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Income Tax Appellate Tribunal, HYDERABAD BENCH “B”, HYDERABAD
Before: SMT P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M.:
This appeal filed by the assessee is directed against the order dated 25/11/2016 of CIT(A) – 1, Hyderabad for AY 2013-14.
Briefly the facts of the case are, assessee filed his return of income for the AY 2013-14 on 26/07/2013 declaring total income of Rs. 9,50,290/-. The case was selected for scrutiny under CASS to examine the large deduction claimed u/s 54B, 54C, 54D, 54G and 54GA. Against the notice u/s 143(2) issued by the AO, the AR of the assessee filed the required information.
2.1 The AO observed that the assessee claimed deduction u/s 54EC to the extent of Rs. 1,00,00,000/- for one sale transaction i.e. sale property at Plot No. 26A, H. No. 8-3-191/3, Vengalrao Nagar, Hyderabad on 28/03/2013 for a consideration of Rs. 2,75,00,000/-. The AR of the assessee stated that the deduction of Rs. 1 crore u/s
2 ITA No. 269/Hyd/17 Subrahmanyam Kotikalapudi 54EC is eligible, since assessee invested Rs. 50 lakhs in one FY i.e. 2012-13, and another Rs. 50 lakhs in the FY 2013-14 i.e. on 12/04/2014 before filing of return u/s 139(1) of the IT Act and in this context, he placed reliance on the decision of ITAT, Chennai Bench in the case of Coromandel Industries (P.) ltd. Vs. ACIT in ITA No. 411/MDS/2013 for the AY 2009-10.
2.2 After considering the submissions of the assessee as well as referring to the provisions of section 54EC of the Act, the AO observed that the threshold limit for claiming exemption is Rs. 50 lakhs per one sale transaction, hence, the claim of the assessee relying on the decision of the ITAT (supra) is not tenable in principle and which is against the provisions of section 54 of the Act. He further observed that the assessee paid advance tax on liability of capital gains tax after claiming deduction of Rs. 50 lakhs only, later on, the assessee made further investment in REC bonds to claim double deduction. In view of the above observations, the AO restricted the deduction u/s 54EC to Rs. 50 lakhs and balance deduction of Rs. 50 lakhs was disallowed.
Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A) and the CIT(A) deleted the disallowance made by the AO by observing as under:
Before me applicant submitted the investment "copies in National Authorities High Way of India 1st dated on 25.03.2013(sic) and the 2nd investment made on 12.04.2013(sic). The sale of the property was done on 28/03/2013(sic) for a consideration of Rs.2,75,00,000/- and claimed deduction u/s.54EC for 1 crore. I find the investment has been made within the stipulate time of sec 54EC for this spreading over next year has no bearing on none allowability of 54EC. However for tax purposes since investments span over 2 years deduction for respect years. It is also noticed that appellant has paid taxes for balance amount, as capital gains. Hence, I accept the contention of the applicant and allow the appeal.”
3 ITA No. 269/Hyd/17 Subrahmanyam Kotikalapudi 4. Aggrieved by the order of CIT(A), the revenue is in appeal before us raising the following grounds of appeal: (i) Ld. CIT(A) erred in holding that assessee is eligible for deduction of Rs. 1,00,00,000/- i.e. in excess of limit of Rs. 50,00,000/u/ s 54EC of the I.T. Act from Capital Gains arising on transfer of Long Term capital asset during the year under consideration.
(ii) Ld. CIT(A) ought to have appreciated that the limit for deduction u/ s 54EC I.T. Act is only Rs. 50,00,000/- and the said limit of Rs. 50,00,000/- is an investment cap as well as the deduction cap and therefore the assessee is entitled to deduction of Rs. 50,00,090/- only from Capital Gains in respect of transfer of Long Term Capital Asset in a year.
(iii) Ld. CIT (A) ought to have considered even if the specified time period of six months for investment u/s 54EC falls in two financial years, assessee cannot take advantage of the investment of Rs. 50,00,000/- each in two financial years to derive excess benefit than what is contemplated under the law.
(iv) Ld. CIT(A) ought to have further appreciated that the 2nd proviso to section 54EC inserted by the Finance (No.2) Act 2014 with effect from 01-04-2015 is clarificatory in nature as the Memorandum explaining the provisions clearly state that the intended limit for relief u/s 54EC is only Rs. 50,00,000/-.
(v) Without prejudice to the above, the Ld. CIT(A) ought to have appreciated that assessee was not eligible for deduction u/s.54EC of the IT Act for Rs. 50,00,000/- invested on 25-03- 2013 in NHAI Bonds prior to the date of transfer of long term capital asset on 28-03-2013
(vi) The appellant craves leave to add, delete, substitute, and amend any of the grounds of appeal before the hearing of appeal and/ or at the time of hearing of the appeal.
For these and other grounds of appeal that may be canvassed at the time of the hearing of appeal, it is prayed that disallowance made by the Assessing Officer u/ s 54EC of the I.T. Act be restored.”
Ld. DR relied on the order of AO.
4 ITA No. 269/Hyd/17 Subrahmanyam Kotikalapudi 6. Ld. AR relied on the order of ITAT, Mumbai Bench in the case of Shri Upendra C Parekh in ITA No. 3351/Mum/2017 vide ITA No. 04/09/2017 wherein the Bench has held as under:
“3. We have heard the rival submissions and carefully considered the same. We noted that this issue is duly covered in favour of the Assessee by the decision of the Bangalore Bench in case of Vivek Jairazbhoy Vs. Dy. Commissioner of Income-tax, ITA No. 236/Bang/2012 and Ahmedabad Bench in the case of Aspi Ginwala, Shree Ram Engg. & Mfg. Industries Vs. Asst. Commissioner of Income-tax, 20 taxmann.com 75 (Ahd.). In the case of Aspi Ginwala, the co-ordinate bench has held as under: -
"7. We have heard both the parties and perused the records and find that the assessee and his brother Shri Rustom Ginwala sold a property on 22-10- 2007 for Rs. 6.21 Crores. The assessee and his brother had 50% share in this property. The assessee made investment of Rs. 50 lakhs on 31-12-2008 in REC Bonds and Rs. 50 lakhs on 26-05-2008 in NHAI Bonds and claimed exemption of Rs. 1 Crore u/s 54EC of the Act. The investment in REC Bonds was allowed by the AO as it was within the time limit of six months prescribed in section 54EC of the Act, while the investment in NHAI Bonds which was made only on 26-05-2008 was not allowed as according to the lower authorities the assessee is only entitled for exemption u/s 54EC upto Rs. 50 lakhs only. The assessee's case, however, is that as per the proviso to section 54EC, investment made on or after 1st April, 2007 in the Long Term Specified Asset by an assessee during any financial year should not exceed Rs. 50 lakhs. The assessee's case is that since the property was sold on 22-10-2007 he could have invested in eligible investment within six months i.e. on or before 21-04-2008 in order to avail exemption u/s 54EC of the Act. There is no dispute about Rs. 50 lakhs Shri Upendra C. Parekh invested on 31-12-2007 in REC Bonds. The dispute is only about further investment of Rs. 50 lakhs in NHAI Bonds made on 26-05-2008. Since six months in this case involves two financial years, the assessee's case is that if he had deposited another Rs. 50 lakhs from 1st April, 2008 to 21- 04-2008, he was entitled for exemption u/s 54EC of the Act. As during this period from 01-04-2008 to 26-05-2008 subscription in eligible investment was closed, the investment made by the assessee on 26-05-2008 i.e. 1st day of the reopening of the subscription of eligible investment in NHAI Bonds should be treated in time. There is also no dispute about the fact that subscription to the eligible investment was closed during the period 01-04-2008 to 26-05- 2008. The dispute which remains to be decided by us in this case is whether as per the provisions of section 54EC the assessee is entitled for exemption of Rs. 1 Crore as six months period for investment in eligible investment involves two financial years. If the answer to this question is "yes", whether investment made by the assessee on 26-05- 2008 beyond six months period
5 ITA No. 269/Hyd/17 Subrahmanyam Kotikalapudi is eligible for exemption in view of the fact that no subscription for eligible investment was available to the assessee from 1st April, 2008 to 26-05- 2008.
While going through the proviso of section 54EC, we find that the proviso to section reads as under. - "[Provided that the investment made on or after the 1st Day of April, 2007 in the long term specified asset by an assessee during any financial year does not exceed fifty lakh rupee]" It is clear from this proviso that where assessee transfers his capital asset after 30th September of the financial year he gets an opportunity to make an investment of Rs. 50 lakhs each in two different financial years and is able to claim exemption upto Rs. 1 Crore u/s 54EC of the Act. Since the language of the proviso is clear and unambiguous, we have no hesitation in holding that the assessee is entitled to get exemption upto Rs. 1 Crore in this case. This view of ours gets support from the following finding of the Hon'ble Supreme Court in the case of IPCA Laboratory Ltd. v. Dy. CIT[2004] 266 ITR 521 /135 Taxman 594 (SC), wherein it has been held by the Hon'ble Supreme Court 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 reverse. Since the wording of the proviso to section 54EC is clear, the benefits which are available to the assessee cannot be denied. In view of above, it is hereby held that the assessee is entitled for exemption of Rs. 1 crore as six months' period for investment in eligible investments involved is two financial years. 9. Now, coming to the second aspect of the matter, whether investment of Rs. 50 lakhs made in NHAI Bonds on 26-05-2008 can be Shri Upendra C. Parekh considered to be made within six months period as per the proviso to sec. 54EC, we find that the assessee was to make investment in such Bonds between 01-04-2008 to 21-04-2008. There is no dispute about the fact that subscription of eligible Bonds was closed during this period till 26-05-2008 and on the 1st day of the reopening of the subscription, the assessee made this investment. Under the circumstances, we are of the considered opinion that the assessee was prevented by sufficient cause which was beyond his control in making investment in these Bonds within the time prescribed. We further find that 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
6 ITA No. 269/Hyd/17 Subrahmanyam Kotikalapudi reasonable cause and the exemption should be granted. In the case of Ram Aganval v. Jt. CIT [2002] 81 ITD 163 (Mum), it has been held as under: "In regard to claim of exemption under section 54F we may mention that it is found by the learned CIT(A) that the bank was closed on 31 -8-1995 on account of strike as certified by the officials of the concerned bank. From the certification given by the bank officials, the assessee had approached the bank officials with the cheque for the amount of deposit on 30-8-1995. The assessee remained unable to obtain receipt on 31-8-1995 due to bank strike and the cheque was cleared on 1-9-1995. In this view of the situation, it can well be said that the deposit of the assessee was in accordance with the provisions of statute as on the last date i.e. the 31-8- 1995, the deposit could not be made due to the reason which was beyond the control of the assessee particularly in view that the efforts were made by the assessee a day prior to last date to deposit the requisite amount in the bank to make him entitle for exemption under sec 54F. As mentioned earlier, this position has also been accepted by the learned CIT(A). Therefore, we direct the Assessing officer to allow the necessary exemption to the assessee. Before parting we may observe that section 54F is a beneficial provision to encourage assessee to invest in house properties, Keeping in mind the above object behind the insertion of section 54F and considering the fact that the assessee was not at fault in not depositing the amount before 31-8- 1995, we hold that the deposit made on 1-9-1995 satisfies the condition laid down in section 54F of the Act." Since no contrary decision was cited on behalf of the Revenue, we are left with no option but to hold that the investments made by the assessee on 26-05-2008 beyond six months is eligible for exemption in view of the fact that no subscription for eligible investment was available to the assessee from 1st April, 2008 to 26-05- 2008. 10. In the result, both the appeals are allowed." 4. We have also noted that subsequently, a contrary view has been taken by Jaipur bench in Asst. Commissioner of Income-tax vs. Raj Kumar Jain & Sons (HUF), 19 taxmann.com 27 (Jp.). Subsequent to that decision, Shri Upendra C. Parekh the Bangalore bench in the case of Vivek Jairazbhoy Vs. Dy. Commissioner of Income-tax vide order dated 14.12.2012 took view in favour of the assessee. From the provisions of Sec. 54EC we noted that the limit of Rs. 50,00,000/- as given under the proviso is per person per financial year. The plain reading of the section as well as the proviso clearly suggests the same interpretation. There is no ambiguity in the interpretation. Had there been an intention of the legislature to restrict the exemption to Rs.50,00,000/-, the legislature would have provided the embargo in this regard. Restriction relates only to the investment made in any financial year by the assessee. Making of the investment is a condition for availing of the exemption. Condition for availing of the exemption requires that the investment can be made within a period of 6 months. If 6 months falls within
7 ITA No. 269/Hyd/17 Subrahmanyam Kotikalapudi a different financial year, as has happened in this case, in our opinion, this Tribunal cannot add the embargo that the assessee cannot make the investment to avail of the exemption under Section 54EC in the different financial year if he had already made the investment in the financial year in which the capital asset is transferred. In our opinion, the language of Section 54EC is clear and unambiguous and it leads to the interpretation that the assessee can make the investment in two different financial years provided in a financial year the investment made did not exceed Rs.50,00,000/-. We have also gone through the circular no. 3/2008 dtd. 12.3.2008 issued by the CBDT being an explanatory note on the provisions relating to direct taxes in Finance Act, 2007. In para 28.2 thereof the reason for it to set the limit on the quantum of the investment by a person in a financial year are given as under : "28.2 The quantum of investible bonds issued by NHAI and REC being limited, it was felt necessary to ensure that the benefit was available to all the investors. For this purpose, it was necessary to ensure that the limited number of bonds available for subscription is also available for small investors. Therefore, with a view to ensure equitable distribution of benefits amongst prospective investors, the government decided to impose a ceiling on the quantum of investment that could be made in such bonds. Accordingly, the said section has been amended so as to provide for a ceiling on investment by an assessee in such long-term specified assets. Investments in such Shri Upendra C. Parekh specified assets to avail exemption under Section 54EC, on or after 1st day of April, 2007 will not exceed fifty lakh rupees in a financial year." From this circular also, it is apparent that the Government only intended to restrict the investment in a particular financial year and accordingly has fixed the limit of Rs. 50,00,000/- as permissible limit in a particular financial year. The Government did not intend to restrict the maximum amount of exemption permissible under Section 54EC. Legislature in our opinion has consciously used the words "in a financial year" in the proviso to Sec. 54EC of the Act. If the legislature wanted to restrict the exemption itself to Rs. 50,00,000/-, it could have have simply dispensed with using the words 'in a financial year'. The Hon'ble Supreme Court while deciding the case of Vikrant Tyres Ltd. Vs. First ITO, 274 ITR 821 laid down law of interpretation of the statute by holding therein as under :
"It is settled principle of law that the courts while construing Revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other, meaning thereby that no tax or levy can be imposed on a subject by an Act of Parliament without the words of the statute clearly showing an intention to lay the burden on the subject. In this process, the courts must adhere to the words of the statute and the so called equitable construction of those words of the statute is not permissible. The task of the court is to construe the provisions of the taxing
8 ITA No. 269/Hyd/17 Subrahmanyam Kotikalapudi enactments according to the ordinary and natural meaning of the language used and then to apply that meaning to the facts of the case and in that process if the tax payer is brought within the net he is caught, otherwise he has to go free."
Even in the case of CIT vs. Vegetable Products Ltd., 88 ITR 192 the Hon'ble Supreme Court has taken view that if there are two views possible, the view favourable to the subject should be taken. We also noted that the second proviso has been inserted in section 54EC sub-section (1) w.e.f. 01.04.2005 which reads as under: -
Provided further that the investment made by an assessee in the long-term specified asset, from capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees.
This proviso has been inserted to take care of the situation as in this case but this proviso is not retrospective and came into effect from 01.04.2005. Shri Upendra C. Parekh Therefore, this amendment, in our view, will not come to the rescue of the Revenue. 6. In view of the aforesaid discussion, we are of the view that no interference is called for in the order of CIT(A) and CIT(A) has rightly deleted the addition made by the Assessing Officer. We, accordingly, dismiss the appeal filed by the Revenue.” 6.1 The Hon’ble High Court of Madras in the case of CIT Vs. C. Jaichander (TC(A) Nos. 419 and 533 of 2014) has held as under:
“9. At this juncture, for better clarity, it would be appropriate to refer to the Notes on Clauses _ Finance Bill 2014 and the Memorandum explaining the provisions in the Finance (No.2) Bill, 2014, which read as under: _Notes on Clauses _ Finance Bill 2014:
Clause 23 of the Bill seeks to amend section 54EC of the Income-tax Act relating to capital gain not to be charged on investment in certain bonds. The existing provisions contained in sub-section (1) of section 54EC provide that where capital gain arises from the transfer of a long-term capital asset and the assessee has within a period of six months invested the whole or part of capital gains in the long-term specified asset, the proportionate capital gains so invested in the long-term specified asset out of total capital gain shall not be charged to tax. The proviso to the said sub-section provides that
9 ITA No. 269/Hyd/17 Subrahmanyam Kotikalapudi the investment made in the long-term specified asset during any financial year shall not exceed fifty lakh rupees.
It is proposed to insert a proviso below first proviso in said sub-section (1) so as to provide that the investment made by an assessee in the long-term specified asset, from capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent years. Memorandum: Explaining the provisions in the Finance (No.2) Bill, 2014:
Capital gains exemption on investment in Specified Bonds. The existing provisions contained in sub-section (1) of section 54EC of the Act provide that where capital gain arises from the transfer of a long-term capital asset and the assessee has, at any time within a period of six months, invested the whole or any part of capital gains in the long-term specified asset, out of the whole of the capital gain, shall not be charged to tax. The proviso to the said sub-section provides that the investment made in the long- term specified asset during any financial year shall not exceed fifty lakh rupees. However, the wordings of the proviso have created an ambiguity. As a result the capital gains arising during the year after the month of September were invested in the specified asset in such a manner so as to split the investment in two years i.e., one within the year and second in the next year but before the expiry of six months. This resulted in the claim for relief of one crore rupees as against the intended limit for relief of fifty lakhs rupees.
Accordingly, it is proposed to insert a proviso in sub-section (1) so as to provide that the investment made by an assessee in the long-term specified asset, out of capital gains arising from transfer of one or more original asset, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years._ 10. The legislature has chosen to remove the ambiguity in the proviso to Section 54EC(1) of the Act by inserting a second proviso with effect from 1.4.2015. The memorandum explaining the provisions in the Finance (No.2) Bill, 2014 also states that the same will be applicable from 1.4.2015 in relation to assessment year 2015-16 and the subsequent years. The intention
10 ITA No. 269/Hyd/17 Subrahmanyam Kotikalapudi of the legislature probably appears to be that this amendment should be for the assessment year 2015-2016 to avoid unwanted litigations of the previous years. Even otherwise, we do not wish to read anything more into the first proviso to Section 54EC(1) of the Act, as it stood in relation to the assessees.
In any event, from a reading of Section 54EC(1) and the first proviso, it is clear that the time limit for investment is six months from the date of transfer and even if such investment falls under two financial years, the benefit claimed by the assessee cannot be denied. It would have made a difference, if the restriction on the investment in bonds to Rs.50,00,000/- is incorporated in Section 54EC(1) of the Act itself. However, the ambiguity has been removed by the legislature with effect from 1.4.2015 in relation to the assessment year 2015-16 and the subsequent years.
For the foregoing reasons, we find no infirmity in the orders passed by the Tribunal warranting interference by this Court. The substantial questions of law are answered against the Revenue and these appeals are dismissed. No costs.”
Considered the rival submissions and perused the material on record. We notice that the assessee has sold the property on 28/03/2013 and made 1st investment on 25/03/2013 and second investment on 12/04/2013. The assessee has to make investment within 6 months from the date of sale i.e. before 28/09/2013. In this case, the limitation period of 6 months falls in 2 financial years. Since the provision allows to invest Rs. 50 lakhs during any financial year. Assessee intends to take the advantage of the above proviso u/s 54EC. This kind of transactions are made eligible by the judicial precedents in the case of Shri Upendra C Parekh (supra).
7.1 Further, we notice that the legislature has notices that this proviso was applied as tax planning to take additional deduction under this section 54EC. Therefore, they introduced the 2nd proviso to this section with effect from 01/04/2015 (AY 2016-17) prospectively. Since the present appeal relates to AY 2013-14, the amended provision will not apply to the present case as decided in the case of CIT Vs. C. Jainchander (supra). Therefore, the grounds raised by the revenue are dismissed.
11 ITA No. 269/Hyd/17 Subrahmanyam Kotikalapudi 8. In the result, appeal of the revenue is dismissed.
Pronounced in the open Court on 20th July, 2018.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 20th July, 2018 kv Copy to:-
1) ITO, Ward – 4(2), Room No. 744, 7th Floor, “D” Block, IT Towers, AC Guards, Hyderabad – 500 004. 2) Shri Subrahmanyam Kotikalapud, H.No. 1-9-1089/90, Vidyanagar, Hyderabad. 3) CIT(A) – 1, Hyderabad. 4) Pr. CIT - 1, Hyd. 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File