Published Editorial

Home sweet home

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The Hindu Business Line

R. Anand

Tax Partner, EY

The devil is in the detail. As is always the case, a quiet but significant amendment affecting the housing sector has been carried out in the Finance Bill 2014. The present Section 54 of the Income-tax Act (The Act) provides for exemption in respect of capital gains arising from the sale of a residential property and reinvesting the same in another residential house property — either purchased one year before or within two years of sale or constructed within three years of the sale. The law was silent on the question of reinvestment of the capital gains in a property outside India. There were genuine cases of assesses buying up houses in the U.K. and elsewhere during the time property prices were low. Money for the same was transferred through the Liberalised Remittance Scheme (LRS) through proper channels (with effect from August 14, 2013, LRS is not available for remittances for acquisition of immovable property directly or indirectly outside India).

Recently, the Chennai Bench of the ITAT in the case of N. Ranganathan v ITO (ITA No 863/Mds/2014) dated June 24, 2014 , held that reinvestment of proceeds from sale of a residential property in India, to purchase a property abroad was eligible for capital gains exemption under Section 54 of the Act. The Tribunal observed that the relevant section of the Act was a beneficial provision wherein such a condition was nowhere provided for. The Tribunal relied on a decision of Bangalore ITAT in the case of Vinay Mishra v ACIT 20 ITR 129 in holding that claim under Sec.54 of the Act could not be rejected merely for the reason that the new house purchased is in a foreign country. The assessee had also not violated the law by purchasing the new house in Singapore, utilising the consideration on sale of his residential property. Thus, the tribunal held the assessee to be entitled to claim exemption under Sec.54 of the Act qua the new house purchased outside India. The issue is not one of literal interpretation of the existing section of the Act but more in the context of spirit of promoting housing sector in India. It is not anybody’s case that exemption provided in Sec.54 is to promote housing outside this country. But then form prevailed over substance when the judicial authorities interpreted the provision in a literal manner.

The amendment proposed clarifies prospectively that the roll-over relief will be available only if the reinvestment is made in one residential house situated in India. In the process, it is also clarified that the question of claiming the relief for more than one residential unit will no longer be permissible. A corresponding amendment has been brought into Sec. 54F of the Act which deals with capital gains arising from the transfer of a long-term asset other than a residential house and reinvesting the gains in a residential house. Here also, the relief will be available only if it is invested in a residential house situated in India. The Budget speech in para 69 and 70 is committed to the development of housing in India. The endeavour is to ensure housing for all by 2022. The proposed changes to the tax laws discussed above are in sync with the avowed objective. At the end of the day, nothing like “Home Sweet Home” and more so home in our own land.