IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI 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, 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) Date of 26/09/2016 Hearing : Date of Order: 30/09/2016 ORDER Per Ashwani Taneja (Accountant Member): This appeal has been filed by Revenue against order of Ld. Commissioner of Income Tax (Appeals), Mumbai- 10 {(in short CIT(A) }, dated 28.08.2014 passed against 2 Raymond Homi Kermani assessment order u/s 143(3) dated 28.11.2013 for Assessment Year 2011-12 on following grounds: 1.On facts and in circumstances of case and in law, Ld. CIT(A) erred in allowing claim of exemption u/s 54 of I.T. Act by assessee for investment of Rs. 1,70,00,000/-, being sale consideration of immovable property in India, in buying residential apartment in New Zealand of Rs.1,68,17,223/- without appreciating fact that exemption is available only when investment is carried out in India. 2.On facts and in circumstances of case and in law, Ld. CIT(A) erred in relying on decision of Mumbai Tribunal in case of Mrs. Prema P. Shah & Sanjiv P. Shah Vs. ITO(100 ITR 60(Mum)) without appreciating fact that reference appeal u/s 260A of I.T. Act, was earlier preferred, but later on withdrawn in this case on ground of lower tax effect and not on Merit. 3.On facts and in circumstances of case and in law, Ld. CIT(A) erred in allowing exemption u/s 54 of I.T. Act for capital gain arising from sale of residential property in India in investing same in residential apartment at 31, Finnety Ave Howick, Auckland , New Zealand without appreciating fact that claim of exemption of Section 54F of I.T. Act, has not been allowed by Ahmed ab ad IT AT in c ase of Leena J Shah 6 SOT 721(IT O Ahmed ab ad) 2. During course of hearing, arguments were made by Shri R.K. Kotain, Authorised Representative (AR) on behalf of Assessee and by Shri B.S. Bist, Departmental Representative (Sr. DR) on behalf of Revenue. 3. only ground to be adjudicated by us is whether assessee will be eligible to claim deduction u/s 54 of Act, for making investment in acquiring house located abroad in 3 Raymond Homi Kermani Auckland, New Zealand, against sale proceeds of residential house sold by assessee in India. 3.1. During impugned assessment year, deduction has been denied by AO which was subsequently allowed by Ld. CIT(A). During course of hearing, Ld. DR relied upon order of AO and submitted that object of legislation was to promote housing in India and therefore any investment made in acquiring residential house outside India should not be eligible under law for deduction u/s 54. 3.2. Per contra, Ld. counsel of 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 assessee on basis of various judgment of Tribunal. He placed reliance upon following decisions of 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 submissions made by both sides as well as judgments placed before us. brief background as culled out from order of lower authorities is that assessee is non-resident Indian settled in New Zealand. During course of assessment proceedings, it was noted by AO that during year assessee had sold 4 Raymond Homi Kermani his residential plot at Dadar(E), Mumbai and claimed deduction u/s 54 on account of utilization of sale proceeds into acquisition of residential plot at Auckland, New Zealand. AO issued show cause notice to assessee. assessee submitted reply and justified its claim by relying upon decision of Tribunal in case of Mrs. Prema P. Shah v. ITO 282 ITR 211 (ITAT, Mumbai). But, AO was not satisfied with reply by assessee. It was observed by him that while drafting beneficial provisions of section 54, intention of legislature was never to promote housing construction activities outside India and therefore clear intention was to allow deduction only if sale proceeds were utilized into acquiring/constructing residential house in India. He also distinguished judgment of Mrs. Prema P. Shah as was relied upon by assessee before him. He relied upon another judgment of Tribunal in 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 said judgment he denied benefit of deduction. 3.3. Being aggrieved, assessee filed appeal before Ld. CIT(A) and filed exhaustive details and evidences to substantiate its claim. assessee submitted that as per law as contained in section 54, there is no restriction upon acquiring house located outside India. evidence with regard to acquisition of house was also submitted, after considering details and evidences submitted by 5 Raymond Homi Kermani assessee. Ld. CIT(A) decided this issue in favour of assessee by inter-alia observing as under: I have considered A.O s order as well as appellant AR s submissions. Having considered both and also after taking note to amendment to Section 54 and 54F by Finance (No.2) Act, 2014 in Income Tax Act and also after taking note to judicial precedents/decisions cited by appellant s AR in submission, I am of considered view that A.O. was not correct in his action while denying claim of deduction u/s 54 of Act to appellant merely on reason that appellant has made subsequent investment for making claim of decution u/s 54 outside India. Having taken note to amendment in Section 54/54F by Finance Act, 2014, it is evident that said denial of deduction by AO is completely incorrect and unjustified. Having taken note to said amendment to section 54, wherein in sub-section (1) for words constructed residential house , words constructed one residential house in India shall be substituted with effect from 1st April, 2015. This legislative clarity of legislation in respective section i.e. section 54 clearly establishes that 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, action of appellant in making investment outside India in acquiring said residential house for his own purpose qualifies under provisions of law for deduction u/s 54 of Act. My decision on this gets support from decision of jurisdictional Mumbai ITAT s decision in 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 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 appellant based on aforesaid reasoning, I also derive strength with judgment in case of CIT vs. T.N, Arvinda Reddy reported in 120 ITR 46(SC) wherein Hon ble Judge of Supreme Court of 6 Raymond Homi Kermani India Justice V.R. Krishna Iyer observed if you sell your house and make profit, pay ceaser what is due to him, but if you buy or build another, subject to conditions of section 54(1), you are exempt. Thus, I consider it proper and appropriate to direct AO to allow deduction u/s. 54 of Act to appellant as claimed. In result, appellant s appeal is allowed. 3.4. Thus, it is noted from above that Ld. CIT(A) has considered amendment made in section 54 wherein restriction has been bought into statute by legislature for location of new residential house in India, w.e.f. 01.04.2015. Amendment has been held to be prospective and therefore it is not applicable on facts of case before us wherein impugned assessment year is 2011-12 and new residential house has been purchased on 1st June 2011. Further, relying upon various decisions of Tribunal, it was held by Ld. CIT(A) that section 54 shall be eligible to assessee in this case. It is further noted by us that before us, Ld. Counsel of assessee has relied upon many judgment of Tribunal on this issue and claimed issue before us as covered with these judgments. 3.5. We have gone through these judgments and find force in contention of Ld. Counsel. It is noted that coordinate Bench in 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 amendment made in law, held that assessee is eligible for deduction u/s 54 on account of investment in acquiring residential house located outside 7 Raymond Homi Kermani India. Relevant part of observation of Bench is reproduced below: 4.3.1 We have heard rival con ten tions and perused and caref ully considered material on record, including judicial pronouncements cited and placed reliance upon. We find that similar issue has already be en dec ide d in c ase o f Ms. Dhun Jeh Con tr ac to r in IT No. 7058/Mum/2013 dated 13.05.2015. In that case Coordinate Bench, af ter considering f acts of that case at para 2 thereof , allo wed assessee's claim for exemption under section 54 of Act on account of investment in acquisition of new property outside India. In doing so Coordinate Bench followed decision of another Coordinate Bench of this Tribunal in case of Girdhar Mohanani and Smt. Varsha Girdhar in ITA Nos. 4591 & 4592/Mum/2013 dated 06.05.2015. In its order in case of Ms. Dhun Jehan Contractor (supra) Coordinate Bench at paras 6 & 7 thereof held as under: - "6. Having considered rival submissions as well as relevant material on record, we find that similar issue has already been decided by coordinate bench of Tribunal in case of Mr. Girdhar Mohanani & Mrs. Varsha Gird har in ITA Nos.4591 & 4592/Mum/2013 decided on 06.05.15 and relevant finding in paras 4 to 9 is as under: "4. We have considered rival contentions and found that during year assessee has claimed exemption u1s.54. Out of sale consideration of Rs.87,37,2911-, assessee has deposited Rs.50 lakhs in capital gains in scheme account. Subsequently deposit was withdrawn during assessment year 2010- 2011 under consideration and was invested in 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 decision in case of Dr. Girish M. Shah, Mrs.Prema P. Shah, Leena P. Shah, wherein it was ITA No. 8 Raymond Homi Kermani 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 other hand, Id. AR relied on decision of Bangalore bench of Tribunal in 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 plain reading of provisions of Section 54F one does not find anything therein to suggest that new residential house acquired should be situated in India. words "in India" cannot be read into section 54F, when Parliament in its legislative wisdorn has deliberately not used 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, Chennai Bench of Tribunal in case of N.Ranganathan, 33 ITR(AT) 444 held that 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. 7. Finance (No.2) Bill, 2014 brought amendment in Section 54, wherein sub-section (1), for words "constructed, residential house", words "constructed, one residential house in India" has to be substituted w.e.f. 1st day of April, 2015. Thus, it is clear from 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, assessment year under consideration is 2010-2011 i.e. much prior to amendment so brought in Finance (No.2) Bill, 2014. There is no reason to decline exemption u1s.54 during A. Y.2010-1 I under consideration. 8.The provisions contained in sub-section (1) of section 54 of Income-tax Act, before its amendment by 9 Raymond Homi Kermani Act, inter alia, provided that where capital gain arises from transfer of long-term capital asset, being buildings or lands appurtenant thereto, and being residential house, and assessee within period of one year before or two years after date of transfer, purchases, or within period of three years after date of transfer constructs, residential house, then, amount of capital gains to extent invested in new residential house is not chargeable to tax under section 45 of Income-tax Act. 9. In vie w of above, we hold that during 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 AO has out-rightly declined exemption on this plea without examining other conditions of Sec.54 so as to make assessee eligible, we accordingly restore appeal to file of AO for verifying other conditions to be fulfilled for grant of exemption u/s. 54 in both appeals of ITA No. 7058/M12013 Ms. Dhun Jehan Contractor 5 assessees. AO is also at 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 order of co-ordinate bench of Tribunal in case of "Mr. Girdhar Mohanani & Mrs. Varsha Girdhar" (supra), we decide this issue in favour of assessee and against Revenue. AO is also at liberty to verify fulfillment of other conditions of section 54 of Act." 4.3.2 Following decision of Coordinate Bench of this Tribunal in case of Ms. Dhun Jehan Contractor in ITA No. 7058/Mum/2013 (supra), we hold that assessee is entitled to be allowed exemption under section 54 of Act in respect of investment made in purchase of new residential property abroad in 151, Whispering Lane, Winona, Winona County, Minnwsota 55987, USA. AO is accordingly directed. Consequently ground No. 1 (1.1 to 10 Raymond Homi Kermani 1.3) of assessee's appeal is allowed. 3.6. No contrary judgment has been placed before us by Ld. DR. Thus, respectfully following judgment of Tribunal, we find that deduction u/s 54 is allowable to assessee. Further, with regard to factum of making investment into new residential house and compliance of further conditions, it has been clearly agreed by Ld. DR that there is no dispute on 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 relief to assessee and nothing wrong has been find out by him. Thus, we find that deduction u/s 54 has been rightly allowed by Ld. CIT(A), no interference is called for in order of Ld. CIT(A). same is upheld, and thus, grounds raised by revenue are dismissed. 4. In result, appeal of Revenue is dismissed. Order pronounced in open court on 30th September, 2016. Sd/- Sd/- (Sanjay Garg ) (Ashwani Taneja) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 30/09/2016 Copy of Order forwarded to : 1.The Appellant 2. Respondent. 3. CIT, Mumbai. 11 Raymond Homi Kermani 4. CIT(A)- , Mumbai 5. DR, ITAT, Mumbai 6.Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) , ITAT, Mumbai ITO TDS 3(1)(1), Mumbai v. Ms. Raymond Homi Kermani, Arvind Sangave & Co