Section 54 claim cannot be rejected merely for the reason that the new house purchased was in a foreign country and the consideration was paid by assessee in Singaporean currency- Claim u/s 54 cannot be rejected for the reason that purchase amount was more than sale proceeds and assessee's bank statement did not provide exact information as if this reason was accepted it would amount to imposition of a superficial condition for an assessee to utilize the very consideration money in purchasing the new asset as section 54 was a beneficial provision wherein such a condition was nowhere provided for

INCOME TAX APPELLATE TRIBUNAL- CHENNAI

I.T.A. No. 863/Mds/2014 (assessment year 2009-10)

SHRI N. RANGANATHAN ..........................................................................Appellant.
V
INCOME TAX OFFICER .............................................................................Respondent

A Mohan Alankamony And S S Godara, JJ.

Date :June 26, 2014

Appearances

None For the Appellant :
Shri N Madhavan, IRS, JCIT For the Respondent :

Section 54 of the Income Tax Act, 1961 — Exemption — Section 54 claim cannot be rejected merely for the reason that the new house purchased was in a foreign country and the consideration was paid by assessee in Singaporean currency — Claim u/s 54 cannot be rejected for the reason that purchase amount was more than sale proceeds and assessee's bank statement did not provide exact information as if this reason was accepted it would amount to imposition of a superficial condition for an assessee to utilize the very consideration money in purchasing the new asset as section 54 was a beneficial provision wherein such a condition was nowhere provided for — N. Ranganathan v. Income Tax Officer.

FACTS:

Assessee an 'individual' was owner of a residential house and sold this house for ? 55 lakhs resulting in capital gains of ? 42,19,184/-. Thereafter, he had purchased a residential house in Singapore. Assessee had filed his 'return' declaring Rs. Nil as income after claiming section 54 deduction regarding reinvestment of capital gains for purchase of new house. The same was 'summarily' processed. Assessing Officer framed 'regular' assessment accepting the claim u/s 54. However, CIT passed order u/s 263 holding therein that assessee's claim u/s 54 could be allowed only in case of purchase of new house in India and not in a foreign country. So, he directed the AO to frame 'denovo' assessment. In consequence thereof, AO disallowed assessee's claim on the very ground that he had not purchased house in question in India and added capital gains of ? 42,19,184/-. On appeal by assessee, CIT(A) affirmed the order of AO. Being aggrieved, assessee went on appeal before Tribunal.

HELD,

that CIT(A) disallowed assessee's claim of deduction u/s 54 for the reason that he had purchased his new house in Singapore; paid his consideration in foreign currency, the said amount turned out to be more than sale consideration realized from sale of Chennai house and his accounts statement did not provide exact information about flow of money. So far as, the first reason is concerned, it was held that section 54 claim cannot be rejected merely for the reason that the new house purchased was in a foreign country. The second reason was that assessee had paid purchase amount in Singaporean currency. Undisputedly, he has purchased his house in Singapore. So, he was supposed to pay the consideration money as per currency norms of said county. Thus, this reason was not concurred with. The third reason that the purchase amount was more than sale proceeds and assessee's bank statement did not provide exact information. It was held that if this reason was accepted, it would amount to imposition of a superficial condition for an assessee to utilize the very consideration money in purchasing the new asset. Section 54 was a beneficial provision wherein such a condition was nowhere provided for. It was also not the Revenue's case that the assessee had in any way violated law of the land in purchasing the new house. Thus, it was inferred that assessee had utilized his consideration money only to purchase the new Singaporean house. Assessee was held entitled for claim of deduction u/s 54 qua the new house purchased in Singapore. In the result, appeal was answered in favour of assessee.

ORDER

The order of the Bench was delivered by

S S Godara-This assessee’s appeal for assessment year 2009-10; emanates from order dated 10.03.2014 passed by the Commissioner of Income Tax (Appeals)-VII, Chennai in ITA No.1067/2013-14 in proceedings under section 143(3) r.w.s. 263 of the Income Tax Act 1961 [in short the "Act"].

2. The assessee’s sole substantive ground challenges action of the Assessing Officer as well as the CIT(A) denying him claim of deduction u/s. 54 of the Act resulting in addition of capital gains of ? 42,19,184/-

3. In the course of hearing, we find that assessee’s authorized representative has filed an adjournment letter dated 16th/17th June, 2014 pleading that he is expected to be out of station. However, nobody has come present to pursue the same. Therefore, we reject this petition and proceed to decide the case on merits in view of the case law CIT vs.Chenniappa Mudaliar (1969) 74 ITR (SC). A few basic facts of the case may be noticed.

4. The assessee; an ‘individual’ was owner of a residential house at Velachery in Chennai. In financial year 2008-2009 relevant to the impugned assessment year, he sold this house for ? 55 lakhs resulting in capital gains of ? 42,19,184/-. Thereafter, he had purchased a residential house in Singapore.

5. On 13.10.2009, the assessee had filed his ‘return’ declaring Rs. Nil as income after claiming’ sec 54 deduction regarding reinvestment of capital gains for purchase of new house. The same was ‘summarily’ processed. Thereafter, the Assessing Officer framed ‘regular’ assessment vide order dated 10.10.2011 accepting the aforesaid claim u/s. 54. However, the CIT/ DIT(International Taxation, Chennai) passed sec 263 order dated 22.07.2013 holding therein that the assessee’s claim u/s. 54 could be allowed only in case of purchase of new house in India and not in a foreign country. So, he directed the Assessing officer to frame ‘denovo’ assessment. In consequence thereof, the Assessing Officer disallowed the assessee’s claim on the very ground that he had not purchased house in question in India and added capital gains of ? 42,19,184/-

6. Aggrieved, the assessee preferred an appeal. The CIT(A) has also rejected his contentions as under:-

"In the reassessment proceedings, the claim of the assessee was denied by the Assessing Officer holding that deduction u/s 54 of the Act is allowable only if investment is made in India. The Assessing Officer relied on the decision of ITAT in the case of Ms. Leena J. Shah vs ACIT (2006) 6 SOI 721. In the grounds of appeal and written submission filed, it was contended that the appellant fulfilled all the conditions to claim exemption u/s. 54 of the Act and hence the denial is unjustified. The following case laws were relied on.

        a) Mrs. Prema P. Shah vs. ITO (2006) 282 ITR (AT) 0211 (ITAT Mumbai)
        b) ITO vs. Dr. Girish M. Shah ITA No. 3582/Mum/2009 dated 17.02.2010.
        c) CIT vs. Vegetable Products (1973) 88 ITR 192(SC)
        d) DIT International Taxation vs Mrs. Jennifer Bhide (2012) 349 ITR 80.
        e) Vinay Mishra vs ACIT (2013) 80 Taxmann.com 341(Bangalore Trib).

There are case laws in favour of the appellant as well as in the favour of the revenue. The issue involved is whether exemption u/s. 54 of the Act is available to the appellant for investing the capital gains in a residential property in Singapore or not? It is pertinent to note that exemptions were the country. India is always in short supply of houses to provide shelter to the teeming population. The Government alone cannot provide shelter to al.. In order to encourage housing sector, Government of India introduced various schemes to spur the ground in that sector. On of the measures is to give incentives by way of exemption to tax payers to invest in residential houses. Definitely the Government of India might not have given incentive to invest in housing in foreign countries. It is common knowledge and elementary thing to perceive the undercurrent in enacting exemption provision relating to housing. Therefore, I am of the considered view that the appellant is not entitled to exemption u/s. 54 of the Act as the appellant purchased a residential house in Singapore. The intention of the legislature is to encourage housing in India and not in foreign countries. Morover, the consideration for the investment in residential property was made in dollors as per documents filed ($5,90,000/-). The amount paid is more than the sale proceeds received out of sale of property in India. Moreover the account statement of Axis Bank does not provide the exact information pertaining to flow of money from the sale consideration receipt of ? 55 lakhs towards purchase of new asset. In the circumstances, the arguments of the appellant are rejected as devoid of merit and the order of the assessing officer is confirmed.’’

Therefore, the assessee is in appeal.

7. We have heard the Revenue and perused the case file. The CIT(A) has disallowed the assessee’s claim of deduction u/s. 54 for the reason that he had purchased his new house in Singapore; paid his consideration in foreign currency, the said amount turned out to be more than sale consideration realized from sale of Chennai house and his accounts statement did not provide exact information about flow of money. So far as, the first reason is concerned, we find that in a recent decision of Vinay Mishra Vs. ACIT (2012) 20 ITR 129 (Bangalore) has summarized all case law; both in favour and against the Revenue in holding that a sec.54 claim cannot be rejected merely for the reason that the new house purchased is in a foreign country. We find that all case laws relied upon by the Assessing Officer as well as the CIT(A) have been taken care of by the learned co-ordinate bench. On being grant opportunity, the Revenue has failed to draw any distinguishing features therein. So, the CIT(A) first reason is not sustainable in the eyes of law.

8. Now, we come to second reason adopted by the CIT(A) that assessee had paid purchase amount in Singaporean currency. Undisputedly, he has purchased his house in Singapore. So, he is supposed to pay the consideration money as per currency norms of said county. Thus, this reason is not concurred with.

9. Now, we come to third reason in the CIT(A) order that the purchase amount is more than sale proceeds and assessee’s bank statement did not provide exact information. Admittedly, we are only concerned about reinvestment of capital gains and not any further sum. Coming to funds flow, we observe that if this reason is accepted, it would amount to imposition of a superficial conditions for an assessee to utilize the very consideration money in purchasing the new asset. We deem it fit to reiterate that sec. 54 is a beneficial provision wherein such a condition is nowhere provided for. It is also not the Revenue’s case that the assessee had in any way violated law of the land in purchasing the new house. Thus, we infer that the assessee had utilized his consideration money only to purchase the new Singaporean house. Accordingly, we hold that the CIT(A)’s other reasons are not liable to be affirmed. The assessee is held entitled for claim of deduction u/s. 54 of the Act qua the new house purchased in Singapore.

10. The assessee’s appeal is allowed.

The order pronounced in the open court on 26th of June, 2014, at Chennai