Assessee qualified for Sec. 54F relief if second house inhabited by him is situated in foreign country: ITAT

Smt. Maries Joseph v. DCIT – [2023]

Assessee, a non-resident, submitted its return of income for the relevant assessment year. During the appropriate assessment year, the assessee sold land she held jointly with her husband. In order to claim exemption under section 54F, he invested in a residential property. During the scrutiny procedures, the Assessing Officer (AO) denied the claim for deduction under section 54F based on the assessee’s ownership of two houses in the United States.

AO’s deletions were upheld on appeal by the CIT(A). Assessee opted for an immediate appeal to the Cochin Tribunal in response to the order.

The Tribunal determined that the exemption under section 54F is admissible with regard to a residential house property if the assessee does not hold more than one residential house other than the new asset, but does not specify whether in India or overseas. The Finance (No. 2) Act, 2014 amended section 54F to clarify that the deduction is only permissible if the investment in the new residential property is made in India and not abroad.

Section 54F is an advantage granted to the assessee for investing, whereas the proviso is a condition/restriction on the existing ownership of the asset; thus, it cannot be said conclusively that the same explanation should be applied to both.

To give effect to the legislative intent, it is crucial that a proviso be construed in harmony with the main statute, and the section should be read as a whole, inclusive of the proviso, so that they mutually shed light on each other and result in a cohesive construction. The legislative intent behind granting relief to the assessee through section 54F is investments in a residential house in India. Consequently, the provision enforcing the conditions cannot be read in isolation and should be construed in harmony with the main section.

So, the condition that the deduction is not allowed if the assessee owns more than one residential property other than the new asset should be read to relate to ownership of residential properties in India. The reason why the deduction under section 54F was denied, is because the assessee owns two residences in the United States, was therefore not valid.