Bombay High Court Rules in Favor of NRI in Section 54F Amendment Case

Facts of the Case

In a recent judgment on 12th September 2023, the Bombay High Court ruled on a case involving the amendment of Section 54F in 2015 and its prospective application. The case, Hemant Dinkar Kandlur Vs Commissioner of Income Tax, centered around a Non-Resident Indian (NRI) who sold a residential property in India and invested the sales proceeds in a residential house in the USA.

The petitioner later on sought a refund of his deposit in capital gain account (which he made due to ignorance of law) based on his understanding of taxation rules for NRIs. But the respondent-1 rejected his claim on the ground that Petitioner was not eligible for deduction under Section 54F of the Act as the investment was made in a house property situated outside India. So, the petitioner went for this appeal before the High Court.

Ground of Judgement: Section 54F Amendment Applicability

The Court examined the language of Section 54F of the Income Tax Act both before and after its amendment in 2015. The pre-amended section did not specify that the investment had to be within India, allowing investments in residential properties outside India. The amendment, effective from 1st April 2015, introduced the requirement that the investment be made in a residential property situated “in India.”

Judgement of the High Court

Considering the pre-amendment language of Section 54F, the High Court ruled in favor of the petitioner, stating that the amendment did not apply retrospectively. The Court directed the tax authorities to accept the petitioner’s rectified return of income and process it in accordance with the law by 31st December 2023.

Conclusion

This case highlights the importance of understanding tax laws, especially for NRIs, and the need for proper legal guidance to ensure compliance. The Bombay High Court’s ruling provides clarity on the application of Section 54F and its amendment.

Follow the Link to access the Finance Bill 2023 & amendment on Section 54F-https://www.indiabudget.gov.in/doc/Finance_Bill.pdf

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