ACIT, International Taxation, Circle-3(1)(2), New Delhi V. Pratima Sarwate, New Delhi

ITA 7195/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5131 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Appeal Filed On: 01-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SOHAIL MALIK
• Assessee Lawyers: R S AHUJA
• Keywords: Capital asset; Gift; Advance ruling; Cost of acquisition; Benefit of exemption; Set aside; Capital Gains
• Section: 54F; 54EC; 13; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A NO.7195/DEL/2017 (ASSESSMENT YEAR 2013-2014) ACIT, INTERNATIONAL TAXATION, CIRCLE-3(1)(2), NEW DELHI. VS. MS. PRATIMA SARWATE C/O M/S YOGI ASSOCIATES E-355, LOWER GROUND FLOOR, EAST OF KAILASH, NEW DELHI-110 065. PANAOJPS 2964L (APPELLANT) (RESPONDENT) C.O. NO.21/DEL/2018 ARISING OUT OF I.T.A NO.7195/DEL/2017 (ASSESSMENT YEAR 2013-14) MS. PRATIMA SARWATE C/O M/S YOGI ASSOCIATES E-355, LOWER GROUND FLOOR, EAST OF KAILASH, NEW DELHI-110 065. PANAOJPS 2964L VS. ACIT, INTERNATIONAL TAXATION, CIRCLE-3(1)(2), NEW DELHI. (CROSS OBJECTOR) (RESPONDENT) APPELLANT BY SH. SOHAIL MALIK, SR. DR RESPONDENT BY SH. R.S. AHUJA, CA DATE OF HEARING 01.07.2021 DATE OF PRONOUNCEMENT 27.09.2021 2 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE ORDER PER SUDHANSHU SRIVASTAVA, JM: ITA NO.7195/DEL/2017 IS PREFERRED BY THE DEPARTMENT AGAINST ORDER DATED 27.09.2017 PASSED BY THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS)-43, NEW DELHI {CIT(A) WHEREAS TH E CROSS OBJECTION IS PREFERRED BY THE ASSESSEE. BOTH THE AP PEAL AS WELL AS THE CROSS OBJECTION PERTAIN TO ASSESSMENT YEAR 2014 -15. 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASS ESSEE IS A NON-RESIDENT INDIAN SETTLED IN THE UNITED KINGDOM ( UK). DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SOLD HER 1/3 RD SHARE IN A RESIDENTIAL HOUSE SITUATED AT A-9/30, VASANT VIHA R, NEW DELHI VIDE SALE DEED DATED 09.07.2012 FOR AN AMOUNT OF RS.26,66,66,666/- BEING HER 1/3 RD SHARE OF THE TOTAL SALE CONSIDERATION OF RS.80 CRORES. THIS PROPERTY HAD B EEN 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 REDUCIN G THE INDEXED VALUE OF RS.1,51,31,401/-. IN RESPECT OF THE CAPITA L 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 A CT) AND A FURTHER 3 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE EXEMPTION OF RS.3,75,95,937/- U/S 54 OF THE ACT BEI NG A RESIDENTIAL HOUSE PURCHASED IN UK. THE ASSESSING OFFICER (AO) D ISALLOWED THE CLAIM OF EXEMPTION U/S 54 ON THE GROUND THAT THE PU RCHASE OF A RESIDENTIAL HOUSE OUTSIDE INDIA DOES NOT QUALIFY FO R 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 AMO UNT OF RS.5,60,000/- AND RS.2,00,000/- BEING STAMP DUTY AN D 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 AGA INST THE RETURNED CAPITAL GAIN OF RS.21,97,26,078/-. 2.1 AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE APPROACHED THE LD. FIRST APPELLATE AUTHORITY, WHO WAS PLEASED TO PARTLY ALLOW THE ASSESSEES APPEAL BY ALLOWING THE BE NEFIT OF EXEMPTION CLAIMED U/S 54 OF THE ACT, BUT UPHELD THE DISALLOWANCE TOWARDS COST OF IMPROVEMENT. 4 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE 2.2 NOW, BOTH THE ASSESSEE AS WELL AS THE DEPART MENT HAVE APPROACHED THIS TRIBUNAL. THE DEPARTMENT HAS CHALLE NGED THE ACTION OF THE LD. CIT(A) IN ALLOWING THE ASSESSEES CLAIM OF EXEMPTION U/S 54 OF THE ACT WHEREAS THE ASSESSEE, IN HER CROSS OBJECTION, HAS CHALLENGED THE UPHOLDING OF DISALLOWA NCE OF COST OF IMPROVEMENT. THE RESPECTIVE GROUNDS TAKEN BY BOTH T HE PARTIES ARE AS UNDER: GROUNDS OF APPEAL FILED BY THE DEPARTMENT:- (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E 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 AC T WAS TO BOOST THE INDIAN ECONOMY BY PROMOTING INVESTMENT IN HOUSI NG SECTOR. (II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 54 O F THE ACT FOR PURCHASE OF PROPERTY ABROAD IGNORING THE FACT THAT INSERTION OF WORD 'IN INDIA' IN SECTION 54 BY THE FINANCE ACT, 2 014 WAS ONLY CLARIFICATORY IN NATURE TO REMOVE THE CONFUSION CRE ATED BY SOME JUDICIAL PRONOUNCEMENTS. 5 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE (III) THE APPELLANT PRAYS FOR LEAVE TO ADD, A MEND, MODIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE T HE 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 PRO PERTY 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.5600 00/- AND PROFESSIONAL CHARGES OF RS.200000/- PAID TO S.C. NA NDA & 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 A MEND THE GROUNDS OF CROSS OBJECTIONS AT OR BEFORE THE HEARIN G. 3.0 THE LD. SR. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE SOLE GROUND RAISED BY THE DEPARTMENT IS CH ALLENGING THE ASSESSEES 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 BEN EFIT OF EXEMPTION U/S 54 IS AVAILABLE ONLY IN RESPECT OF IN VESTMENT MADE IN INDIA AND NOT OUTSIDE INDIA. IT WAS ARGUED THAT THE INTENTION OF THE 6 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE LEGISLATURE BEHIND SECTION 54 OF THE ACT WAS TO ENC OURAGE INVESTMENT IN INDIA AS WAS EVIDENT FROM THE AMENDMEN T BROUGHT BY FINANCE ACT, 2014 WHEREIN THE WORD IN INDIA WAS ADDE D TO SECTION 54. IT WAS ARGUED BY THE LD. SR. DR THAT THE LD. CIT (A) HAD, THEREFORE, ERRED IN ALLOWING THE BENEFIT OF EXEMPTIO N 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 HO USE OUTSIDE INDIA PRIOR TO THE AMENDMENT TO SECTION 54 OF THE ACT VID E FINANCE ACT, 2014 WAS NO LONGER RES INTEGRA AND THAT THE ISSUE WAS SETTLED BY VARIOUS JUDGMENTS OF THE HONBLE HIGH COURTS AS WELL AS THE CO- ORDINATE BENCHES OF THIS TRIBUNAL. IN THIS REGARD, HE PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE 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 TH E HONBLE GUJRAT HIGH COURT IN THE CASE OF MS. LEENA JUGALKIS HOR SHAH V. 7 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE ACIT [2017] 392 ITR 18 (GUJ) AND NUMEROUS OTHER ORD ERS 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 EXPE NSES 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 FREEHO LD AND FOR REGISTRATION OF CONVEYANCE DEED. IT WAS SUBMITTED TH AT THIS EXPENDITURE WAS VERY MUCH A PART OF THE COST OF IMP ROVEMENT. THE LD. AR HIGHLIGHTED THAT THE GENUINENESS OF THE IMPU GNED EXPENDITURE HAS NOT BEEN DOUBTED BY THE LOWER AUTHO RITIES. IT WAS REITERATED THAT SINCE THESE EXPENSES WERE INCURRED IN CONNECTION WITH THE HOUSE PROPERTY SOLD AND PERTAINED TO OBTAIN ING LAWFUL POSITION OF THE PROPERTY, THE SAME SHOULD BE ALLOWE D. 6.0 PER CONTRA, THE LD. SR. DEPARTMENTAL REPRESENT ATIVE (DR) RELIED ON THE CONCURRENT ORDERS OF THE ASSESSING OF FICER AND THE LD. CIT(A) AND SUBMITTED THAT THE INCURRING OF THIS EXP ENDITURE HAD NOT 8 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE RESULTED IN ANY ADDITION TO THE VALUE OF THE PROPER TY AND AS SUCH THE SAME SHOULD NOT BE ALLOWED AS COST OF IMPROVEME NT. 7.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE A LSO PERUSED THE MATERIAL ON RECORD. AS FAR AS THE DEPAR TMENTS 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 IN DIA PRIOR TO THE AMENDMENT TO SECTION 54 VIDE FINANCE ACT, 2014. THE FACT OF THE PROPERTY SOLD BEING IN INDIA AND THE INVESTMENT BEI NG MADE IN A RESIDENTIAL HOUSE IN UK IS NOT IN DISPUTE. THE LD. CIT(A) HAS, WHILE ALLOWING THE BENEFIT OF EXEMPTION, PLACED RELIANCE O N THE JUDGMENT OF THE HONBLE GUJRAT HIGH COURT IN THE CASE OF LEE NA 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 HA S 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 9 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE UNDERSECTION 54F OF THE ACT, A RESIDENTIAL HOUSE PU RCHASE / CONSTRUCTED MUST BE IN INDIA AND NOT OUTSIDE INDIA. THE ASSESSEE IN THIS CONTEXT HAS POINTED OUT THAT THE H ON'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 T HE INCOME-TAX ACT BY THE FINANCE (NO. 2) ACT, 2014, WH ICH CAME INTO EFFECT WITH EFFECT FROM 1.4.2015THATTHE A SSESSEE SHOULD INVEST THE SALE PROCEEDS ARISING OUT OF SALE OF CAPITAL ASSET IN A RESIDENTIAL HOUSE SITUATED IN IN DIA WITHIN THE STIPULATED PERIOD. THUS ON A PLAIN READING OF S ECTION 54F OF THE INCOME TAX ACT BEFORE ITS AMENDMENT BY T HE FINANCE (NO. 2) ACT LEAVES NO ROOM FOR ANY DOUBT TH AT THE ASSESSEE SHOULD RESTRICT HER INVESTMENT WITHIN INDI A OR OUTSIDE INDIA. THE ONLY CONDITION WAS THAT THE ASSE SSEE SHOULD INVEST IN A RESIDENTIAL HOUSE. THE TRIBUNAL HAS WRONGLY INTERPRETED SECTION 54F OF THE INCOME-TAX A CT BY HOLDING THAT THE ASSESSEE SHOULD PURCHASE THE RESID ENTIAL HOUSE SITUATED IN INDIA. PRIOR TO AMENDMENT TO SECT ION 54F OF THE ACT, THE ONLY CONDITION STIPULATED WAS INVES TMENT IN A RESIDENTIAL HOUSE. WHEN THE SECTION 54F OF THE IN COME- TAX ACT WAS CLEAR AND UNAMBIGUOUS, THERE IS NO SCOP E FOR IMPORTING INTO THE STATUTE THE WORDS WHICH ARE NOT THERE. SUCH IMPORTATION WOULD BE NOT TO CONSTRUE BUT TO AM END THE STATUTE. IF THERE IS ANY DEFECT IN THE ACT, IT CAN BE REMEDIED ONLY BY THE LEGISLATION AND NOT BY JUDICIA L INTERPRETATION IT WAS FURTHER HELD THAT IN THE PRESENT CASE THE A SSESSEE HAS PURCHASED THERE SIDENTIALHOUSE IN U.S.A. OUT OF THE SALE PROCEEDS OF THE PLOT IN INDIA AND THUS SHE HAS FULF ILLED THE CONDITIONS OF SECTION 54F OF THE INCOME-TAX ACT BEF ORE ITS 10 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE AMENDMENT BY THE FINANCE (NO.2) ACT. MOREOVER, WHEN THE LANGUAGE OF A TAXING PROVISION IS AMBIGUOUS OR CAPA BLE 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 ASSESSE E SHOULD INVESTMENT IN A RESIDENTIAL HOUSE. THE LANGUAGE OF SECTION IS CLEAR AND AMBIGUOUS. THEREFORE, WE CANNOT IMPORT IN TO 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 AMEN DMENT CAN HE EXTENDED TO ARESIDENTIAL HOUSE PURCHASED OUTSIDE IN DIA. IN THAT VIEW OF THE MATTER, THE APPEAL IS ALLOWED. THE ORDE R OF THE TRIBUNAL IS SET ASIDE. WE ANSWER THE QUESTION IN FA VOUR OF THE ASSESSEE AND AGAINST THE REVENUE' XXXX 4.5.1 THE CLAIM OF DEDUCTION UNDER SECTION 54 BY TH E ASSESSEE IS BASEDON THE PREMISE THAT THE SECTION 54 DO NOT S PECIFICALLY MENTION THAT THE RESIDENTIAL HOUSES SHOULD BE LOCAT ED IN INDIA FOR THE PURPOSE OF GRANT OF DEDUCTION. THE ASSESSIN G OFFICER RELIED ON THE JUDGMENT OF THE AHMEDABAD- TRIBUNAL O N LEENA J. SHAH WHERE SUCH INVESTMENT OUT OF INDIA WAS FOUND T O BENOT ELIGIBLE FOR DEDUCTION U/S 54F. THE ASSESSEE IN HIS SUBMISSIONS HAS POINTED OUT THAT THE AFORESAID DECISIONS ON WHI CH 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 INVESTM ENT OUT OF INDIA HAS BEEN PERMITTED. THE ISSUE OF DEDUCTION U/ S 54 FOR INVESTMENT IN RESIDENTIAL PROPERTIES WAS FIRST INTR ODUCED IN THE BUDGET THROUGH THE FINANCE BILL 1982. THE FINANCE B ILL AND THE MEMORANDUM IN 1982 CLEARLY MENTIONED IN PARA 20.2 A S UNDER: WITH A VIEW TO ENCOURAGING HOUSE CONSTRUCTION, THE FINANCE ACT, 1982, HAS INSERTED A NEW SECTION 54F TO PROVID E THAT 11 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE 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 WITH IN A PERIOD OF THREE YEARS AFTER THE DATE OF TRANSFER, A RESIDENTIAL HOUSE THE CAPITAL GAIN ARISING FROM THE TRANSFER WI LL 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 CAPITA L 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 TRANS FERRED, THE EXEMPTION FROM LONG TERM CAPITAL GAIN WILL BE GRANT ED PROPORTIONATELY ON THE BASIS OF INVESTMENT OF NET CONSIDERATION EITHER FOR PURCHASE OR CONSTRUCTION O F 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 O F BUDGET IN 1982. THE EXTRACT IS AS UNDER: 88. THERE IS AN ACUTE SHORTAGE OF HOUSING, AND HOU SE BUILDING ACTIVITY HAS TO BE GIVEN IMPETUS. WITH A V IEW TO PROVIDING AN INCENTIVE TO TAXPAYERS WHO DO NOT OWN A RESIDENTIAL HOUSE, I PROPOSE TO EXEMPT FROM TAX LON G-TERM CAPITAL GAINS ARISING FROM THE TRANSFER OF OTHER AS SETS WHERE THE NET CONSIDERATION IS INVESTED BY THE TAXP AYER IN A RESIDENTIAL HOUSE. 12 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE 4.5.3 IT CANNOT BE DISPUTED THAT THE INTENT OF THE ABOVE SPEECH AND THE STATE SECTIONS WERE LEGISLATED TO GRANT BEN EFIT FOR HOUSE PROPERTY PURCHASE IN INDIA. THE CONSTRUCTION OF HOU SING AND THE SHORTAGE OF HOUSING MENTIONED BY THE FINANCE MINIST ER 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 INVE STMENT 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 DE CISIONS, THE SUPREME COURT HAS HELD THAT WORDS CANNOT BE READ IN TO THE STATUTE WHEN THE WORDING PER SE IS CLEAR. HERE, THE WORDING OF THE STATUTE IS ABSOLUTELY CLEAR. IN THE PRESENT CAS E, EVEN THOUGH THE INTENTION OF THE LEGISLATURE WAS TO GRANT BENEF IT TO INVESTMENT IN RESIDENTIAL HOUSES IN INDIA, THE STAT UTE DID NOT SAY SO. IN VIEW OF THIS POSITION OF THE STATUTE, TH E AMENDMENT WAS BROUGHT THROUGH THE FINANCE ACT 2014 TO MAKE TH E STATUTE CLEAR. THE STATUTE AS IT EXISTED FOR AY 2012-13 COU LD 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 FAUL TED TO HAVE TAKEN A PLAIN LITERAL INTERPRETATION OF THE SECTION . 5. IN VIEW OF THE ABOVE DISCUSSION, IT IS CLEAR T HAT 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 GAIN S. THEREFORE THE APPEAL OF THE ASSESSEE IS UPHELD AND BENEFIT OF SECTION 54 IS GRANTED TO THE ASSESSEE AGAINST HIS INCOME FROM CAP ITAL GAINS. THEREFORE GROUND (IV) TO (XI) ARE DECIDED IN FAVOR OF THE ASSESSEE. 13 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE 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 B EEN DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF DIPANKAR MO HAN GHOSH REPORTED IN 401 ITR 129 (DELHI HIGH COURT) IN WRIT PETITION (CIVIL) 9859/2019 AND BY THE HONBLE KERALA HIGH COURT IN T HE CASE OF CIT VS. VINAY MISHRA REPORTED [2021] 276 TAXMANN.COM.68 (KARNATAKA) AND VERY RECENTLY HONBLE MADRAS HIGH COURT IN ITS JUDGMENT DATED 22.07.2021 IN THE CASE OF CIT VS. SAROJA NAIDU REPO RTED IN [2021] 281 TAXAMANN.COM 305 (MADRAS). THE OBSERVATIONS OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DIPANKAR MOHAN GHO SH (SUPRA) ARE BEING REPRODUCED HEREIN UNDER FOR A READY REFER ENCE:- 1. THE CHALLENGE IN THE PRESENT WRIT PETIT ION 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 W OULD BE ELIGIBLE FOR THE BENEFIT AVAILABLE UNDER THE PROVIS IONS OF SECTION 54 OF THE INCOME-TAX ACT AND TO THE EXTENT OF RE-IN VESTMENT IN RESIDENTIAL PROPERTY OUTSIDE INDIA, I.E. IN LONDON IN THIS PARTICULAR CASE. 2. THE RESPONDENT ASSESSEE IS A NON-RESIDENT I NDIAN. HE SOLD HIS RESIDENTIAL PROPERTY BEARING NO. 1/26, SHA NTI NIKETAN, NEW DELHI AND EARNED LONG TERM CAPITAL GAIN WHICH W AS PARTIALLY INVESTED IN PURCHASING THE PROPERTY, I.E. RESIDENTIAL FLAT 14 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE NO. 47, ABINGDON COURT, ABINGDON VILLAS, KENSINGTON , LONDON FOR A CONSIDERATION OF GBP 26,75,000 PLUS STAMP DUT Y AND OTHER EXPENSES ESTIMATED AT GBP 1,89,974.34 (APPROX.), AG GREGATING TO GBP 28,64,974.34. THE SAID CONSIDERATION WAS PAI D OUT OF REMITTANCES MADE BY THE RESPONDENT FROM INDIA AND T HE SALE CONSIDERATION RECEIVED BY HIM IN RESPECT OF THE AFO RESAID INDIAN ASSET. THE AUTHORITY ARRIVED AT ITS CONCLUSION WITH REGARD TO THE RESPONDENT BEING ENTITLED TO EXEMPTION UNDER SECTIO N 54 OF THE ACT BY PLACING RELIANCE ON THE DECISION OF THE GUJA RAT HIGH COURT IN LEENA JUGALKISHOR SHAH VS. ASSISTANT COMMISSIONE R OF INCOMETAX, (2017) 392 ITR 18 (GUJ.). THE AUTHORITY HAS NOTED THAT THE REVENUE HAS NOT ASSAILED THE SAID DECISION BEFORE THE SUPREME COURT. 3. REFERENCE HAS ALSO BEEN MADE TO THE CIRCUL AR NO. 01/2015 CONTAINING EXPLANATORY NOTES TO THE PROVISI ONS 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 I N TERMS PROVIDES THAT THE SAID AMENDMENT WOULD TAKE EFFECT FROM 01.04.2015 AND WOULD, ACCORDINGLY, APPLY FOR THE AS SESSMENT YEAR 2015-16 AND SUBSEQUENT ASSESSMENT YEARS. THUS, THE SAID AMENDMENT IS PROSPECTIVE AND WOULD NOT APPLY I N THE FACTS OF THE PRESENT CASE SINCE THE RESPONDENT SOLD THE R ESIDENTIAL 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 AFORESAI D, IN LONDON. 4. THIS COURT HAS ALSO HAD AN OCCASION TO D EAL WITH THE SAID ISSUE IN ITA NO.1169/2018 TITLED THE COMMISSIO NER OF INCOME-TAX INTERNATIONAL TAXATION-2 VS. ANURAG PAND IT, DECIDED ON 14.05.2019. 15 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE 5. IN THE LIGHT OF THE AFORESAID, WE ARE NO T INCLINED TO INTERFERE WITH THE IMPUGNED ORDER. 7.2 THEREFORE, IN LIGHT OF THE ABOVE SAID JUDG MENTS OF THE VARIOUS HONBLE HIGH COURTS INCLUDING THE JURISDICTIONAL HI GH 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 PROS PECTIVE IN NATURE OPERATIONAL ONLY WITH EFFECT FROM 1 ST 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 AMEN DMENT. IN THE PRESENT APPEAL, THE INVESTMENT IN PURCHASE OF RESID ENTIAL HOUSE IN UK WAS MADE IN JULY, 2013 AND AS SUCH THE CLAIM OF E XEMPTION U/S 54 OF THE ACT IN RESPECT OF SUCH INVESTMENT IS ALLO WABLE. ACCORDINGLY, WE FIND NO REASON TO TAKE A VIEW DIFFE RENT 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 16 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE THE DISALLOWANCE OF EXPENSES CLAIMED BY THE ASSESSEE TOWARDS COST OF IMPROVEMENT. WE NOTE THAT IN THE ASSESSMENT ORDE R, THE ASSESSING OFFICER HAS NOT DISPUTED THE GENUINENESS AND THE NATURE OF EXPENDITURE SO INCURRED. WE ALSO NOTE THAT THE E XPENSES SUCH AS REGISTRATION EXPENSES, CONVERSION CHARGES, STAMP DU TY AND PROFESSIONAL FEE ARE INEXTRICABLY LINKED WITH THE PR OPERTY 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 T HE NAME OF THE ASSESSEE WAS AN ESSENTIAL PRE-CONDITION FOR THE PURP OSE OF OBTAINING THE LEGAL TITLE OF THE PROPERTY AND ITS FURTHER SAL E. FURTHER, THE CHARGES INCURRED FOR CONVERSION OF LEASEHOLD TO FRE EHOLD ALSO HAD TO BE INCURRED FOR THE PURPOSE OF ENHANCING THE SALES CONSIDERATION VALUE OF THE PROPERTY SOLD AND, THEREFORE, IT CAN B E 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 I NTO ITS FOLD ALL KINDS OF EXPENSES INCURRED FOR THE IMPROVEMENT OF T HE IMPUGNED PROPERTY. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THE 17 ITA NO.7195 /DEL/2017 ACIT VS. MS. PRATIMA SARWATE 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 DEPA RTMENT IS DISMISSED WHEREAS THE CROSS OBJECTION OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 27 TH SEPTEMBER, 2021. SD/- SD/- (N. K. BILLAIYA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27/09/2021 PK/PS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT DEHRADUN