Exemption u/s 54 cannot be denied on ground that residential property was purchased outside India when requirement of making investment in property only in India was subsequently added - ITAT

THE ISSUE BEFORE THE TRIBUNAL IS - Whether assessee's claim for exemption u/s 54 can be denied on the ground that residential property was purchased outside India, when there was no scope u/s 54 existing at that time for importing the requirement of making such investment in a residential property located in India. NO is the answer.

Facts of the case:

The assessee is a Non-resident Indian(NRI) and during the year under consideration he, inter-alia, earned a long term capital gain of Rs.67,06,652/- from sale of residential property located at Mumbai. In the computation of income assessee claimed exemption u/s 54 on the ground that the capital gain arising on the sale of property was utilized in the purchase of a residential property at New York, USA. The AO denied the claim of exemption on the ground that investment in new residential property did not meet the requirements of section 54 as the property was acquired outside India. On appeal, the CIT(A) noticed that the requirement of making the investment in a property in India India was inserted by the Finance (No.2) Act, 2014 w.e.f. 01/04/2015 and, therefore, in the instant assessment year the claim of exemption u/s 54 could not be denied on this ground.

On appeal, the ITAT held that,

++ prior to the amendment made by Finance (Nos.2) Act, 2014 w.e.f. 01/04/2015, the language of section 54 required the assessee to invest the capital gain in a residential property. It is only subsequent to the amendment, which has come into effect from 01/04/2015, that such investment is required to be made in a residential property in India. The assessment year before us is prior to 01/04/2015, and, therefore, the amendment would not be applicable. A similar situation, though in the context of section 54F of the Act, has been considered by the Gujarat High Court in the case of Smt. Leena J. Shah; notably, so far as the impugned issue is concerned, the requirement of sections 54F & 54F of the Act is pari-materia, inter-alia, requiring the assessee to make investment in a new residential house in order to avail the exemption on the capital gains earned. As per the High Court, prior to the amendment the only stipulation was to invest in a new residential property and that there was no scope for importing the requirement of making such investment in a residential property located in India. On similar analogy, in the present case too, we do not find any reason to uphold the stand of the Assessing Officer that the exemption u/s 54 is to be allowed only if the investment is made in residential property in India. Accordingly, the order of the CIT(A) is hereby affirmed