Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether Residial House Purchased Outside India Is Entitled For Benefit Of S. 54?

QUERY: A NRI settled in USA. He is having Green Card. He purchased four residential properties when he was resident in India with Indian Rupees. All his properties are more than three years old. Now he has just sold all its properties. To save taxes he wants to purchase another one property in USA. Could he do it under section 54, as it no where written that properties must be purchased in India?

Can he send the money to USA without deducting any withholding taxes, to purchase the property in USA.
ANSWER: According to me, the benefit under section 54 of the Act cannot be denied on acquisition of property in USA. This view is supported by the Mumbai Tribunal in the case of Mrs. Prema P. Shah vs. ITO [100 ITD 60], wherein the Tribunal has held as under:

“The assessee was entitled to the benefit under section 54, which does not exclude 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 was in foreign country”.

Similar view has been expressed by the Bangalore Tribunal in Vinay Mishra v. ACIT (141 ITD 301) and Chennai Tribunal in N. Ranganathan v. ITO (66 SOT 179)(URO).

However, there is contrary decision of Ahmedabad Tribunal in Leena J. Shah vs. ACIT [6 SOT 721] wherein it was held that residential house purchased/constructed must be in India and not outside India. Therefore, the benefit under section 54F is not allowable for a residential house purchased/constructed outside India.

However, from the A.Y. 2015-16, no exemption is available to property purchased or constructed outside India.

As regards remittance to USA, I would like to draw your attention to regulation 4(2) of Foreign Exchange Management (Remittance of Assets) Regulations, 2000 wherein a NRI or PIO may remit an amount not exceeding US $ 2 million per calendar year, out of the sale proceeds of the assets on production of :

a) documentary evidence in support of acquisition of assets by the remitter,

b) a tax clearance or no objection certificate from the Income tax authority for remittance, and

c) confirmation from the applicant that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance.

If remittance is exceeding US $ 2 million per calendar year then prior permission of RBI is must.
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