO is accordingly directed. Consequently ground No. 1 (1.1 to

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1.3) of the assessee's appeal is allowed.

3.6. No contrary judgment has been placed before us by the Ld. DR. Thus, respectfully following the judgment of the Tribunal, we find that the deduction u/s 54 is allowable to the assessee. Further, with regard to factum of making investment into new residential house and compliance of further conditions, it has been clearly agreed by the Ld. DR that there is no dispute on the same. It is also noted that exhaustive details and evidences with respect to compliance all other conditions of section 54 were submitted before Ld. CIT(A) and same have been apparently examined by him before allowing the relief to the assessee and nothing wrong has been find out by him. Thus, we find that deduction u/s 54 has been rightly allowed by the Ld. CIT(A), no interference is called for in the order of Ld. CIT(A). The same is upheld, and thus, grounds raised by the revenue are dismissed. 4. In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 30th September, 2016.

Sd/- Sd/- (Sanjay Garg ) (Ashwani Taneja) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated : 30/09/2016 ctàxÄ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai.

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