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Income Tax Appellate Tribunal, MUMBAI BENCH “I” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2012-13. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-28, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The ground of appeal
filed by the assessee reads as under: The CIT(A)-28 erred in confirming disallowance of Investment of Rs.50 Lacs in REC Bonds claimed as deduction u/s 54EC from LT Gain by your appellant, though the delay between actual (Registered) transfer and effective deemed transfer was only 46 days.
3. Briefly stated, the facts of the case are that the appellant/assessee filed his return of income for the assessment year (AY) 2012-13 on 20.03.2014 declaring total income at Rs.26,81,810/-. During the financial year (FY) 2011-12, the assessee had sold a residential property for a consideration of Rs.2,05,00,000/-. In the original computation of income, the assessee had claimed deduction u/s 54EC by investing in Rural Electrification Corporation Ltd. (REC) Bonds and u/s 54 of the Act. 3.1 The assessee invested the sale proceeds in REC Bonds worth Rs.50,00,000/-. The allotment date as appearing on the REC Bond is 31.03.2012. The Assessing Office (AO) observed following from clause III of the sale agreement dated 29.03.2012 : “The vendor confirms that in pursuance of the present agreement, he has already surrendered possession of the said premises to the purchasers with effect from 5th day of August, 2011 (05.08.2011) and that the purchasers are in occupation of the said premises since then in their own rights.” The AO thus came to a finding that the assessee (vendor) in this case, has already surrendered the rights over the capital asset on 05.08.2011. In order to claim deduction u/s 54EC, the assessee was required to invest the said amount within six months of transfer of capital asset i.e. by 05.02.2011. However, the assessee had invested in REC Bond on 31.03.2011 which beyond six months.
In response to a query raised by the AO, the assessee submitted that when only agreement to sale and possession is done, it is not actual transfer. It is known as deemed transfer. The assessee further submitted that in the case of CIT v. Rubi Trading Co. Pvt. Ltd. (2003) 259 ITR 54 (Raj), it has been held that section 54EC would have application only where there is an actual transfer and not in a case where there is only a deemed transfer. In this case as submitted by the assessee, there is actual transfer on 22.03.2012 and therefore, purchase of REC Bond on 31.03.2012 is much within the six months period. However, the AO was not convinced with the above explanation of the assessee and held that as per the agreement, the assessee had already surrendered the capital asset on 05.08.2011. The assessee made investment in REC Bond on 31.03.2012 which is beyond the period of six months. Therefore, the AO disallowed the claim of deduction of Rs.50,00,000/- made by the assessee u/s 54EC of the Act.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) held that the case of the assessee is squarely covered by the inclusive definition of transfer in section 2(47)(v) which speaks of any transaction allowing possession of any property in part performance of a contract. The agreement to sale is a contract which has been part performed by both the parties i.e. by the appellant allowing possession to the purchaser and receipt of part consideration. The Ld. CIT(A) observed that the asset had been transferred on 05.08.2011 and therefore, the AO is correct in holding that the window of investment in REC Bonds closed on 05.02.2012. For the purpose of investment in new residential house u/s 54 or 54F, what is important is the substance of the transaction (in this case asset transferred on 05.08.2011) and not the date of registration of the purchase deed (in this case 29.03.2012). Also section 54EC mandates that the period of six months be counted from the date of transfer of the capital asset. Therefore, the Ld. CIT(A) confirmed the disallowance of Rs.50,00,000/- made by the AO u/s 54EC.
Before us, the Ld. counsel of the assessee submits that the deemed transfer as per agreement dated 05.08.2011 does not constitute the transfer as per section 53A of the Transfer of Property Act, 1882 with reasonable certainty, and hence, the appellant was constrained by the purchaser to get register the same agreement by paying additional stamp duty of Rs.1,41,070/- on 22.03.2012 and hence the true and correct transfer was completed on 22.03.2012. The Ld. counsel further submits that the CIT(A) erred in considering transfer by reading section 2(47)(v) which is known in the legal word as an effective deemed transfer, whereas under provisions of section 53A of the Transfer of Property Act, 1982, the actual transfer is the registered stamped agreement, transfer lodged with the government authorities. Since various defined transfer under the Transfer of Property Act are not substitute to each other, but are complimentary, it is stated that the appellant ought to get benefits of investment u/s 54EC. Though under the Income Tax Act, section 2(47)(i) and 2(47)(ii) are introduced by the Taxation Law (Amendment) Act, 1984, whereas section 2(47)(v) is introduced by the Finance Act, 1987, since all these sub-sections of section 2(47) are not mutually exclusive, the Ld. CIT(A) should have given benefits of doubts to the appellant who made investment in REC Bonds on 31.03.2012 i.e. within 9 days from actual transfer on 22.03.2012 relying on the decision in CIT v. Rubi Trading Co. Pvt. Ltd. (2003) 259 ITR 54 (Raj), Jotinder H. Shodhan v. ITO (2015) 278 CTR (Guj) 98 and K.M. Sugar Mills v. CIT (2015) 278 CTR (SC) 100. The Ld. counsel submits that since section 54EC does not provide any definition of transfer, the appellant ought to be guided by generally and legally accepted meaning of the word actual registered transfer and hence, has made the investment in REC Bonds just within 15 days of actual transfer. It is submitted that the deemed transfer as per agreement dated 05.08.2011 does not constitute the transfer as per section 53A of the T.P. Act 1882 with reasonable certainty and hence, the appellant was constrained by the purchaser to get registered the same agreement by paying additional stamp duty of Rs.1,41,070/- on 22.03.2012. Finally, it is stated that since section 54EC is enacted to give tax benefits to the assessee and since there is no delay in case of actual registered transfer and hardly any delay even from effective transfer taken by the Ld. CIT(A) and looking at CBDT Circular No. 359, the appellant should be given tax benefits available for investment of Rs.50,00,000/- in the REC Bonds.
On the other hand, the Ld. DR submits that the capital asset has been transferred on 05.08.2011 and therefore, the Ld. CIT(A) has correctly held that the window of investment in REC Bonds closed on 05.02.2012. It is evident that section 54EC mandates that the period of six months be counted from the date of transfer of the capital asset and transfer is defined in section 2(47) of the Act. Thus the Ld. DR supports the order passed by the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. As per section 54EC of the Act, any Long Term Capital Gain (LTCG), arising to any assessee, from the transfer of any capital asset on or after 01.04.2000 shall be exempt to the extent such capital gain is invested within a period of six months after the date of such transfer in the long-term specified asset provided such specified asset is not transferred or converted into money within a period of three years from the date of its acquisition. The investment is restricted only upto Rs.50,00,000/-. In the instant case, the purchase agreement was registered on 05.08.2011. Again an additional stamp duty of Rs.1,41,070/- was paid on 22.03.2012 and thus the registration was completed. The appellant purchased the REC Bond on 31.03.2012. We refer here to page 25 of the Paper Book (P/B) filed by the assessee. As per it the assessee has paid Rs.1,41,070/- towards additional stamp duty on 22.03.2012 to complete the process of registration of the ‘Purchase Agreement’. The assessee filed its return of income for the impugned assessment year on 20.03.2014. The AO completed the assessment u/s 143(3) on 04.03.2015. Thus no one can say that the payment of additional stamp duty by the assessee is an afterthought.