54EC Exceptional cases

For long, where the transaction date falls between October and March of a year, investors have been taking advantage of the six-month period stipulation by investing `50 lakh each in two financial years — a move that affords them the opportunity to double the investible amount to `1 crore.
When the issue came up before the Jaipur Tribunal, it ruled in favour of the Revenue by disallowing the additional `50 lakh investment.

The case is Aspi Ginwala v Assistant Commissioner of Income-tax, Circle-5, Baroda, Ahmedabad Tribunal has allowed not only the additional investment but also an investment beyond the stipulated six months.

The brief facts of the latest case were that the appellant and his brother had sold a house property on October 22, 2007 for `6.21 crore. The appellant had made investment of `50 lakh on December 31, 2007 in REC bonds and an additional `50 lakh on May 26, 2008 in NHAI bonds and claimed exemption of `1 crore under Section 54EC of the Act.

It may be noted that while the first investment (on December 31, 2007) was within the six-month time limit, the second investment (on May 26, 2008) was beyond the expiry of stipulated period of six months from the date of sale. The delay was on account of the fact that bonds u/s 54 EC weren’t available for subscription during April 1, 2008 and May 26, 2008.

The assessing officer did not allow the second investment since it was not made within the time limit prescribed by law.

The assessee’s submission was that there was no delay in making the investment on his part. Since no eligible scheme (under Section 54EC) was available for subscription, he was prevented by sufficient cause in not complying with the prescribed time limit and could only make the investment once the scheme reopened.
The appellant maintained that the Central Board of Direct Taxes (CBDT) had in similar circumstances in the past taken a broad view and directed that the period of investment needs to be extended. A case in point was a press note F.NO.142/09/2006 dated 30 June, 2006 issued by the CBDT, extending the time limit.
The relevant para of the said note is reproduced here:
“5. It has been brought to the notice of the Central Board of Direct Taxes that some persons could not avail of the benefit under Section 54EC of the Income Tax Act on account of non-availability of the capital gain bonds. Further, for some other persons the effective time available for making the investment is less than six months because of non-availability of these bonds.

6. With a view to removing the hardship caused to the taxpayers, the Central Board Of Direct Taxes, in exercise of powers conferred by clause (c) of sub-section (2) of Section 119, hereby orders that the limitation of six months for making the investment under Section 54EC of capital gains arising from the transfer of a long-term capital assets, is extended-”

Since, the facts and circumstances of the appellant’s matter were similar, the benefit of benevolent circular/notification/press note, needs to be extended to all such cases where assesses are prevented to make investment in the specified assets within specified period for non-availability of bonds for subscription during such period, the assesses contended.

The Tribunal agreed and ruled in favour of the assessee.
The Bench observed that it was clear that where an assessee transfers his capital asset after September 30 of a financial year, he gets an opportunity to make an investment of `50 lakh each in two different financial years and is able to claim exemption up to `1 crore u/s 54EC of the Act. Since the language of the law is clear and unambiguous, there was no hesitation in upholding the assessee’s claim of the `1 crore exemption.
The Tribunal even cited a Supreme Court view in the case of IPCA LAB 266 ITR 521 (SC), wherein it has been held that -

“even though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wording of the section. If the wording of the section is clear, then benefits which are not available cannot be conferred by ignoring or misinterpreting words in the section”
Here, the situation is the reverse —- since the wording of the proviso to Section 54EC is clear, the benefits available to the assessee cannot be denied. Hence, it was held that the assessee is entitled for exemption of `1 crore.

Now, coming to the second aspect of the matter —- whether investment of `50 lakh made in NHAI bonds on May 26, 2008 can be considered to be made within six months as per the proviso to Section 54EC, the Ahmedabad Tribunal bench held that it found there was no dispute about the fact that subscription of eligible bonds was closed till May 26, 2008 and on the first day of the reopening of the subscription, the assessee made the investment. Under the circumstances, the assessee was prevented by sufficient cause which was beyond his control in making investment in the bonds within the time prescribed.

Various judicial authorities have taken a view that exemption should be granted in such cases where there is a delay in making investment due to non-availability of the bonds and have held that it is a reasonable cause and hence the exemption claimed by the appellant should be granted.

Source: DNA


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