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Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: SHRI B.P. JAIN & SHRI KULDIP SINGH.
PER B.P. JAIN, ACCOUNTANT MEMBER:
This appeal of the Revenue arises from the order of the ld.
CIT(A)- 18, New Delhi vide order dated 27.10.2015 for assessment year
2012-13.
The Revenue has raised the following solitary ground of appeal:
“ 1. Whether on the facts and circumstances of the case the Ld.CIT(A) has erred in deleting the addition of Rs. 49,53,675/- pm account of disallowance of deduction claimed
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by the assessee u/s 54EC of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] that the assessee can claim only Rs. 50 lakhs deduction u/s 54EC.”
Brief facts of the case are that the assessee has sold
agricultural land situated at Gurgaon for a consideration of Rs.
1,37,22,500/- and has shown long-term capital gain on the same at
Rs.99,53,675/-. The assessee has claimed deduction under section
54EC of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'
for short] at Rs. 1 crore on the long-term capital gain of 99,53,675/-.
As per provision of section 54 EC of the income tax act, the assessee is
entitled to exemption on the investment made by the assessee under
NHAI bonds under the said provision. The question arose in this case as
to what extent the assessee should be so entitled. The assessee has
invested Rs. 1 crore under section 54 EC. As per the assessee, he is
entitled to 50 lakh exemption in each of the financial year totalling to
Rs. 1 crore and in support of the claim it referred to various decisions
mentioned in para 5.6 of the assessment order namely:
a) Aspi Cinwala v. Asstt. CIT{2012} 20 taxman.com 75(Ahd-Trib)
b) Ram Aggarwal v. Jt. CIT {2002)81 ITD163 (Mum)
c) In Asstt. CIT v. shri Raj kumarjain & Sons (HUF) {2012} 19 taxman.com 27 (Jp)
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d) CBDT Circular No 3/2008 finance Act 2007 for deduction in
respect of long term infrastructure bonds.
However the AO relying on the judgement of Raj Kumar Jain and
Sons HUF delivered by ITAT Jaipur bench restricted the exemption to
Rs. 50 lakh. The observations of the assessing officer at para 5.7
reads as under:
“The above submission of the assessee is considered but not found acceptable. It is to be noted that the matter has not reached finality either in the Hon’ble jurisdictional High Court or before Hon’ble Apex Court. Reliance is placed on the judgement given by the Hon’ble ITAT, Jaipur bench in ACIT Circle-2 vs. Shri Raj Kumar Jain & Sons HUF, 31.01.2012 which is given below:
“The deduction u/s 54EC should not exceed Rs. 50 lacs. The word any financial year mentioned in proviso to section 54EC refers to the investment to be purpose of claiming deduction from capital gain. The Ld. DR further submitted that proviso cannot give undue benefit to one section of the tax payers. If an assessee transfers certain property in the month of April of the financial year then the he has to make investment within 6 months i.e. within the same financial year. The exemption from capital gain will be only to the extent of RS. 50 lakhs. In the case of another tax payer who transfer his assets in the month of October, then he cannot claim exemption u/s 54EC by purchasing Rs. 50 lakhs
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bonds in the financial year in which the transfer has taken place and another Rs. 50 lakhs in the subsequent financial year. Thus the assessees who have earned the capital gain for the same assessment year cannot be treated differently. It was therefore, submitted that interpretation of proviso should not lead to discrimination against various tax payers.”
The ld. CIT(A) however, deleted the addition so made by the
Assessing Officer for the reasons mentioned in his order.
We have considered the rival arguments made by both the sides,
perused the orders of the A.O and the ld. CIT(A) and the paper book
filed on behalf of the assessee. We have also considered the various
decisions relied upon by both the sides. First of all, it is relevant to
reproduce section 54EC of the Act, which reads as below:
“Capital gain not to be charged on investment in certain bonds.
54EC. (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,—
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(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 as: (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 4S ;
[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.] The following second proviso shall be inserted after the existing proviso to subsection (1) of section 54EC by the Finance (No. 2) Act, 2014, w.e.f. 1-4-2015:
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.
There is difference in judicial opinion on the issue. In Shri Aspin
Ginwala vs. CIT [TS-192-ITAT-2012(Ahd) the Hon’ble ITAT bench held
that section 54EC exemption is available on investment of Rs. 1 crore
in specified bonds made within prescribed time-limit falling in two
different financial years. The bench observed that proviso to Sec 54EC
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was clear, unambiguous and did not restrict investments to Rs 50 lakhs
if eligibility period falls in two different financial years. Similar view
was held by the Bangalore ITAT in the case of Shri Vivek Jairazbhoy vs.
DCIT [TS-901-ITAT-20i2(Bang)] & Panaji ITAT in Panaji ITAT in
Shantabai V. Kamat vs. CIT reported in 142 ITD 769.
However the Jaipur bench of ITAT in AC1T vs. Shri Raj Kumar Jain
& Sons (HUF) [TS-142-ITAT-2012OJPR)] took a contrary view and held
that Sec 54EC exemption was to be restricted to Rs 50 lakhs, even if Rs
1 crore was invested in specified bonds within prescribed time limit
falling in two different financial years. ITAT observed that
interpretation of proviso to Sec 54EC should not lead to discrimination
against various taxpayers depending upon date of transfer.
The Hon'ble Madras High Court in CIT vs S Jaichander reported in
370 ITR 579 [Mad] has held as under:
“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.”
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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.
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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 (N0.2) 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:
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“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 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 of the Act
provides 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
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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
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.
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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 (N0.2) 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.
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In any event, from a reading of Section 54EC 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 fixe 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.
We are of the view that there are differences in the judicial
opinion on the issue. Apparently, there is no decision of the
jurisdictional HC in the matter. The reasoning of the ITAT Jaipur bench
has persuasive value. However, considering the spirit of the proviso
(supra) with prospective effect, the decision of Hon'ble Madras High
Court and the law of precedence in the matter, following the decision
of Hon'ble Madras High Court in the case of CIT vs S. Jaichander,
dismiss the appeal of the Revenue on this ground.
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In the result, the appeal of the Revenue is dismissed.
The order is pronounced in the open court on .09.2017.
[KULDIP SINGH] [B.P. JAIN] JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: SEPTEMBER, 2017
VL/