Amendment to Sec 54F restricting investment in house property ‘in India’ cannot be applied retrospectively

While allowing the Revision Petition, The Bombay High Court held that the amendment to Section 54F restricting the investment in house property ‘in India’ is not merely a clarificatory or explanatory amendment, but a substantive one, thus, it cannot be applicable retrospectively. 

A Division Judge Bench of Justice DR. N. K. Gokhale and Justice K. R. Shriram observed that “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”.

Advocate Devendra Jain appeared for the Petitioner whereas Advocate Akhileshwar Sharma appeared for the respondent. 

The brief facts of the case were that the Assessee is an Indian, residing in the US sold a residential flat in India for Rs.54.12 Lacs, and purchased another residential apartment in the USA for a consideration more than the amount of the long-term capital gains. Under a mistaken presumption, the Assessee deposited an amount of Rs.75 Lacs into a Capital Gain Account Scheme (CGAS) which was more than the amount of long-term capital gains. The Assessee filed his return of income declaring Nil income for AY 2014-15 assuming his income would not be taxable in India. Upon realizing his mistake, he filed a rectification application accompanied by a correct return of income and a revision petition under Section 264 seeking a revision of the intimation under Section 143(1) and sought the issuance of a certificate to the bank for release of Rs.75 Lacs which was deposited in the CGAS. But CIT rejected the Assessee’s revision petition on the grounds that the Assessee was not eligible for deduction as the investment was made in a house property outside India. Aggrieved, the Assessee preferred the present writ petition before the court. 

After considering the submission, the Bench noted that the pre-amended Section 54F leaves no room for doubt that the Assessee need not restrict his investment only to India and that the Assessee satisfied the conditions stipulated in Section 54F as it stood during the relevant AY.

The Bench stated that pre-amended Section 54F only provided for the investment of the capital gain in a residential house by the Assessee without mentioning any boundary.

“However, the amendment to Section 54F by the Finance (No. 2) Act, 2014 which came into effect from Apr 1, 2015, introduced the condition that the Assessee should invest the capital gains in a residential property situated ‘in India’”, added the Bench.

The Court opines that the language of pre-amended Section 54F is neither ambiguous nor vague and the statute does not contain any statement that the amendment is merely declaratory or clarificatory or “for removal of doubts”.

Referring to the case Virtual Soft Systems Limited v. CIT, the Bench Reiterated that “even if the statute does contain such a statement, the Court will not regard itself as being bound by the statement, but will proceed to analyze the nature of the amendment and then conclude whether it is, in reality, clarificatory provision or is intended to change the law and apply to future periods.”

The Bench further mentioned that “the amendment to Section 54F to be prospective in nature and cannot be applied to the transaction prior to Apr 1, 2015, as it would be tantamount to imposing an additional condition retrospectively to an earlier transaction”.

The Bench stated that the amended provision of Section 54F does not refer to Section 5(2) even remotely to suggest it to be a mere clarification.

The Bench also stated that the Assessee has not filed the revised return under Section 139(5) but has admitted to an inadvertent error in declaring total income as Nil vide a rectification application. 

Finding the appeal of the rejection of the revision petition to be unsustainable, the Bench directs the CIT to accept the rectified return on or before Dec 31, 2023, and decide the same in accordance with the law.

Cause Title: Hemant Dinkar Kandlur Vs. Commissioner of Income Tax [W.P No. 1644 OF 2022 / 2023-Enterslice-23-HC-Bom-IT]

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