Exemption u/s 54 or 54F for Buying Property Aboard

Exemption u/s 54 from long term gains on sale of any kind of asset is allowed  under section 54 or 54F if the sale proceeds are used for investment in new residential house. There are certain other conditions which are also required to be fulfilled.However, one conditions which is totally missing in either section 54 of section 54 is the requirement of purchase of property in India. Therefore, the issue whether the tax payer can claim exemption u/s 54 or 54F for buying property abroad is important .Sudhir asks

My dad sold his house in India in Feb 2012 & has transferred the money to his account in US , after paying all taxes. He has also re-invested in a property in US. Now what steps he should execute to file India’s tax return by July 2012 and get refund of taxes he paid ( as per Sec 54). One of my friend is a CA but he isn’t very conversant or confident in this.Now since there have been 5-6 rulings in favour of ” Someone can reinvest outside India & still claim back taxes”, is it a straight process now or still a tricky one. Also does Indian Tax Department allows any extension to file taxes

As far as the claim about exemption is concerned, it can be said that the income tax department will not give you relief on their own  , however the appellate authorities may certainly give tax relief on the basis of following decisions of Tribunal which held that there is noting in the provision u/s 54 or 54 which provides that the exemption is available only when the investment is made in residential property in India.

Prema P. Shah v. ITO, 100 ITD 60 (Mum.) in which the question before the Tribunal was whether the exemption u/s.54(1) could be extended to the capital gains that was reinvested in a residential house purchased in a foreign country on selling the property that was situated in India.The Tribunal held that if all other conditions laid down in the section were satisfied, merely because the property acquired was located in a foreign country, the exemption claimed would not be denied.

In ITO v. Dr. Girish M. Shah, ITA No. 3582/M/ 2009 before ‘G’ Bench of ITAT, Mumbai. a non-resident Indian settled in Canada since 1994, sold his flat in Mumbai in 2003, for Rs.16 lakh, which was purchased in April, 1984, for Rs.1,31,401. The entire sale consideration was repatriated to Montreal for a joint purchase of a house for Rs.64.75 lakh. The benefit of section 54 was claimed on the ground that sale proceeds were utilised for purchasing property. The tribunal , relying on the Prema D Shah case, gave verdict in favour of assessee.

Caution !

One should always keep in mind that the relief has come from appellate authority like ITAT Mumbai , therefore, there may be possibility that other Tribunals or High Court may take an opposite view . For example , ITAT , Ahmedabad in Smt. Leena J. Shah v. ACIT, 6 SOT 721 (Ahd.) where an appeal was filed by an assessee against the  action of the CIT(A) in confirming the denial of exemption u/s.54F of the Income-tax Act, 1961 inter alia on the ground that the investment was made by the assessee in purchasing the residential house outside India.The Tribunal held that the exemption 54F is allowed only when the property is bought in India and not abroad.

Apart from the case laws citied above, it is observed that section 10(22) which deleted from 01/04 /1999 cam for interpretation in Supreme Court in Oxford University Pressv. CIT [2001] 247 ITR 658 wherein Hon’ble Court observed that giving a purposeful interpretation to section 10(22), it will be reasonable to hold that in order to be eligible to claim exemption there under the assessee has to establish that it is engaged in some educational activity in Indiaand its existence in this country is not for the purposes of profit only. However, this decision is in the context of section 10(22)(since deleted w.e.f.1/4/1999) .

So , in order to get refund of the tax deducted , tell your father to file return of income and claim exemption if all the conditions are fulfilled