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Income Tax Appellate Tribunal, BENGALURU BENCH C, BENGALURU
Before: SHRI. INTURI RAMA RAO
PER LALIT KUMAR, JUDICIAL MEMBER:
The present appeal is filed by the assessee directed against the order of the CIT (A), Mangaluru, dt.15.11.2016, for the assessment year 2013-14, on the following grounds of appeal :
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The assessee is a company engaged in the exhibition of movies through its theatre located at Udupi and Kundapura. The case of the assessee was selected for scrutiny and a notice u/s.143(2) was issued. Thereafter the assessmet was concluded by the AO by making disallowance of Rs.1 crore u/s.54 EC of the IT Act. The case of the assessee is that the assessee has declared long-term capital gains of Rs.17,66,660/-, after claiming investment in REC bonds amounting to Rs.50 lakhs each, made on 31.01.2012 and 30.04.2012, aggregating to Rs.1 crore as exempt u/s.54EC of the Act. The Ld. AR relies upon the following judgments :
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• CIT v. Coromandel Industries Ltd [370 ITR 586-Mad • Coromandel Industries Ltd v. ACIT [ITA.411/Mds/2013, dt.25.6.13] • Sriram Indubai v. ITO [51 (II) ITCL 449- Chennai Trib]
The ground on which the AO made the disallowance was that the reliance placed by the assessee on the Board Circular No.359, dt.10.05.2008 was misplaced. It was also the case of the AO that as per Section 54EC, the investment is to be made in the long-term capital gains specified assets within a period of six months after the date of transfer of long-term capital assets, in certain specified bonds. In the present case the assessee has made the long-term investment in the long-term specified assets before the transfer of the assets and therefore the AO has concluded that the assessee is not entitled to exemption u/s.54EC. Aggrieved by the order of the AO, the assessee filed an appeal before the CIT (A), where also the assessee did not meet with any success. Aggrieved again the assessee is in further appeal before us.
The Ld. AR submitted that the case is covered by the order of the Tribunal. However copy of the order was not filed before us. Therefore in the absence of the copy of the order, we have to deal with the matter on merits.
The Ld. DR strongly supported the orders of the lower authorities.
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In the present case, the following facts are relevant. The sale of immoveable property was effected as per the order of the lower authorities on 10.08.2012, whereas the investment in REC bonds amounting to Rs.50 lakhs each were made on 31.01.2012 and 30.04.2012. Thus the amount of Rs.1 crore was invested prior to 10.08.2012. Therefore admittedly the investment was made prior to the sale of immovable property. Section 54EC provides as under :
(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. (2) Where the long-term specified asset is transferred or converted (otherwise than by transfer) into money at any time within a period of three years from the date of its acquisition, the amount of capital gains arising from the trans?fer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head ''Capital gains'' relating to long-term capital asset of the previous year in which the long-term specified asset is transferred or converted (otherwise than by transfer) into money. Explanation In a case where the original asset is transferred and the assessee invests the whole or any part of the capital gain received or accrued as a result of transfer of the original asset in any long-term speci?fied asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted (otherwise than by transfer)
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such specified asset into money on the date on which such loan or advance is taken. (3) Where the cost of the long-term specified asset has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1),- (a) a deduction from the amount of income-tax with reference to such cost shall not be allowed under section 88 for any assessment year ending before the 1st day of April, 2006 ; (b) "long-term specified asset" for making any investment under this section during the period commencing from the 1st day of April, 2006 and ending with the 31st day of March, 2007, means any bond, redeemable after three years and issued on or after the 1st day of April, 2006, but on or before the 31st day of March, 2007,- (i) by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 (68 of 1988) ; or (ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956), and notified by the Central Government in the Official Gazette for the purposes of this section with such conditions (including the condition for providing a limit on the amount of investment by an assessee in such bond) as it thinks fit : Provided that where any bond has been notified before the 1st day of April, 2007, subject to the conditions specified in the notification, by the Central Government in the Official Gazette under the provisions of clause (b) as they stood immediately before their amendment by the Finance Act, 2007, such bond shall be deemed to be a bond notified under this clause ;
From a bare perusal of the above provision, in our considered opinion it is required that the capital gains should arise from the transfer of long-term capital assets and the said capital gains should be invested wholly or in part in the long-term capital assets within a period of six months after the date of such transfer. Though it is the case of the assessee before us that even the investment made prior to the transfer of the long-term capital assets should also to be considered for the purposes of 54EC, but in our view, the argument of
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the assessee is misplaced, as there cannot be any long-term capital gain until there is a transfer of the capital assets. For the purpose of long-term capital gains, the transfer of capital gains is sine qua non. In the absence of transfer it cannot be claimed by the assessee that the long-term capital gains accrued to him. Further as per Section 54EC,any investment in long-term specified assets is required to be made at any time within a period of six months from the date of transfer. The language of the provision is unambiguous, plain and clear and no two interpretations are possible. In view thereof the investment in the specified assets made prior to the transfer of the immovable property, cannot be considered for the purposes of grant of benefit under 54EC, therefore there cannot be any occasion for accrual of long-term capital gains before the transfer of the capital asset. Therefore the investment made before the transfer of capital asset, on 31.01.2012 and 30.04.2012 were not in accordance with the provisions of section 54EC of the Act and hence the assessee is not entitled for any benefit. The assessee’s appeal is devoid of any merit.
In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 17th day of November, 2017.
Sd/- Sd/- (INTURI RAMA RAO) (LALIT KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Bengaluru Dated : November, 2017 MCN*
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Copy to: 1. The assessee 2. The Assessing Officer 3. The Commissioner of Income-tax 4. Commissioner of Income-tax(A) 5. DR 6. GF, ITAT, Bangalore By Order
SENIOR PRIVATE SECRETARY