Exemption for CG Not Applicable to the Purchase of a Residential Home Outside the Country After 2015

The capital gain exemption is not available for the residential house brought abroad post 1st April 2015.

For the period prior to AY 2015-16 or to the introduction of the words “in India” in Section 54 of the Act vide Finance Act No. 2 of 2014, which came into effect on April 1, 2015, the taxpayer obtains the advantage of deduction under Section 54F for the property bought or constructed abroad or outside India as well, but not from A.Y. 2015-16 onwards, the bench of N. K. Choudhry (Judicial Member) and Prashant Maharishi (Accountant Member) has observed.

A Mumbai property acquired on October 29, 2003, for Rs. 25,30,020, is jointly and equally owned by the assessee and his wife. Subsequently, the taxpayer, along with his wife, relocated to Canada and sold the flat. A TDS of Rs. 10,68,000 was deducted by the taxpayer upon the deal. The taxpayer then acquired a residential property in Canada for $775,000, transferring the entire long-term capital gain, excluding TDS, to the Canadian seller’s account.

The remaining part of the consideration was paid by the assessee and was financed by Canada Street Capital Finance Corporation. The assessee contended that the complete long-term capital gain was invested in residential property, and they filed a return with a detailed note to demand a refund of the TDS, which was refunded to the applicant.

However, the Assessing Officer (AO) rejected the claim. Dissatisfied with this rejection, the assessee appealed to the Commissioner. The taxpayer argued that before the Assessment Year 2015-16, under Section 54, there was no restriction on purchasing property in or outside India to claim an exemption. The provision of “one residential house in India” was introduced through the Finance Act, of 2014, effective from April 1, 2015.

The taxpayer sold the original property on July 19, 2013, and acquired the foreign property on July 31, 2013, in foreign currency. Hence, they argued that they should be exempted from the limitation imposed starting April 1, 2015.

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The Commissioner (Appeals) upheld the decisions of the CPC and AO in disallowing the TDS claim. The tribunal ruled stating that the taxpayer had acquired the foreign property on July 31, 2013 and had claimed the advantages under Section 54F of the Income Tax Act during the Assessment Year 2014-15. As a result, the assessee was deemed eligible for the benefits stipulated in Section 54F of the Income Tax Act.