Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, CIRCUIT BENCH AT MANGALURU
Before: SHRI INTURI RAMA RAO & SHRI SUDHANSHU SRIVASTAVAShri Borkatte Ganapathi Hegde,
This is an appeal filed by the revenue directed against the order of the CIT(A), Mangaluru, dated 15/02/2016 for the assessment year 2012-13.
The revenue raised the following grounds of appeal:
Brief facts of the case are that the respondnet-assessee is an individual and is engaged in the business of retail trade of IMFL, HPCL dealer and also runs business of commission agency. Return of income for the assessment year 2012-13 was filed on 28/09/2012 declaring total income of Rs.78,98,020/-. The return of income was processed u/s 143(1) [hereinafter referred to as 'the Act' for short][hereinafter referred to as 'the Act' for short] and subsequently the case was selected for scrutiny assessment under CASS. Against the said return of income, the assessment was completed by the ITO, Ward 2(2), Mangaluru, vide order dated 28/11/2014 passed u/s 143(3) of the Act at a total income of Rs.1,22,29,845/-. While doing so, the AO disallwod the claim for deduction u/s 54EC of the Act for a sum of Rs.49,09,181/-.
The background facts leading to the above disallowance is as under: During the previous year relevant to assessment year under consideration, the assessee sold the following two properties:
Out of the sale consideration, the assessee has invested in the bonds prescribed under the provisions of section 54EC i.e. Rural Electrification Corporation falling within same financial year as well as in the following years, the details of which are as under:
5. The AO disallowed the claim holding that exemption u/s 54EC is restricted to sum of Rs.50 lakhs only and therefore, investment made in subsequent financial year was disallowed. The relevant observations of the AO are as follows:
Being aggrieved, an appeal was preferred before the CIT(A), who vide impugned order, allowed the appeal placing reliance on the decision of the Hon’ble Madras High Court in the case of CIT vs. C.Jaichander (2015) 370 ITR 579: The relevant portion of the impugned order reads as under:
Being aggrieved, the revenue is in appeal before us in the present appeal.
The only issue that arises in the present appeal is whether the assessee is entitled for deduction of claim u/s 54EC in respect of investment made in prescribed bonds though in different
Page 6 of 10 financial years i.e. immediately succeeding financial year. There is no dispute as to the amount of capital gains computed. The provisions of section 54EC provide for deduction in respect of investment made in prescribed bonds against income from long term capital gains in case investment is made in specified assets within a period of six months from the date of sale assets. The said section also specifies maximum amount of investment to be made in financial year i.e. Rs.50 lakhs in any financial year. The relevant provisions of section 54EC, as they stood at the relevant point of time are reproduced 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,— (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. ”
Page 7 of 10 From a bare reading of the above provisions, it is clear that assessee is entitled to deduction where he makes investment of Rs.50 lakhs in specified assets within a period of six months in one financial year. The issue then crops up is in case said period of six months falls within two financial years, whether assessee can claim deduction u/s 54EC to the extent of Rs.50 lakhs in each financial year totalling to Rs.1 crore. This issue had come up for consideration before the Hon’ble Madras High Court in the case of C.Jaichander (supra) and again in CIT vs. Coromandel Industries Ltd. (370 ITR 586) wherein the Hon’ble Madras High Court has laid down that the exemption granted under proviso to section 54EC(1) should be construed not transaction-wise but financial year-wise. Consequently, the assessee is entitled to exemption of Rs.50 lakhs in each financial year aggregating to Rs.1 crore. The relevant portion of the judgment of the Hon’ble Madras High Court in the case of Coromandel Industries Ltd. (supra) is extracted below: “11. 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. ” In this connection, it is worth mentioning that the Legislature, by the Finance (No.2) Act, 2014 w.e.f. 01/04/2015, has inserted second proviso to sub-section (1) of section 54EC to remove the Page 8 of 10 above ambiguity in the said provision so that the exemption is limited to Rs.50 lakhs on account of investment in the specified bonds out of the long-term capital gains from the transfer of one or more assets during the financial year. The said second proviso 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.
The above decision of the Hon’ble Madras High Court was followed by the co-ordinate bench of Pune in the case of ITO vs. Smt.Bala R.Venkitachalem (71 taxmann.com 219)(Pune-Trib). Para. 9 of the above decision reads as under:
“9. The issue arising in the present appeal is against the claim of deduction under section 54EC of the Act, under which deduction is provided against the income from long term capital gains in case the investment is made in specified assets within time frame of six months from the date of sale of asset. The said section also provides a cap on the investment to be made in the bonds to the extent of Rs.50 lakhs in any financial year. As per the mandate of the said section and the proviso thereunder, where the assessee makes an investment of Rs.50 lakhs in the specified bonds within time frame of six months from the date of sale, in any financial year, then the benefit of said section is to be allowed to the assessee. In case, the period of six months falls within two financial years, then the question which arises for adjudication is whether the assessee can claim the aforesaid deduction under section 54EC of the Act to the extent of Rs.50 lakhs in each of the financial year totalling Rs.1 crore, where the investment is made in the aforesaid bonds in two financial years separately but within period of six months from the date of sale of assets. This issue arose for consideration before the Hon'ble High Court of Madras in C. Jaichander (supra) and later in CIT v. Coromandel Industries Ltd. [2015] 370 ITR 586/230 Taxman 548/56 taxmann.com 209 (Mad.) have laid down that the exemption granted under the proviso to section 54EC(1) of the Page 9 of 10 Act should be construed not transactionwise but financial year wise, wherein if the assessee was able to invest sum of Rs.50 lakhs each in two different financial years, within period of six months from the date of transfer of capital assets, the said deduction was allowable to the assessee. The Hon'ble High Court of Madras in C. Jaichander (supra) has held that as per the mandate of section 54EC(1) of the Act, time limit for investment is six months and benefit that flows from the first proviso is that if the assessee makes investment of Rs.50 lakhs in any financial year, it would have benefit of section 54EC(1) of the Act. The Hon'ble High Court further held that however, to remove the ambiguity in the above said provisions, legislature by Finance (No.2) Act, 2014 w.e.f. 01.04.2015 had inserted proviso after existing proviso to sub-section (1) of section 54EC of the Act. The second proviso, as per which the investment made by the assessee in long term capital gains specified assets out of 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 subsequent financial years, does not exceed Rs.50 lakhs. The said amendment was held to be applicable from assessment year 2015-16 and subsequent assessment years. The Hon'ble High Court thus, categorically held that the investment made on or after 01.04.2007 in long term specified assets by an assessee during any financial year should not exceed Rs.50 lakhs. However, the benefit that flows from the proviso was that where the assessee makes investment of Rs.50 lakhs in any financial year, it could have the benefit of section 54EC(1) of the Act. Applying the aforesaid proposition to the facts of the present case, where the assessee had invested Rs.50 lakhs in REC bonds i.e. specified assets as provided under section 54EC of the Act on 28.02.2010 i.e. in financial year 2009-10 and Rs.22,50,000/- on 30.04.2010 i.e. in financial year 2010-11 as against the capital gains arising of Rs.72,49,401/- on the transfer of long term capital gains i.e. sale of shares on 21.01.2010 falling in financial year 2009-10, the assessee is entitled to the benefit provided by the proviso under section 54EC of the Act and consequently, the order of CIT(A) merits to be upheld. Dismissing the grounds of appeal raised by the Revenue, the appeal of the Revenue is dismissed. ”
Thus, in the light of the ratio laid down in the above decisions, we do not find any fallacy in the reasoning of the CIT(A).
Page 10 of 10 8. In the result, the appeal filed by the revenue is dismissed.