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Case Number

ITA 2015/BANG/2019

Judges

[SHRI N.V. VASUDEVAN, VICE PRESIDENT
AND SHRI B R BASKARAN, ACCOUNTANT MEMBER]

Acts

Income-tax Act, 1961 [the Act]. IT(IT)A No.2015/Bang/2019 Page 2 of 7

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Smart Summary

Structured Summary of the Tribunal Opinion (IT(IT)A No.2015/Bang/2019)

Factual and Procedural Background

The assessee, an individual, sold a site (measurement: 3,903 sq.ft., identified by specific Khatha and survey details) by Sale Deed dated 05.11.2012 for a consideration of Rs.2,00,00,000. The assessee claimed exemption/deduction under sections 54 and 54F of the Income-tax Act, 1961 ("the Act") by contending that capital gains arising from that sale were invested in the purchase of a residential house in Texas on 12.07.2013.

The Assessing Officer (AO) computed long-term capital gain at Rs.1,89,50,133 after adjustments for expenses and indexed cost. The AO denied the assessee's claim for deduction under sections 54/54F on two grounds recorded in the order: (i) that the asset sold was a vacant site and therefore not eligible under section 54 (which, in the AO's view, applies only when the asset sold is a residential asset); and (ii) that deduction under section 54F was not available for investment in a property purchased outside India. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's denial of the deduction but gave limited relief on the quantum of capital gain. The assessee appealed to the Tribunal against the CIT(A)'s order for assessment year 2013-14.

Legal Issues Presented

Whether the revenue authorities were justified in denying the claim of the assessee for deduction under sections 54 and 54F of the Income-tax Act, 1961, where the new residential property was purchased outside India (specifically, in Texas) prior to the amendment by the Finance Act, 2014 (effective from AY 2015-16)?

Arguments of the Parties

Appellant's Arguments

The assessee's counsel relied on decisions of various ITAT benches holding that deduction under section 54/54F can be allowed even when the new residential property is purchased outside India, at least for assessment years prior to the Finance Act, 2014 amendment becoming effective (AY 2015-16). Specific authorities relied upon included: ITAT Bangalore in ITO(IT) Ward 1(1), Bangalore v. Arshia Basith (ITA No.2768/Bang/2017 AY 2014-15), ACIT v. Jai Kumar Gupta HUF (ITA No.5303/Mum/2017 AY 2013-14), and ITAT Bangalore in Mrs. Suma v. ITO (ITA No.568/Bang/2018 AY 2006-07).
The appellant's position, as advanced, included the point that the amendment made by Finance Act, 2014 (which added requirements that the new asset be in India) is prospective and applicable from AY 2015-16, and therefore does not affect claims for earlier assessment years.

Respondent's (Revenue) Arguments

The learned Departmental Representative (ld. DR) requested that the issue be remitted to the AO for fresh examination in light of the decisions cited by the assessee. (No further detailed contesting arguments are recorded in the provided text.)

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
ITO(IT) Ward 1(1), Bangalore v. Arshia Basith, ITA No.2768/Bang/2017 AY 2014-15 (order dated 14.8.2018)	Held that assessee is entitled to deduction under sections 54/54F even where the property purchased is outside India; held amendment by Finance Act, 2014 is prospective and applies from AY 2015-16.	The Tribunal relied on and followed this decision as a relevant precedent supporting allowance of deduction where the new asset is outside India for the assessment year in question.
ACIT v. Jai Kumar Gupta HUF, ITA No.5303/Mum/2017 AY 2013-14 (order dated 28.2.2019)	On similar facts where claim was made under section 54 instead of 54F, the Tribunal held that the assessee's claim for deduction under section 54F should be examined.	The Tribunal noted this decision as addressing identical facts and usefully guiding that claims framed under the wrong section should nevertheless be examined under section 54F.
Mrs. Suma v. ITO, ITA No.568/Bang/2018 AY 2006-07 (order dated 20.7.2018)	Held that deduction under section 54F can be considered and allowed even though the assessee claimed only under section 54, provided the conditions of section 54F are satisfied.	The Tribunal cited this decision to support examination and allowance of relief under section 54F where substantive conditions were met.
ACIT v. Iqbal Jafar (referred to as "ACIT Vs. Iqbal Jafar")	Held that before the amendment, benefit under section 54F could be given for a residential house acquired abroad.	The Tribunal referred to this decision as authority that pre-amendment wording allowed investment abroad to qualify for section 54F relief.
TV Sundaram Iyengar & Sons (P.) Ltd.	Principle that if the language of the statute is clear and unambiguous, the court must follow the plain meaning even if it leads to hardship or perceived injustice.	The Tribunal invoked this principle to support construing section 54F according to its plain language (i.e., not reading in the words "in India").
Smt. Tarulata Shyam v. CIT	Held there is no scope for importing words into a statute; judicial interpretation cannot amend statute where Parliament has omitted words.	The Tribunal relied on this principle to decline inserting the words "in India" into section 54F by judicial construction.
Sodra Devi (case cited as "Sodra Devi (supra)")	Held that unless there is ambiguity, one must gather legislative intent from the words used; only where words are ambiguous may surrounding circumstances be examined.	The Tribunal used this as a rule of statutory construction to interpret section 54F according to its wording absent ambiguity.
Vinay Mishra (referred to "Vinay Mishra (supra)")	Held that the words "in India" cannot be read into section 54F when Parliament deliberately omitted such words.	The Tribunal cited this view to reinforce that section 54F relief can apply where the new house was acquired abroad.
Mrs. Prema P. Shah (referred to as "Mrs. Prema P. Shah (supra)")	Held that section 54 does not preclude claiming relief where the property acquired was in a foreign country, provided conditions of the section are satisfied.	The Tribunal referenced this decision to support allowance of relief where acquisition abroad satisfied statutory conditions.
Dr. Girish M. Shah (referred to "Dr. Girish M Shah (supra)")	Held by the ITAT Mumbai Bench that exemption under section 54F was available for house property acquired outside India (Canada in that case).	The Tribunal cited this decision as another instance where section 54F relief was allowed for an acquisition abroad.
Leena J. Shah v. Assts. (2006) 6 SOT 72 (Ahd.)	Held that the words "in India" cannot be inserted in section 54F and, as per plain reading, sale proceeds may be invested in a residential house inside or outside India.	The Tribunal followed this decision's view in concluding that section 54F does not mandate acquisition to be in India by implication.
Vegetable Products Ltd. [1973] 88 ITR 192 (Apex Court)	Cited as an authoritative decision of the Hon'ble Apex Court that supports judicial approach; used by the Tribunal to justify following prior Tribunal views favorable to the assessee.	The Tribunal referenced this Apex Court decision in explaining why a view favourable to the assessee taken by earlier Benches of the Tribunal should be followed.

Court's Reasoning and Analysis

The Tribunal heard the rival submissions and examined the authorities cited. The analysis proceeded in these principal steps, as recorded in the opinion:

The Tribunal noted that the only substantive issue was whether deduction under sections 54/54F could be denied because the new residential house was purchased outside India (Texas) and that the Finance Act, 2014 introduced an amendment clarifying that the new asset must be in India with effect from AY 2015-16.
The Tribunal reviewed prior decisions of various Benches of the Tribunal (and relied upon established Supreme Court principles of statutory interpretation) which held that, prior to the Finance Act, 2014 amendment taking effect, section 54F could be interpreted according to its plain language and did not contain the words "in India"; therefore, relief could be available where the new house was acquired abroad.
The Tribunal invoked the line of Supreme Court authority and Tribunal decisions emphasizing plain meaning and resisting judicially importing words into a statute (citing TV Sundaram Iyengar, Smt. Tarulata Shyam, Sodra Devi, and Vegetable Products Ltd.). These authorities were used to support the conclusion that the words "in India" cannot be read into section 54F where Parliament deliberately omitted them.
The Tribunal considered decisions specifically on similar facts (including Vinay Mishra, Leena J. Shah, Dr. Girish M. Shah, Mrs. Prema P. Shah, Arshia Basith, and Jai Kumar Gupta HUF) which held that section 54F relief could apply to acquisitions made outside India for the relevant period, or that claims framed under an incorrect section should be examined under section 54F. The Tribunal treated these as persuasive and consistent precedents.
Given these authorities and the identical or similar facts in earlier decisions, the Tribunal found no justification to depart from the view that section 54F relief is available for investment abroad for the assessment year under consideration. Accordingly, it concluded that the assessee is entitled to deduction under section 54F, subject to examination under the statutory parameters.
Rather than immediately quantifying or allowing the deduction on the record, the Tribunal directed that the AO should examine the assessee's claim under section 54F in accordance with the ratio of the cited decisions and the statutory provisions, affording the assessee an opportunity of being heard before allowing the claim.

Holding and Implications

Holding: The Tribunal held that the assessee is entitled to the deduction under section 54F of the Income-tax Act, 1961, for the assessment year in question, notwithstanding that the new residential property was purchased outside India (Texas), and accordingly confirmed the order of the CIT(A).

Implications:

Direct effect on the parties: The Tribunal treated the assessee's appeal as allowed for statistical purposes and directed the Assessing Officer to apply the ratio laid down in the cited decisions and allow the assessee's claim for deduction under section 54F in accordance with law after affording the assessee an opportunity of being heard.
Broader implications: The opinion follows earlier Benches' decisions that interpreted section 54F in favor of allowing investment in a residential house outside India for assessment years prior to the Finance Act, 2014 amendment effective from AY 2015-16. The Tribunal did not record the creation of a new legal principle beyond following and applying these prior decisions; no express statement was made purporting to lay down a binding precedent beyond the case's disposition.

Result pronounced in open court on 10 January 2020. The appeal of the assessee was treated as allowed for statistical purposes.

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Mr. Rajasugumar Subramani, Bengaluru v. Income Tax Officer, International Taxation, Ward- 2(1), Bengaluru

Per N.V. Vasudevan, Vice President This appeal by the assessee is against the order dated 29.7.2019 of the CIT(Appeals)-12, Bengaluru relating to assessment year 2013-14.

2. The only issue for consideration in this appeal is as to, whether the revenue authorities were justified in denying the claim of assessee for deduction u/s. 54/54F of the Income-tax Act, 1961 [the Act]. IT(IT)A No.2015/Bang/2019 Page 2 of 7

3. The assessee is an individual. He sold a site measuring 3903 sq.ft. bearing No.53, CMC Khatha No.364, New BBMP Khatha No.396 in Sy.No.19/1, Ferns City, Doddanekundi Village, Krishnarajapura Hobli, Bangalore East Taluk [hereinafter referred to as the property] under Sale Deed dated 05.11.2012 for a consideration of Rs.2 crores. The assessee claimed deduction u/s. 54/54F of the Act on the capital gain on sale of the property as he invested the capital gain in purchase of a residential house in Texas on 12.7.2013. The AO went into the quantum of capital gain and also into the question, whether the assessee would be entitled to deduction u/s. 54/54F of the Act when he purchased the house outside India. The AO firstlyl expressed the opinion that the site sold was a vacant site and therefore deduction cannot be claimed u/s. 54 of the Act which is applicable only when the capital asset sold is a residential asset. With regard to the deduction u/s. 54F of the Act, the AO was of the view that the said deduction is not available to investment of capital gain in purchase of property outside India. The AO therefore computed the capital gain of Rs.1,89,50,133 on sale of property as follows:- (in Rupees) Sale consideration 2,00,00,000 Less: Expenses 4,35,000 Net Sale Consideration 1,95,65,000 Less: Cost of Acquisition Conversion fee as discussed at para 5.1 Sale Price, Stamp Duty & Registration fee as discussed in para 5.2 - 2,93,000 Indexation 293000 X 852/406 Betterment fee as discussed at para 5.3 NIL 6,14,867 NIL Long term capital gain 1,89,50,133 Less: Exemption u/s. 54F as discussed at para 6 NIL Long term capital gain taxable 1,89,50,133 IT(IT)A No.2015/Bang/2019 Page 3 of 7

4. In view of the conclusion that the assessee will not be entitled to deduction u/s. 54/54F of the Act because the new asset purchased was outside India, the AO did not allow the assessees claim for deduction u/s. 54/54F of the Act.

5. On appeal by the assessee, the CIT(Appeals) confirmed the action of the AO in not allowing deduction u/s. 54/54F of the Act. With reference to the quantum of capital gain computed by the AO, the CIT(A) gave some relief to the assessee.

6. Aggrieved by the order of CIT(Appeals), the assessee is in appeal before the Tribunal.

7. We have heard the rival submissions. The ld. counsel for the assessee placed reliance on the decision of the Bangalore Bench of the Tribunal in the case of ITO(IT), Ward 1(1), Bangalore v. Arshia Basith, IT(IT)A No.2768/Bang/2017 AY 2014-15, order dated 14.8.2018 wherein this Tribunal held that assessee would be entitled to benefit of deduction u/s. 54/54F of the Act on the property purchased outside India and that the amendment made to section 54F of the Act by the Finance Act, 2014 w.e.f. 2015 is applicable only prospectively from AY 2015-16 and not to earlier assessment year. By the said amendment, the provisions of section 54F(1) were amended whereby it was laid down that the new asset purchased or constructed by utilising the capital gain must be in India. He also relied on the decision of the ITAT Mumbai Bench in the case of ACIT v. Jai Kumar Gupta HUF, ITA No.5303/Mum/2017 AY 2013-14, order dated 28.2.2019 and decision of ITAT Bangalore in the case of Mrs. Suma v. ITO, ITA No.568/Bang/2018 for AY 2006-07, order dated 20.7.2018. It was held that deduction u/s. 54F can be considered and allowed even though the assessee has made claim for deduction only u/s. 54 of the Act provided the conditions laid down in section 54F are satisfied. IT(IT)A No.2015/Bang/2019 Page 4 of 7

8. The ld. DR submitted that the issue should be directed to be examined by the AO afresh in the light of decision cited by the ld. counsel for the assessee.

9. We have given a careful consideration to the rival submissions. We find that in the decision rendered in the case of Jai Kumar Gupta HUF (supra) on identical facts the assessee had made a claim for deduction u/s.

54 of the Act instead of 54F of the Act. The Tribunal held that the assessees claim for deduction u/s. 54F should be examined. In the case of Arshia Basith (supra) the Bangalore Bench of the Tribunal held that assessee would be entitled to deduction u/s. 54F of the Act even in respect of property purchased which is located outside India. The following were the relevant observations of the Tribunal:-

3. Having carefully examined the orders of authorities below in the light of rival submissions, we find that the assessment year in this appeal is 2014-15 and the provision in section 54F comes w.e.f. 01.04.2015 according to which it was clarified that the residential house is to be acquired only in India meaning thereby before this amendment it was not clear as to whether the benefit of section 54F can be given to residential house acquired in India or abroad. This issue was examined by the Tribunal in the case of ACIT Vs. Iqbal Jafar (supra) which was authored by one of the members of this Bench and it was held by the Tribunal that before the amendments, the benefit can also be given to the residential house acquired in abroad. The relevant observation of the Tribunal is extracted hereunder for the sake of reference:

9. Having heard the rival submissions and from a careful perusal of the orders of the authorities below, find that it has been repeatedly held by the Hon'ble Apex Court and various High Courts that cardinal rule of interpretation is that the statute must be construed according to its plain language and neither should anything be added nor subtracted therefrom unless there are adequate grounds to justify the inference that the legislature clearly so intended. It is also well settled that in a taxing statute one has to look merely at what is clearly IT(IT)A No.2015/Bang/2019 Page 5 of 7 stated The meaning and extent of the statute must be collected from the plain and unambiguous expression used therein, rather than from any notions which may be entertained by the Court as to what is just or expedient.

10. In the case of TV. Sundaram Iyengar & Sons (P.) Ltd. (supra), their Lordships have held that if the language of the statute is clear and unambiguous, the court cannot discard the plain meaning, even if it leads to an injustice.

11. Again in the case of Smt. Tarulata Shyam v. CIT (supra), it was held that there is no scope for importing into the statute words which are not there. Such importation would be, not to construe, but to amend the statute. Even if there be a casus omissus, the defect can be remedied only by Legislation and not by judicial interpretation.

12. Further, in the case of Sodra Devi (supra), it was held by the Hon'ble Apex court that unless there is an ambiguity, it would not be open to the Court to depart from the normal rule of construction which is that the intention of the legislature should be primarily to gather from the words which are used. It is only when the words used are ambiguous that they would stand to be examined and considered on surrounding circumstances and constitutionally proposed practices.

13. We have also examined the order of the Tribunal in the case of Vinay Mishra (supra), in which it has been held that the words 'in India; cannot be read into section 54F when Parliament in its legislative wisdom has deliberately not used the words 'in India' in section 54F of the Act. The Tribunal accordingly held that assessee 's claim for exemption under section 54F of the Act shall be allowed since all conditions laid down in this section are satisfied for availing the said exemption, though he has acquired house property in U.S.A.

14. Similarly in the case of Mrs. Prema P. Shah (supra), the Tribunal has again held that the assessee was entitled to the benefit under section 54 of the Act, which does not exclude the right of the assessee to claim property purchased in a foreign country, if all other conditions laid down in the section are satisfied, merely because the property acquired was in a foreign country. IT(IT)A No.2015/Bang/2019 Page 6 of 7

15. Again in the case of Dr. Girish M Shah (supra), the Mumbai Bench of the Tribunal has taken a view by holding that the assessee is entitled for exemption under section 54F of the Act for of house property outside India

i.e. in Canada.

16. Having carefully examined various judicial pronouncements and the order of the Id. CIT(A), we find pt in the case of Leena J. Shah v. Assts. (2006) 6 SOT 72 I (Ahd.), the Tribunal has taken a t view that the words "in India" cannot be inserted in section 54F of the Act and as per plain of section 54F of the Act, the sale proceeds of capital asset shall be invested in residential house or outside India. We, accordingly, following the judgment of the Hon'ble Apex Court in the case v. Vegetable Products Ltd [1973j 88 ITR 192, hold that the view favourable to the assessee taken ous Benches of the Tribunal should be followed and accordingly following the same, we hold that the assessee is entitled for exemption under section 54F of the Act. We, therefore, do not find any infirmity in the order of the Id. CIT(A), who has rightly adjudicated the issue in the light of the ratio laid down by the Tribunal in a number of cases. Accordingly, the order of the ld. CIT(A) is confirmed and the appeal of the Revenue is dismissed.

4. Since the Tribunal has taken a view in similar set of facts, we find no justification to take a contrary view in this appeal. Accordingly, following the same, we hold that the assessee is entitled for deduction under section 54F of the Act. Therefore, we find no infirmity in the order of the CIT(A). We accordingly confirm the same.

10. We are of the view that in the case of assessee the deduction claimed should be examined in the parameters of section 54F of the Act in the light of decision cited before us. The AO is directed to apply the ratio laid down in the aforesaid decision and allow the claim of deduction of assessee in accordance with the law, after affording assessee opportunity of being heard. IT(IT)A No.2015/Bang/2019 Page 7 of 7

11. In the result, the appeal of assessee is treated as allowed for statistical purposes. Pronounced in the open court on this 10th day of January, 2020. Sd/- Sd/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT Bangalore, Dated, the 10th January, 2020. /Desai S Murthy / Copy to:

1. Appellant 2. Respondent 3. CIT 4. CIT(A)

Mr. Rajasugumar Subr... v. Income Tax Officer, ...