Admissibility of Capital gain exemption if the house property is acquired by availing loan from bank

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Admissibility of Capital gain exemption if the house property is acquired by availing loan from bank

Mumbai ITAT in the case of Mrs. Prema P. Shah Vs. ITO has held the following important observation:

1. It is not necessary that that the same amount should have been utilised for the acquisition of new asset for capital gain exemption.

2. Even if an assessee borrows required funds and satisfies conditions relating to investment in specified assets, he is entitled to exemption

3. The judgement of Bombay Housing Corporation vs. Asstt. CIT (2002) 76 TTJ (Mumbai) 25 : (2002) 81 ITD 545 (Mumbai) followed.

4.  As far as the property on lease is concerned, the argument of the Revenue that in fact the assessee has not acquired any property in the strict sense, as he had taken the property on lease and for the leased property the benefit of s. 54 cannot be extended has no merit.  It is the case of the assessee that in the United Kingdom the property belongs to the Sovereign. The subjects enjoy it. Of course absolutely. In the instant case of the assessee, the lease is valid for 150 years, which is in perpetuity and as such, the assessee is as good as absolute owner of the property. Secondly, coming to the plea that the assessee is to pay rent as per the deed, as such in any case the assessee cannot be treated as the owner of the property, is also to be rejected. In the Black’s Law Dictionary, “peppercorn” is mentioned “a small or insignificant thing or amount”. In the agreement, where the rent is fixed as “peppercorn”, it is also mentioned, “if demanded” on the first day of January every year. It also means, the assessee as a matter of duty, is not bound to pay but it is only on demand insignificant rent is to be paid.

 

The copy of the judgement is as under:

MRS. PREMA P. SHAH vs. INCOME TAX OFFICER

ITAT, MUMBAI ‘J’ BENCH

K.P.T. Thangal, Vice President & D.K. Srivastava, A.M.

ITA No. 2706/Mum/1997

29th November, 2005

(2005) 24 CCH 0812 MumTrib

(2006) 101 TTJ 0849 : (2006) 100 ITD 0060

Legislation Referred to

Section 54, 115C(d), 115(f), 115D

Case pertains to

Asst. Year 1993-94

Decision in favour of:

Assessee

In favour of:

Assessee

Case referred to

Addl. CIT vs. Vidya Prakash Talwar (1981) 25 CTR (Del) 220 : (1981) 132 ITR 661 (Del)

Ajit Vaswanit vs. Dy. CIT (2001) 117 Taxman 123 (Del)

CIT vs. Kodandas Chanchlomal (1985) 48 CTR (Guj) 346 : (1985) 155 ITR 273 (Guj)

CIT vs. M.K. Chandrakant & Ors. (2002) 178 CTR (Mad) 477 : (2002) 258 ITR 14 (Mad)

CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC)

CIT vs. T.N. Aravinda Reddy (1979) 12 CTR (SC) 423 : (1979) 120 ITR 46 (SC)

ITO vs. K.C. Gopalan (2000) 162 CTR (Ker) 566 : (1999) 107 Taxman 591 (Ker)

Mrs. Amy P. Cama, Trustee of the Estate of Late M.R. Adenwalla vs. CIT (1999) 152 CTR (Bom) 53 : (1999) 237 ITR 82 (Bom)

Circulars referred to

Circular No. 471, dt. 15th Oct., 1986

Circular No. 672, dt. 16th Dec., 1993

Counsel appeared:

V.H. Patil, for the Assessee : Ravi Sarangal, for the Revenue

 

ORDER

K.P.T. THANGAL, VICE PRESIDENT :

These appeals are by the assessees for the asst. yr. 1993-94.

2. ITA No. 2707/Mum/1997 : The interesting question before us is whether the exemption contemplated under s. 54(1) could be extended to a property purchased in a foreign country after selling the property situated in India.

3. The brief facts narrated by the AO are as under :

Assessee filed the return showing the taxable income of Rs. 33.570 on 31st Dec., 1993. During the previous year relevant to the asst. yr. 1993-94, assessee sold residential property for Rs. 60 lakhs. It was jointly owned by the assessee and Mrs. Prema P. Shah. It was purchased for Rs. 14 lakhs on 29th March, 1983 and sold on 4th April, 1992 for the aforementioned price. Assessee claimed exemption under s. 54, showing long-term capital gains as nil. Assessee filed a xerox copy of the agreement made in London giving particulars such as date of lease, name of lessor and the lessee. On going through the agreement, the AO noted that it was an agreement for leasing of the property by the lessor, viz., Higgs & Hill Homes Ltd., which has been made effective from the 1st day of January, 1988. Assessee is described as a lessee. In this agreement lessor is a resident company. Many restrictions are also imposed, including certain restrictions on the payment of lease rent, restrictions on utilisation of the property, which is claimed by the assessee as acquired residential property, against which assessee claims the exemption.

4. AO held, s. 54 of the IT Act speaks of purchase of residential property or construction thereof within a stipulated period, so that long-term capital gains would be exempted from tax. In the instant case, assessee has purchased only the tenancy rights. Hence assessee’s claim for exemption under s. 54 was rejected. Aggrieved by the above order, assessee approached the first appellate authority.

5. It was submitted before the CIT(A) that selling the Juhu property for Rs. 60 lakhs on 4th April, 1992 and also explained the amount of Rs. 1,59,855 and further Rs. 1,38,000. Assessee invested the balance sum of US $ 1,20,000 in a residential property at London on 20th Feb., 1992. It was submitted on the basis of the legal opinion that the property though termed as lease, has extended period of 150 years and as such, the assessee was entitled for the benefit of s. 54. Assessee further objected that the AO was not justified in holding that to claim exemption the investment again should be made in India itself. It was further submitted that the AO was not justified in holding that the sale proceeds were not invested in the residential property purchased in London, for the reason that the assessee has invested Rs. 50 lakhs in shares and deposits with private parties. It was further the case of the assessee that the AO was not justified in denying the benefit also on the ground that it was for the purpose of purchasing the property and not the consideration received out of the sale of Juhu property.

6. It was contended, as long as there was a sale of house property and purchase and consideration of a house property within the time specified under s. 54, the conditions laid down under s. 54 are satisfied. It was contended that not necessarily the same sale consideration is to be invested in the new residential premises. It was further submitted that there is no stipulation in s. 54 that the residential premises must be purchased in India itself. If it is purchased outside India, but for residential purposes, it would satisfy the condition of s. 54 and the claim of the assessee cannot be rejected. It was further submitted that where the assessee borrowed for the purpose of acquiring the new property, the conditions are satisfied.

7. The learned CIT(A) did not approve the view canvassed by the assessee. While disallowing the assessee’s claim, the CIT(A) observed : (a) the assessee had taken loan from Barclays Bank and used assessee’s foreign earning to purchase/lease the property. In other words, the receipts, which gave rise to capital gains, were not utilised for the purchase of the property. (b) The assessee has not purchased the property in India and IT Act extends to the “whole of India” only. (c) The lease deed dt. 20th Feb., 1992 but effective from 1st Jan., 1998 for 150 years, it is perpetual. This does not entitle the assessee the right of occupation infinitum and it does amount to purchase itself. It is not purchase of a right only. The provision of lease as obtainable in UK is not the same as in India. Therefore the benefit of long-term lease obtained in UK cannot be treated as per Indian laws for the purpose of IT law. (d) The assessee is a non-resident Indian and provisions of Chapter XII-A are special provisions relating to certain income of non-residents. Sec. 115D is a special provision for computation of total income of non-residents. As per s. 115D(2)(a), in the case of an assessee, being a non-resident Indian—(a) the gross total income consists only of investment income or income by way of long-term capital gains or both, no deduction shall be allowed to the assessee under sub-s. (2) of s. 48 or under Chapter VI-A. Hence the CIT(A) held, assessee being a non-resident Indian, is not entitled to any deduction in respect of expenditure or allowance under the provisions of the IT Act and if the income of the non-resident consists only of investment income or income by way of long-term capital gain or both, tax payable by him on his total income shall be the amount of income-tax calculated on such total income @ 20 per cent of such income in view of provisions of sub-s. (1) of s. 115E. In the light of the above discussion, the CIT(A) held that the assessee was not entitled to claim relief under s. 54 and the AO was directed to recompute the capital gain as per the provisions of s. 115D of Chapter XII-A. Aggrieved by the above order, assessee is in appeal before the Tribunal.

8. The preliminary fact that the assessee has not purchased the property after selling the Juhu property is disputed by the learned counsel for the assessee on the ground that in UK, the property belongs to the sovereign and the subjects have only the right to enjoy it in perpetuity. The learned counsel for the assessee first submitted that Chapter XII-A does not apply to the assessee at all, by virtue of definition of s. 115C(d), which reads as under :

“115C. In this Chapter, unless the context otherwise requires—

(a) ………….

(b) ………….

(c) ………….

(d) ‘long-term capital gains’ means income chargeable under the head ‘Capital gains’ relating to a capital asset, being a foreign exchange asset which is not a short-term capital asset,”

Secondly, the learned counsel for the assessee submitted, the reasoning of the AO and the CIT(A) that the assessee is not entitled for the benefit of s. 54E because assessee had utilised the borrowed funds for investment in property is also not tenable. For this proposition, he relied upon the decisions of Bombay Housing Corporation vs. Asstt. CIT (2002) 76 TTJ (Mumbai) 25 : (2002) 81 ITD 545 (Mumbai), ITO vs. K.C. Gopalan (2000) 162 CTR (Ker) 566 : (1999) 107 Taxman 591 (Ker) and Ajit Vaswanit vs. Dy. CIT (2001) 117 Taxman 123 (Del). Thirdly, the learned counsel submitted that there is nothing in the statute to show that the property purchased should also exist in India, so as to claim the benefit contemplated under s. 54. Only stipulation is that the income should arise in India and not necessarily it should also be invested in India. For the above proposition, the learned counsel drew our attention to s. 11 of the IT Act, 1961. The learned counsel submitted that if the legislature had such an intention, it would have been definitely and specifically mentioned, as it has been mentioned in s. 11. The learned counsel submitted that any income from property held for charitable or religious purposes is exempt from tax net under s. 11(1)(a) only to the extent it applied to such purpose in India. If the legislature wants to invest capital gains in India itself for exception under s. 54, the legislature would have specifically stated so in the section itself. The lease is for 150 years, i.e., in perpetuity. In UK, the King is the owner of the property and the assessee is enjoying all the rights. Assessee is not paying the rent. The rent fixed is “rent of a peppercorn” and that too, if demanded. The learned counsel further submitted that the assessee can transfer the property; in fact no rent is virtually paid. In the light of the above facts, learned counsel further submitted that the Revenue authorities were not justified in denying the assessee, exemption under s. 54(1) of Rs. 15,07,561, being 50 per cent of the capital gain.

9. It was further submitted, in the assessee’s case the lease is for a longer period of 150 years, which cannot be terminated, except under very limited circumstances provided under the deed. Secondly, no rent is payable and only premium is paid. Learned counsel contended, thereby it is clear that premium is nothing but purchase price and as far as rent is concerned, it shall be peppercorn, if demanded. Learned counsel further contended, ‘peppercorn’ means negligible, and of no value, that too, is payable on demand. It is only to keep the facade of lease. The property under the agreement is freely transferable without any restrictions. The property is for the enjoyment of the person to whom it is given. Learned counsel further submitted, for all purposes, it is similar to the co-operative society flats in India. To such flat benefit of s. 54 is made available by the decisions of the Court as well as by Circular of the Department, No. 471, dt. 15th Oct., 1986 in Chaturvedi & Pithisaria Income-tax Law, Fifth Edn. of Vol. 2, p. 2886, wherein the Board considered the flat allotment under the self-financing scheme of the Delhi Development Authority is similar to a co-operative society in Mumbai and it was held that it was entitled to benefit under s. 54. Learned counsel further submitted, similarly, vide Circular No. 672, dt. 16th Dec., 1993 [(1993) 115 CTR (St) 73], in Chaturvedi & Pithisaria Income-tax Law (supra), Page 2887, it was held that in case of a co-operative society flat, benefit of s. 54 is available.

10. Learned counsel further submitted that it has been held that the expression “House property” for the purpose of s. 54(1) has the same meaning as the concept of house property under ss. 22 to 27. It takes into account all residential units, particularly in these days multi-storyed flats have become the order of the day. For the above proposition, learned counsel relied upon the decision of the Hon’ble Delhi High Court in the case of Addl. CIT vs. Vidya Prakash Talwar (1981) 25 CTR (Del) 220 : (1981) 132 ITR 661 (Del) and the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Kodandas Chanchlomal (1985) 48 CTR (Guj) 346 : (1985) 155 ITR 273 (Guj). Learned counsel submitted, under s. 27, it is clearly provided that co-operative society flats would be covered for the purpose of s. 22 and also property taken on lease for more than twelve years is ownership property for the purpose of s. 22.

11. Learned counsel further submitted; it is similar to a co-operative society flat. As it is for a lease of 150 years, it is a house property for the purpose of s. 22 and, therefore, for the purpose of s. 54, from whichever angle one considers that it is similar to a co-operative society flat or it is a long-term lease, in either case, it falls within the scope of s. 54 r/w ss. 22 to 27. Learned counsel invited our attention to the decision of the Hon’ble Supreme Court in the case of CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC), wherein it was held that though under the common law “owner” means a person who has got valid title legally conveyed to him after complying with the requirements of law, such as Transfer of Property Act, Registration Act, etc., in the context of the IT Act, 1961, having regard to the ground realities and further having regard to the object of the IT Act, viz., to tax the income from the property in his own right. The Hon’ble Supreme Court held that if one is enjoying all the rights of ownership, he is the owner; whether technically he is the owner or not is immaterial consideration. In this case the Hon’ble Supreme Court also referred to ss. 22 to 27 and held that s. 27 includes certain kinds of transactions of ownership and held that this provision is only explanatory and that amendments introduced by Finance Bill, 1987 was declaratory/clarificatory in nature insofar as it relates to s. 27(iii), (iiia) and (iiib). Consequently, these provisions have retrospective operation. Hence, the learned counsel submitted, as the concept of house property is similar under ss. 22 and 54, it is clear that in respect of the property acquired by the assessee, it is house property purchased within the meaning of s. 54.

12. Relying upon the decision of the Hon’ble jurisdictional High Court in the case of Mrs. Amy P. Cama, Trustee of the Estate of Late M.R. Adenwalla vs. CIT (1999) 152 CTR (Bom) 53 : (1999) 237 ITR 82 (Bom), learned counsel also submitted that the benefits of s. 54 are made available to a beneficiary of a trust in respect of the property owned by the trust. Learned counsel further added, similarly, the Hon’ble Madras High Court in the case of CIT vs. M.K. Chandrakant & Ors. (2002) 178 CTR (Mad) 477 : (2002) 258 ITR 14 (Mad), held that the benefit of investment under s. 54 is available in case of partner of a partnership firm. Learned counsel further submitted, all these issues consider the purchase and ownership in substance and if one applies the test laid down by the Hon’ble Supreme Court, of effective enjoyment of property, the assessee enjoys all the benefits of the premises in question and, therefore, the objection that it is only a lease and not purchase is not sustainable.

13. Coming to the plea that part of the sale proceeds being not invested, learned counsel submitted, the capital gain, which is part of the sale proceeds is not used for the purpose of purchasing the property. The assessee borrowed funds for the purpose of investment, as such, according to the Department, it is not an investment of capital gain arising out of the sale consideration and, therefore, benefit of s. 54 is not available. Learned counsel further submitted, on the face of it, the said objections are not sustainable. The section itself provides that purchase of the new asset may be one year before the sale. In the nature of things, if the property is purchased before the sale, the same cannot be out of the sale consideration receivable. To such purchase before the sale, benefit under s. 54 is made available. As such, the provisions of purchase before the sale clearly contemplates that it need not be out of the sale consideration, contended the learned counsel.

14. Again, learned counsel reiterated that s. 54 provides for appropriation. The section itself provides that the amount of capital gain, which is not appropriated by the assessee towards purchase of a new asset, made within one year before the date on which the transfer takes place or which is not utilised by him for the purchase of a new asset. Therefore, it clearly provides for appropriation of the capital gain in respect of the purchase price paid before the sale has taken place. As such, when appropriation of the capital gain against the property purchased before is provided, it cannot be said that the actual capital gain arising after the sale alone could be used for the purpose of s. 54, contended the learned counsel. He further submitted the section provides that if the amount of capital gain is greater than the cost of residential house, etc. it means that one is comparing the cost of new premises and capital gain. The section does not say that to the extent that capital gain is not utilised for purchasing the property. Hence, learned counsel submitted, it only provides the comparison of two amounts—the capital gain and the amount invested in purchase of house property, which clearly means that such investment need not be out of the actual capital gain arising out of the sale. Learned counsel further submitted, it is also clear that the provisions of s. 54 would be equally applicable not only by way of purchase date but acquisition by way of exchange also. If the test is that house property should be acquired out of the actual capital gain arising, it is not possible in case of exchange. As such, he submitted, it cannot be said that the actual capital gain must be utilised for the purpose of acquiring the house property under s. 54.

15. Learned counsel brought our attention to the following observation of the Hon’ble Supreme Court in the case of CIT vs. T.N. Aravinda Reddy (1979) 12 CTR (SC) 423 : (1979) 120 ITR 46 (SC) :

“We find no reason to divorce the ordinary meaning of the word ‘purchase’ as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration from the legal meaning of that word in s. 54(1). If you sell your house and make a profit, pay Caesar what is due to him. But if you buy or build another subject to the conditions of s. 54(1) you are exempt. The purpose is plain; the symmetry is simple, the language is plain. Why mutilate the meaning by lexical legalism. We see no stress in the section on ‘cash and carry’. The point pressed must, therefore, be negatived. We have declined to hear Sri S.T. Desai’s artillery fire although he was armed cap a pie with Mitakshara lore and law. A point of suffocating scholarship sometimes arrives in Court when one nostalgically remembers the escapist verse :

‘Where ignore is bliss, ‘Tis folly to be wise’.”

16. Learned counsel further submitted that the following decisions clearly establish that the investment may not be out of the actual sale consideration or out of the actual capital gain arising on such sales :

(1) K.C. Gopalan (supra)

(2) Bombay Housing Corporation vs. CIT (supra)

(3) Ajit Vaswanit vs. Dy. CIT (supra)

17. Learned counsel again objected to the Department’s stand that the assessee being non-resident Indian is governed by the provisions of Chapter XII-A and hence, not entitled to benefit under s. 54, is clearly unsustainable. He submitted, provisions of Chapter XII-A are applied in case of specified foreign exchange assets. Immovable property is not one of specified assets. As such, house property not being a specified asset, special provisions of Chapter XII-A are not applicable. Reference was also made to the definition of “specified asset” and “long-term capital gain” under the provisions of s. 115C. Learned counsel further submitted, in any case, the assessee has opted out of the application of Chapter XII-A by specifying to that effect in the return filed, as such, for that reason also provisions of Chapter XII-A are not applicable.

18. Learned counsel further submitted, s. 115 only provides that in case of such specified gain, provisions of sub-s. (2) to s. 48 will not be applicable, i.e., one is not entitled to indexation. Sec. 54 is not part of sub-s. (2) to s. 48. As such, if provisions of sub-s. (2) to s. 48 are not applicable, it does not follow that provision of s. 54 will not be applicable. Sub-s. (2) deals only with indexation and nothing else contended the learned counsel.

19. For all these reasons, learned counsel concluded, AO and the CIT(A) are clearly wrong in denying the benefit of investment under s. 54 of the Act.

20. Replying to the above, the learned Departmental Representative submitted, the assessee has not utilised the gains he got out of the transaction. The cases relied on by the assessee are distinguishable on facts. The assessee sold Juhu property for Rs. 60 lakhs on 4th April, 1992. Out of the total sale proceeds, Rs. 50 lakhs was invested in purchase of shares. In other words, the assessee had not used the proceeds from the sale of property for purchase of property abroad. There is no correlation between the assets purchased and the sale of the old Juhu property. The source is in India. The learned Departmental Representative further submitted that s. 54 is very clear. The change brought in the section by the Finance Act, 1979, w.e.f. 1st April, 1979, which reads as “whole or any part of the net consideration” clearly indicates that it should be the whole or part of the consideration received out of the sale proceeds. He submitted, if the intention was otherwise, nothing prevented the legislature in saying the amount as equal to or any part of the net consideration. Hence he submitted, the order of the AO is to be restored. He further submitted, so far as provisions of s. 54 is concerned, s. 54(1) is subject to provisions of sub-s. (2) and sub-s. (2) stipulates that “the amount of the capital gain which is not appropriated by the assessee towards the purchase of new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset, before the date of furnishing the return of income under s. 139”, if not deposited, then assessee will not have the benefit contemplated under s. 54.

21. The learned Departmental Representative further submitted that in the agreement, the evidence at paper book pp. 1 to 32, assessee is described as the “lessee”. There is no purchase of land/building and as such the section itself does not apply to the assessee. He further submitted that the assessee is prevented by cl. (4) from assigning, transferring, subletting or parting with the occupation of part of the premises. If the assessee is the owner of the property, the learned Departmental Representative submitted, there cannot be any restriction put on the assessee from transferring, subletting or parting with the property. Hence, the learned Departmental Representative submitted, the orders of the Revenue authorities are to be upheld.

22. We have heard the rival submissions. Coming to the first argument of the Revenue that the same amount should have been utilised for the acquisition of new asset, the same cannot be accepted in view of the decision of the Tribunal, Mumbai Bench, in the case of Bombay Housing Corporation vs. Asstt. CIT (supra). In this case the Tribunal held, even if an assessee borrows required funds and satisfies conditions relating to investment in specified assets, he is entitled to exemption.

23. The next argument of the Revenue is that in fact the assessee has not acquired any property in the strict sense, assessee had taken the property on lease and for the leased property the benefit of s. 54 cannot be extended to. For the above proposition, as already noted hereinabove, the learned Departmental Representative heavily relied on the Deed Agreement itself. In this it is mentioned—the date of lease is 20th Feb., 1992, the lessor is Higgs & Hill Homes Ltd., whose registered office is at Crown House, Kingston Road, New Maiden Surrey, and the lessee’s name is that of the assessee. It is the case of the Revenue that the Juhu property was sold for Rs. 60 lakhs on 4th April, 1992, whereas the lease deed is effective from 1st Jan., 1988, i.e., four years prior to the sale of the very property. The rent is also fixed, according to the Revenue and it is a “peppercorn”. However, we do not find much credence in this argument as well. It is the case of the assessee that in the United Kingdom the property belongs to the Sovereign. The subjects enjoy it. Of course absolutely. In the instant case of the assessee, the lease is valid for 150 years, which is in perpetuity and as such, the assessee is as good as absolute owner of the property.

24. Secondly, coming to the plea that the assessee is to pay rent as per the deed, as such in any case the assessee cannot be treated as the owner of the property, is also to be rejected. In the Black’s Law Dictionary, “peppercorn” is mentioned “a small or insignificant thing or amount”. In the agreement, where the rent is fixed as “peppercorn”, it is also mentioned, “if demanded” on the first day of January every year. It also means, the assessee as a matter of duty, (is) not bound to pay but it is only on demand insignificant rent is to be paid.

25. Coming to s. 54, the learned Departmental Representative particularly brought our attention to sub-s. (2) of s. 54, which reads : “the amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset ……”. He particularly stressed the word “appropriated”, which indicates that the amount of the capital gain should be appropriated or should not be appropriated for the purchase of the new asset, to come into play this section. If the amount of capital gain not appropriated, the assessee is not entitled for any benefit. If appropriated, then the assessee is entitled for the benefit. The learned Departmental Representative stressed that the appropriation can be only the amount the assessee gained from the alienation of the capital asset. However, we are not inclined to accept the way canvassed by the learned Departmental Representative because the issue has already been concluded by the decision of the Tribunal, Mumbai Bench, in the case cited (supra), reported in (2002) 76 TTJ (Mumbai) 25 : (2002) 81 ITD 545 (Mumbai).

26. It is not disputed that the assessee is a non-resident Indian. For a non-resident Indian, Chapter XII-A applies, being special provisions relating to certain incomes of non-resident Indians. The long-term capital gains, as far as a non-resident Indian (is-concerned), is defined in Chapter XII-A, s. 115C(d). which has been reproduced hereinabove in para 8. It is defined as income chargeable under the head “Capital gains” relating to a capital asset being a foreign exchange asset which is not a short-term capital asset. The “foreign exchange asset” is again defined under s. 115C(b), which reads : ‘foreign exchange asset’ means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange”. Again the “specified asset” is defined under s. 115C(f). The property sold by the assessee does not fall within any of the definitions given in s. 115C(f).

27. In short, we are of the considered view, for the reasons stated hereinabove, the assessee is entitled to the benefit under s. 54 of the Act. It does not exclude the right of the assessee to claim property purchased in a foreign country, if all other conditions laid down in the section are satisfied, merely because the property acquired is in a foreign country.

28. Coming to the direction of the CIT(A), regarding applicability of provisions of s. 115D pertaining to special provisions relating to certain incomes of non-residents, we are of the view, it is not applicable. The “long-term capital gains” is defined as a capital gain relating to a capital asset, being a foreign exchange asset. In the case of the assessee, there is no doubt that this is not a foreign exchange asset. As such, the provision of s. 115D is not applicable.

29. For the same reasons, the appeal by the assessee with regard to remaining 50 per cent of the share is to be accepted.

30. ITA No. 2706/Mum/1997 : Facts being identical, for the same reasons mentioned hereinabove in the case of Mr. Sanjiv P. Shah, in ITA No. 2707/Mum/1997, we allow the appeal of the assessee.

31. In the result, appeals of the assessee stand allowed.

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