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Income Tax Appellate Tribunal, BANGALORE BENCHES “ A ” BENCH: BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI CHANDRA POOJARIShri Anandakrishnan Vaidyanathan, Shri K.V.Narasimhan, Advocate. Shri Kannan Narayanan, JCIT (D.R.)
O R D E R
PER SHRI CHANDRA POOJARI, AM :
This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Bangalore-6 dt.06.02.2017 for the Assessment Year 2013-14.
The assessee has raised the following grounds :
The impugned Order passed by the Commissioner of Income tax (Appeals)-6, Bengaluru, dated 06- 02-2017 is illegal, arbitrary and opposed to law and facts of the case. The learned officer has failed to note that the Hon'ble ITAT Bangalore has held, after analysing the Circular 3/2008 dated 12.03.2008 issued by CBDT in this regard, that Govt of India intended to fix the limit of Rs. 50 Lac as permissible investment in a particular financial year. Copies of the orders passed by the Hon'ble ITAT are enclosed. The learned officer has also failed to note that the Notes on Clauses in the Finance Bill 2014 and the Memorandum explaining the provisions in the Finance (No.2) Bill, 2014, have made it abundantly clear without any ambiguity whatsoever that the amendment seeking to remove the ambiguity in this regard will take effect from 1s` April 2015 and accordingly apply in relation to the Assessment year 2015-2016 and the subsequent assessment years. The learned officer has failed to apply her mind to see the issues involved in proper perspective vis-a- vis the decision of the Hon'ble ITAT, Bengaluru in this regard and the Notes on Clauses in the Finance Bill 2014 as well as the Memorandum explaining the provisions thereof as mentioned supra. The appellant therefore requests that in view of what is stated herein as also of what may be urged at the time of hearing, the order passed by the learned officer, impugned herein, may be quashed and set aside.”
The facts of the case are that the assessee is an individual, filed Return of Income electronically on 31.07.2013 declaring total income of Rs.48,69,070 comprising of income under profession, capital gains and other sources after claiming exemption from the capital gains arising on account of sale of shares of Rs.1 Crore under Section 54EC of the Income Tax Act, 1961 ('the Act'). Thesaid investment of Rs.1 Crore was factually made in two instalments of Rs.50 lacs each within the statutory period of six months from the date of sale of shares in question. The said period of six months fell in two financial years. The ;case was selected for scrutiny under CASS and notices under Section 143(2) and 142(1) were issued. The learned Authorised Representative appeared from time to time and submitted the details. In respect of investment of Rs.50 lacs in the subsequent financial year though within the statutory period of six months as contemplated
under the said section. The Assessing Officer has passed assessment order making the disallowance of the claim under Section 54EC of the Act. On appeal, the CIT (Appeals) confirmed the disallowance on the reason that the assessee has claimed exemption under Section 54EC and 54F of the Act as under :
54EC – 16.11.2012 Rs.50 lacs. 54EC – 10.04.2013 Rs.50 lacs. 54F Rs.36,87,011 According to the learned CIT (Appeals), a sum of Rs.50 lacs each was invested during F.Ys 2012-13 and 2013-14 respectively. As per first proviso of Section 54EC of the Act, maximum amount allowable as an exemption under Section 54EC is only one financial year is Rs.50 lacs. Accordingly, he confirmed the order of the Assessing Officer. Aggrieved the assessee, the assessee is in appeal before us.
We have heard both the parties and perused the material on record. An identical issue came up for consideration before the Hon'ble Madras High Court in the case of CIT Vs. Coromandel Industries Ltd. (2014) 12 TM 852 and in CIT Vs. C. Jaichander (TCA No.419 & 533 of 2014 Dt.15.9.2014) had taken same view as that of the co-ordinate Bench of Tribunal in the case of Vivek Jairazbhoy Vs. DCIT (ITA No.236/Bang/2012 dt.14.12.2012) wherein at para 5 the Bench held as under :
“ 5. We have perused the orders and heard the rival contentions. Hon’’ble Madras High Court in the case of C.Jaichander (supra) held as under at paras.5 to 11: “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 longterm 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.”
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.
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 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 longterm specified asset during any financial year shall not exceed fifty lakh rupees. It is proposed to insert a proviso below first proviso in said subsection (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 longterm specified asset, out of the whole of the capital gain, shall not be charged to tax. The proviso to the said subsection 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 1 st 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 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.” 4.1 Similar view has been taken by the co-ordinate Bench of Tribunal in the case of ACIT Vs. Dr. Hajjaji Krishnamurthy Anand in Dt.27.03.2015.
In view of the above decision cited supra, we are inclined to decide the issue in favour of the assessee allowing exemption under Section 54EC of the Act to the assessee in full and allow the appeal of the assessee.
In the result, appeal of the assessee is allowed.
Pronounced in the open court on the date mentioned on the caption page.