CA Prakash Sinha (Partner, Prakash Sachin & Co.) discusses the amendment proposed in Sec. 54 i.e., benefit of re-investment of capital gains in two residential houses and examines a critical question viz., whether this amendment is prospective or retrospective. The author states that the fact that the amendment is brought out by way of a proviso would have its repercussions in its interpretation and states that an amendment which affect the existing rights or creating new obligations can be applied prospectively only. He explains the law in respect of retrospectivity of amendments as laid down by SC in Vatika Township wherein it was held that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Accordingly, the author signs off opining that the amendment “is not clarificatory or declaratory but a substantial provision and in the case of the substantial provision ...even though it is beneficial provision may not be applied retrospectively”
The Interim Budget 2019 is a special budget in all the respect.The budget was presented by the Honorable Finance Minister in a way as if everything is tax free in India.
However without being critical, we hereby analyse only Section 54. By the time of writing this article the author does not have the memorandum of the budget. However, the effort has been made to analyse the provision of the amendedsection with the test of Prospective Vs Retrospective.
Section 54 is a beneficial section which was meant for the purpose of providing tax relief to an individual or HUF from the rigor of the long term capital gain arising out of the transfer of House property which was for residential purpose.
In section 54, "proviso" has been added w.e.f 01.04.2020. The proviso clause is as under:-
"Provided that where the amount of the capital gain does not exceed two crore rupees, the assesse, may at his option, purchase or construct two residential houses in India, and where such option has been exercised:-
a) the provisions of this sub-section shall have effect as if for the words "one residential house in India", the words "two residential houses in India" had been substituted;
b) any reference in this sub-section and sub-section (2) to "new asset" shall be construed as a reference to the two residential houses in India:
Provided further that where during any assessment year, the assessee has exercised the option referred to in the first proviso, he shall not be subsequently entitled to exercise the option for the same or any other assessment year.'.
Our discussion is in respect of purchase or construction of two residential houses in India. The question posed before the author is, whether this amendment is prospective or retrospective ?. Although the budget 2019 categorically states that this provision shall be inserted with effect from 01.04.2020, however it is pertinent to analyze that, can there be a situation, where this law can be applied retrospectively.
If we go into the legislative history , we will come to understand that this section prior to finance act, 2014 was mentioned as "constructed a residential house". However through Finance Act , 2014amended this provision and the said term was substituted by the term "constructed one residential house property in India".
Further while explaining the above changes it was mentioned in the budget memorandum that the benefit was extended in one residential house in India accordingly the amendment was made for the roll over relief and it is available to one residential house situated in India. It was also stated that it will take effect from 01.04.2015 and accordingly apply to A.Y. 15-16 and subsequent Assessment year.The reason for such amendment was that through some judgement it was interpreted that the term " a " also includes singular as well as plural ( as per the general clause Act ) and therefore the assessee can get benefit of roll over relief u/s 54 in respect of more that one house property . Although different interpretations came during that time .
Now the question arises when the above mentioned amendment was prospective as per the Finance act 2014 , so whether the assessee was allowed for the roll over relief in respect of more than one house prior to A.Y. 15-16.
Further, when the " proviso" has been added by the budget2019, in the section 54 and it is said that the assessee whose capital gain was upto Rupees 2 crore can avail the roll over relief in respect of two residential house property. The moot question that to be discussed is that whether it has prospective effect or retrospective effect .
It is pertinent to mention that that this amendment has come by the way of proviso in the main enactment. So let discuss what is mean by a proviso clause in the statute.
As decided by Supreme Court in caseSundarampillai v. pattabiraman as reported in 1 SCC 591 ( 1985 ) Justice Fazal Ali observed that by and large a proviso may serve the following four different purposes:
1) qualifying or excepting certain provisions from the main enactment;
2) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable;
3) it may be so embedded in the act itself as to become an integral part of the enactment, and thus acquire the tenor and colour of the substantive enactment itself; and
4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision.
The above summary cannot, however, be taken as exhaustive and ultimately a proviso like any other enactment ought to be constructed upon its term.
Now reading the complete enactment after the amendment it comes out that earlier the term was "constructed a residential house property" which was substituted by the term "construct one residential house property in India" and now by way of provision carving out certain expectation whereby the assesse can avail the roll over benefit of two house property subject to the cap of capital gain amount of rupees 2 crores.
Prospective vs. Retrospective
The cardinal principal of the tax law is that the amendment is to be applied from the date when the amendment comes in i.e. prospectively. The rule applies to the charging section and other substantive provision such as provision imposing penalty and however does not apply to theprocedural law of a taxing statute which are generally retrospective and apply even to the pending proceedings.Thus the amendment which affect to the existing rights or creating new obligations is constitute to be applied prospectively only.
The Supreme Court has reiterated the same in VatikaTownship reported in [TS-573-SC-2014-O], however the above cardinal principal will not apply when it is a beneficial provision and the Supreme Court in Vatika case (supra) has stated that:
"Where a benefit is conferred by a legislation, the rule against the retrospective construction is different. If a legislation are confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislator object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given at retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. Where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature.
We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is justification to treat procedural provision as retrospective. In Government of India V/s Indian tobacco Association, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay V/s state of Maharashtra. It was held that where a law is enacted for the benefit of community as whole, even in the absence of a provision the statute may be held to be retrospective in nature. However we are confronted with any situation here.
In such cases retrospectively is attached to benefit the person in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectively. In an instant case, the proviso added to sec. 113 of the act is not beneficial to the assesses. On the contrary, it is a provision which is onerous to the assesses. Therefore, in case like this we have to proceed with the normal rule of provision against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Dogmatically framed the rule is no more than a presumption, and thus could be displaced but outweighing factors."
Thus , by reading the above legislative amendment, we understand that it was in respect of one house property which has been further carved out for two house property but for the specific assesse having capital gain which does not exceed 2 crore, thus this provision is not clarificatory or declaratory but a substantial provision and in the case of the substantial provision the author is in the opinion that even though it is beneficial provision may not be applied retrospectively.
However with the passage of time it will come to the judicial scrutiny and we eagerly wait for such jurisprudence.