The Bombay High Court has held that the amendment under section 54 of the Income Tax Act, 1961 has no retrospective effect on restricting investment in India as the amended provision would come into force with effect from 1st April 2015 and therefore, would apply to future periods only and not before the date of amendment.
Petitioner assails the order dated 18th March 2019 passed by Respondent No.1, Commissioner of Income Tax (International Taxation)-3 whereby his Petition under Section 264 of the Income Tax Act, 1961 (“the Act”) was rejected.
The petitioner, Hemant Dinkar Kandlur is a Non-Resident Indian working in the USA who had filed a return of income for Assessment Year (“AY”) 2014-15 declaring NIL taxable income, under the assumption that being NRI his income was not taxable in India. The tax payable on his income was Rs. 1,61,855/- and the tax deducted at source (“TDS”) on his salary and interest was Rs. 2,34,220/-. Thus, according to Petitioner, he was entitled to a refund of Rs. 72,370/-.
It is also the case of Petitioner that he had sold a residential flat in India for Rs. 54,12,760/- and purchased another residential flat in the USA for consideration more than the amount of Long Term Capital Gain (“LTCG”) within the time limit prescribed by Section 54 of the Act. Again, under a mistaken presumption, he deposited an amount higher than the amount of LTCG into a Capital Gain Account Scheme(“CGAS”).
Petitioner applied, under Section 197 read with Section 195 of the Act, for a receipt of sale proceeds without deduction of tax at source and was granted the same by the Income Tax Officer concerned. Upon learning the correct provisions of law, he filed a rectification application accompanied by a correct return of income with the CPC, Bangalore. He then filed an application seeking a revision of the intimation under Section 143(1) of the Act.
Mr. Devendra Jain Counsel appearing for Petitioner fairly conceded that the Commissioner, though rightly assumed jurisdiction over Petitioner’s Revision Application, however, failed to consider the position of law settled by various binding precedents. He also relied upon the provision of Section 54(1) of the Act as it existed before the amendment by the Finance (No.2) Act, 2014 to canvass that the only condition to be fulfilled to claim deduction under Section 54 of the Act at the relevant assessment year, was that a new residential house be purchased within the prescribed time dehors any condition as to the location of such house.
The amendment to insert the words ‘in India’ was with effect from 1st April 2015 and was to apply prospectively about subsequent assessment years. He further relies upon the settled principle of interpretation that requires the courts to adopt an interpretation favoring the assessee in cases where the taxing provision is ambiguous or capable of more than one meaning.
Mr. Sharma counsel appearing for Respondent No.1 submitted that the due date for filing the original return of income under Section 139(1) of the Act was 31st July 2014 and the due date for filing a belated return under Section 139(4) of the Act was 31st March 2016 which is beyond the due date and hence, Petitioner was ineligible to revise his return under Section 139(5) of the Act.
Further argued that the application of Section 54 of the Act in the case of non-resident Indians can only be made when the new asset is purchased or constructed ‘in India’.
The bench of Justice K. R. Shriram and Justice N. K. Gokhale has observed that the amendment stated that the amended provision would come into force with effect from 1st April 2015 and therefore, would apply to future periods only and not before the date of amendment.
“The language of Section 54(F) of the Act before the amendment is neither ambiguous nor vague. The intention of the legislature to insert the words ‘in India’ with effect from 1st April 2015 is not uncertain or confusing and hence the applicability of the amendment cannot but be prospective.”, the Bench held.
It was also clear that Petitioner has not filed the revised returns under Section 139(5) of the Act but he has admitted to an inadvertent error in declaring total income as Nil vide a rectification application. The Court held that the petitioner is entitled to a refund of Rs.72,370/- for the excess amount of tax deduction at source. The order was quashed and set aside.
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