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order , dated 19/01/2017, of the CIT (A)-28, Mumbai, the assessee has five the present appeal. Assessee, an LLP, filed its return of income on 25/07/2013, declaring income of Rs.1.71crores.The Assessing Officer (AO) completed the assessment, u/s.143 (3) of the Act, on 08/ 03/2016, determining its income at Rs. 2.21crores. 2. Effective ground of appeal
is about confirming disallowance of claim made under section 54EC of the Act. During the assessment proceedings, the AO found that the assessee had sold its office premises for a total consideration of Rs. 5.16 crores, that the premises was purchased in the year 1993,that in the earlier years it was showing rental income from the said property, that it was sold vide agreement dtd,30/11/201,that the assessee had earned capital gains of Rs. 2.69 crores, that it invested Rs.1 crores in the securities approved u/s.54EC, that Rs. 50 lakhs were invested in Rural Electrification Corporation Ltd. on 31/01/2013, that another Rs.50 lakhs were invested on 09/05/2013 in purchasing the bonds of National Highway Authority of India. The AO directed the assessee to explain as to why the exemption should not be restricted to Rs. 50 lakhs only. After considering the submission of the assessee, the AO referred second proviso to subsection (1) to section 54EC that was inserted by Finance Act, 2014. He held that proviso was clarificatory in nature and restricted the claim to Rs.50 lakhs.
3. Aggrieved by the order of the year, the assessee preferred an appeal before the First Appellate Authority (FAA) and made detailed submissions. It also made a reference to the judgment of the honorable Madras High Court delivered in the case of C. Jaichander and Sriram Indubal (tax appeal 419 and 533 of 2014, dated 10/09/2014). He referred to the provisions of section 54EC and referred to some cases and held that the proviso was not properly explained before the honorable Madras High Court, that the honorable court had no occasion to comment or adjudicate there on, that the investment which would qualify would be subject to the overall limit of Rs. 50 lakhs. Finally,he upheld the order of the AO.
2183/M/17- M/s.Nashoba Trading Company.LLP
During the course of hearing before us, the Authorised Representative (AR) stated issue stands covered by the judgment of the honorable Madras High Court in the case of C. Jaichander and Sriram Indubal(370 ITR 579)and orders of the tribunal delivered in the cases of C. R. Develop -ments Private Ltd.(ITA/4277/Mum/2012,dtd.13/05/2015)and Bellaire Houseware Manufacturers (ITA 376/Mum/2014,AY.2010-11,dated 22/06/2015).The Departmental Representative (DR) supported the order of the FAA.
We have heard the rival submissions and perused the material before us. The only issue to be decided is as to whether the exemption under section 54EC can be restricted to Rs. 50 lakhs for the year under consideration. The whole controversy has arisen because of the proviso introduced by Finance Act, 2014. The AO and the FAA were of the opinion proviso was classificatory, whereas the assessee was of the opinion that it was effective from 01/04/2015 i.e. AY. 2015-16.In our opinion Notes on Clauses and Memorandum explaining the provisions of Finance (No.2) Bill, 2014 throw light on introduction of the proviso. We are reproducing the relevant portion of Notes on Clauses and it reads as under:
“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 gains 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 lakhs 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 lakhs 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 provides as under:
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 trans fer 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 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 the 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.
2183/M/17- M/s.Nashoba Trading Company.LLP
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 lakhs 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."
It appears that while deciding the appeal, the F AA has not considered the Notes on Clauses as well as the Memorandum explaining the notes. Had he just read them, there would not have been any confusion or writing a lengthy order.Without considering the need to introduce the amendment and the date of applicability of the proviso he took a strange route to comment upon the order of the Hon’ble Madras High Court wherein it was held that proviso would be applic -able from AY.2015-16.There is no scope of ambiguity in the Memorandum and the Notes on Clauses. Here, we would like to refer to the case of Bellaire Houseware Manufacturers (supra) wherein orders of the Tribunal have been relied upon holding that the amended provisions of section 54EC are applicable from AY.2015-16 only.The order reads as under: “2.The effective ground of appeal is about deduction claimed by the assessee u/s. 54EC of the Act. During the assessment proceedings, the AO found that assessee had derived Long Term Capital Gain (LTCG) amounting to Rs.1.00 crores on sale of office premises on 11.11.2009, that the LTCG so derived had been claimed as exempt, u/s. 54EC of the Act, the assessee had invested Rs.50.00 lacs on 8.12.2009 in the bonds issued by Rural Electrification Corporation Ltd. (RECL),that on 15.4.2010 it again invested Rs.50.00 lacs in the bonds issued by RECL, that it claimed exemption for Rs.1.00 crore under the said section. The AO was of the opinion that the provisions of the Act did not allow assessee to claim exemption u/s. 54EC for more than Rs.50.00 lacs, that in addition to it, the investment had to be made within six months. Aggrieved by the order of the AO the assessee preferred an appeal before the First Appellate Authority (FAA),who upheld the order of the AO. 3.Before us, the Authorised Representative (AR) stated that the issue is covered by the orders of Aspi Ginwala and Ors. (52 SOT 16), Smt. Sriram Indubai (ITA/1950/Mds./12 AY -2008-09 dt.31.1.13),Leelavati Sayani (49 taxmann.com 579) and Ketan Chemicals (ITA No.6636/ Mum/2013 –AY-09-10 dt.8.4.2015).He also relied upon the case of C. Jaichander (370 ITR 579) of Hon’ble Madras High Court. The Departmental Representative (DR) supported the order of the FAA. 4.We have heard the rival submissions and perused the material available before us.We find that the issue of allowability of 54EC deduction for the investments made in REC bonds has been decided in favour of the assessee by above mentioned decisions. Respectfully following the above decisions,specially the judgment of C.Jaichander(supra) of Hon’ble Madras High Court, we decide the effective ground of appeal in favour of the assessee.
6. Considering the above, we hold that the FAA was not justified in applying the proviso to section 54EC for the year under consideration i.e.AY.2013-14.So, reversing his order, we decide the effective ground of appeal in favour of the assessee.
2183/M/17- M/s.Nashoba Trading Company.LLP As a result, appeal filed by the assessee stands allowed.