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Facts
The assessee claimed exemption under Section 54EC for Rs. 1 crore, having invested Rs. 50 lakhs on 30.03.2013 and another Rs. 50 lakhs on 23.04.2013. The Assessing Officer disallowed the exemption, stating the investment in REC was made in FY 2013-14 for AY 2014-15, disallowing the exemption for FY 2013-14.
Held
The Tribunal held that Section 54EC allows investment within six months from the date of transfer, and if the investment is made in two financial years but within the six-month period, the benefit cannot be denied. The amendment to Section 54EC in 2015 clarified the ambiguity but was not retrospective.
Key Issues
Whether investment of capital gains in specified bonds made in two different financial years, but within six months of the transfer of asset, is eligible for deduction under Section 54EC prior to the amendment in 2015.
Sections Cited
54EC, 45, 263
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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM:
This is the appeal preferred by the assessee against the order of Commissioner of Income Tax (Appeals)- 22, Kolkata (hereinafter referred to as the Ld. CIT(A)] dated 05.12.2024 for AY 2013-14.
Assessment Year: 2013-14 Sweta Sonthalia 2. Brief facts of the case of the assessee is that the assessee filed return of income for AY 2013-14. Subsequently the case of the assessee was selected for scrutiny as during the course of scrutiny assessment, it is seen that the assessee has claimed exemption of Rs. 1 crore u/s 54EC of the Act though the assessee against above claim of exemption has made investment of Rs. 50 lakhs on 30.03.2013 and further sum of Rs. 50 lakhs on 23.04.2013. The assessee was asked to explain that since the investment in REC is made on 23.04.2013 which comes under FY 2013-14 relating to AY 2014-15 then disallow the exemption in FY 2013-14. The assessee submitted explanation but the AO disallowed the same and added the total income of the assessee.
Aggrieved by the said order, the assessee preferred an appeal before the Ld. CIT(A) wherein the appeal of the assessee is dismissed.
Being aggrieved and dissatisfied the assessee preferred an appeal before us.
4. The Ld. A.R challenges the very impugned order thereby submitting that the Ld. CIT(A) erred in confirming the action of AO ignoring the judicial pronouncement held by the Hon’ble Madras High Court and Karnataka High Court and ITAT that if the assessee invests the amount in the current year and another amount in the next financial year but within six months from the date of transfer the assessee entitled to claim deduction u/s 54EC of the Act. The ld. AR submits that language of Section 54EC proviso makes it clear that the maximum limit for investment in specified asset is Rs. 50,00,000/- for a financial year only. Strictly following the words of the proviso, one can invest upto Rs. 50,00,000/- in the current year and another sum of Rs. 50,00,000/- in the next financial year, but within six months from the date of transfer. The Ld. A.R placed following decisions: i) CIT vs. Coromondal Industries Ltd. [2015] 56 taxmann.com 209 ( Mad) dated 16.12.2024 (Madras High Court) ii) Saurabh Prasannavadan Vakil vs. ITO Ward-1(2)(4) (Now DCIT 1(1)(1), Vadodara in dated of order 15.10.2024 (Ahmedabad ITAT). iv) Rajendra Harjivandas Prajapati vs. DCIT [2024] 167 taxmann.com 662 (Ahmedabad- Trib.) dated of order 05.07.2024 (Ahmedabad ITAT) v) Challa Satish Reddy (HUF) vs. DCIT, Circle-10(1) in date of order 20.06.2022 (Hyderabad ITAT)
Contrary to that the Ld. D.R supports the impugned order.
Upon hearing the submission of the counsel of the respective parties, we have perused the order of lower authorities and find that the Ld. AO has denied the claim of exemption on investment in REC made on 23.04.2013 on the ground that the exemption can be claimed on any amount which has not been invested during the year concern. It is pertinent to mention here that the assessee against the above claim of exemption has made investment of Rs. 50 lakhs on 30.03.20133 in bond of NHAI and has further sum of Rs. 50 Lakhs in the bond REC. It is clear that both the above made investment is very much within the period of six months from the date of transfer of asset i.e. 25.03.2013. The assessee has purchased two bonds each of Rs. 50 lakhs of National Highway Authority of India vide cheque no. 588824 and cleared by the bank on 30.03.2013 and re-error of electrification of Corporation Ltd. (REC) vide cheque no. 8582 and the same is cleared by the bank on 23.04.2013. The assessee had deposited Rs. 25 lakhs in CGHS by making fixed deposit on IDBI Bank Ltd. on 20.07.2013 before the due date of filing of return. The first proviso to section 54EC is specified claim of investment and states that investment so made on or before 1st April, 2007 in the long term specified asset by assessee during any financial year does not exceed fifty lakhs rupees. We have gone through the cited judgment by the assessee and find that the Hon’ble Madras High Court in the case of CIT vs. Coromondal Industries Ltd. (supra) has discussed this issued and held thus:
“Section 54EC of the Income-tax Act, 1961 - Capital gains - Not to be charged on investment in certain bonds (Limitation period for investment) - Whether where assessee company invested long term capital Assessment Year: 2013-14 Sweta Sonthalia gain in REC bonds in two different financial years but within six months from date of transfer of capital asset, exemption claimed would be allowed - Held, yes [Paras 4 and 6] [In favour of assessee]” The relevant portion of the above judgment is reproduced herein below:
“3. We have heard Mr.T.Ravi Kumar, learned Senior Standing Counsel appearing for the Revenue and Mr.Venkat Narayanan, learned counsel appearing for the respondent.
The issue involved in this appeal is no longer res integra in view of the decision of this Court in CIT v. C. Jaichander [Order dated 15.9.2014 made in T.C.(A) Nos. 419 and 533 of 2014], to which one of us - R.Sudhakar,J. is a party). In the said decision, this Court held as under: '5. The key issue that arises for consideration is whether the first proviso to Section 54EC(1) of the Act would restrict the benefit of investment of capital gains in bonds to that financial year during which the property was sold or it applies to any financial year during the six months period.
6. For better understanding of the issue, it would be apposite to refer to Section 54EC(1) of the Act, which reads as under: 'Section 54EC. Capital gain not to be charged on investment in certain bonds.— (1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45. 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 rupees.' 7. On a plain reading of the above said provision, we are of the view that Section 54EC(1) of the Act restricts the time limit for the period of investment after the property has been sold to six months. There is no cap on the investment to be made in bonds. The first proviso to Section 54EC(1) of the Act specifies the quantum of investment and it states that the investment so made on or after 1.4.2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees. In other words, as per the mandate of Section 54EC(1) of the Act, the time limit for investment is six months and the benefit that flows from the first proviso is that if the assessee makes the investment of Rs.50,00,000/- in any financial year, it would have the benefit of Section 54EC(1) of the Act.
8. The legislature noticing the ambiguity in the above said provision, by Finance (No.2) Act, 2014, with effect from 1.4.2015, inserted after the existing proviso to sub-section (1) of Section 54EC of the Act, a second proviso, 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 Assessment Year: 2013-14 Sweta Sonthalia financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees."
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 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."
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 Assessment Year: 2013-14 Sweta Sonthalia years. The intention 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.' (Emphasis Supplied) 5. The decision of this Court in Areva T and D India Ltd (supra) relied upon by the learned Senior Standing Counsel for the appellant is not applicable to the facts of the present case, as in the said decision the writ petitions filed "for issuance of writ of declaration declaring that the conditions occurring in Notification No. 380 of 2006 F. No. 142/09/ 2006-TPL, dated December 22, 2006, along with the words 'subject to the following conditions, namely,' issued by the Central Board of Direct Taxes are ultra vires Section 54EC of the Income-tax Act, 1961, and arbitrary and violative of Articles 14 and 265 of the Constitution of India and consequently unenforceable", were dismissed as infructuous taking note of the subsequent amendment to Section 54EC of the Act, incorporating the limit on amount of investment in bonds in the section itself.
6. For the reasons aforesaid, we do not find any question of law, much less substantial question of law that arises for our consideration in this appeal. Accordingly, this appeal is dismissed. No costs.”
We have also gone through the order passed by the Hon’ble Karnataka High Court passed in CIT vs. Smt. Neena Krishna Menon which has also been held thus:
Section 54EC, read with section 263, of the Income-tax Act, 1961 - Capital gains - Not to be charged on investment in certain bonds (2015 Amendment) - Assessment year 2009-10 - Whether amendment to section 54EC brought with effect from 1-4-2015 restricting investment in assets from sale consideration on sale of original asset to Rs. 50 lakhs is prospective in nature, thus; prior to assessment year 2015-16, it was possible for assessee to claim deduction of Rs. 1 crore by investing Rs. 50 lakhs in each of financial years but within six months from date of transfer- Held, yes [Paras 6 to 9] [In favour of assessee]
Going over the cited judicial pronouncement as well as considering the facts of the case, we find substance in the argument of the ld. Counsel of the assessee. Accordingly, the appeal of the assessee is hereby allowed. The assessee is entitled to claim exemption u/s 54EC of the Act. The order passed by the AO confirmed by the Ld. CIT(A) is hereby set aside and addition made on this account directed to be deleted.
Order is pronounced in the open court on 22nd May, 2025
Sd/- Sd/- (Rajesh Kumar/राजेश कुमार) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 22nd May, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- Sweta Sonthalia, Flat No. 4B, 38/1, Elgin Road, Bhawanipore, Kolkata-700020 2. Respondent – ITO, Ward-7(1), Kolkata 3. Ld. CIT(A)- 22, Kolkata 4. Ld. PCIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)