DCIT, BANGALORE vs. SHRI. SANDEEP ABROL, BANGALORE

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ITA 1322/BANG/2015Status: DisposedITAT Bangalore13 April 2016AY 2012-136 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the proviso to Section 54EC restricts the investment in a financial year to Rs. 50 lakhs, but not the total deduction permissible. Since the assessee's investments were spread across two financial years, each within the Rs. 50 lakhs limit for that year, the full deduction of Rs. 1 crore was allowed.

What were the facts?

The assessee, a non-resident, claimed a deduction of Rs. 1 crore under Section 54EC for investments made in specified assets. The Assessing Officer (AO) restricted this deduction to Rs. 50 lakhs, citing a proviso limiting investment in a financial year. The assessee had invested Rs. 50 lakhs on March 31, 2012, and another Rs. 50 lakhs on April 16, 2012.

What were the issues?

Whether the deduction under Section 54EC is limited to Rs. 50 lakhs per financial year or per assessee, when investments are made across two financial years.

Which sections of the Income-tax Act were involved?

Section 54EC

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Income Tax Appellate Tribunal, BANGALORE BENCH “ C ”

Before: SHRI ABRAHAM P GEORGE & SHRI GEORGE GEORGE K

For Appellant: Shri Sunil Kumar Agarwala, JCIT (D.R)

Appellant By : Shri Sunil Kumar Agarwala, JCIT (D.R) Respondent By : Shri R.E. Balasubramanyam, C.A. Date of Hearing : 12.04.2016. Date of Pronouncement : 13.04.2016. O R D E R Per Shri George George K, J.M. :

This appeal, at the instance of the Revenue, is directed against the order of the CIT (A)-14 LTU, Bangalore, dated 31.08.2015. The relevant assessment year is 2012-13.

2.

The Revenue has, in its grounds of appeal, raised a solitary issue, namely, that –

Whether the Ld. CIT (A) was right in holding that the assessee was eligible to claim the exemption of Rs.100 lakhs u/s 54EC of the Act during the same financial year? 3. Briefly stated, the facts of the case are as follows:

The assessee, a non-resident individual, had filed his return of income, admitting a total income of Rs.3,01,24,120/- consisting of income under ‘capital gains’ and income from ‘Other sources’. While concluding the assessment, the AO had restricted the claim of deduction u/s 54EC of the Act to Rs.50 lakhs as against 2 IT(IT)A No.1322/Bang/2015 Rs.1 crore claimed by the assessee and assessed the income of the assessee at Rs.3,51,24,117/-.

4.

Aggrieved, the assessee had preferred an appeal before the CIT (A)- 14 [LTU]. After having considered the assessee’s elaborate submission and citing amendment to the proviso to s. 54EC, findings/ruling of various judiciaries, the CIT (A)-LTU had directed the AO to re-compute the capital gains taking into consideration those investments which were eligible u/s 54EC of the Act. The relevant portions of the findings of the learned CIT (A), for appreciation of facts, are reproduced as under:

“5.3. With regard to the amendment to the proviso to section 54 EC, the first proviso as it stood applicable to the year under reference, reads as under: ‘Provided that the investment made on or after the first day of April, 2007 in the long term specified asset by an assessee during a particular financial year does not exceed fifty lakhs rupees.’ From the plain reading of the provision, it is apparent that the restriction on the amount imposed was with regard to the investment made during a particular financial year. Although the intention of the Legislature appears to restrict the amout of eligible deduction to Rs.50 lakhs which is evident from the amended provision brought in by the Finance Act (No.2), 2014, it is clearly stated that the amended provisions shall be effective from 01.04.2015. Therefore, the action of the AO in restricting the deduction to Rs.50 lakhs by placing reliance on the amended provisions of sec. 54EC cannot be justified.

6.

Considering the facts of the case, it is evident that the issue in dispute is squarely covered in favour of the assessee by various decisions as discussed above. In the present case, the appellant had invested Rs.50 lakhs on 31.03.2012 and an additional amount of Rs.50 lakhs on 16.04.2012 which are clearly found to be spread over two financial years. The investments have been made within 6 months from the date of sale of the capital asset, thereby complying with the provisions of Sec. 54(1) of the Act. Therefore, respectfully following the judgment delivered by the jurisdictional ITAT, Bangalore Bench in the case of Sri VevekJairazbhoy v. DCIT (supra) and the other decisions discussed above, I hold that as per the unamended provisions of section 54EC applicable to the year under reference, the assessee is entitled for deduction of Rs.100 lakhs, including the investment of Rs.50 lakhs in REC Bonds and Rs.50 lakhs in NHAI Bonds, as both the said investments have been made within the period of six months from the date of sale of the capital asset. The AO is therefore, directed 3 IT(IT)A No.1322/Bang/2015 to re-compute the capital gains taking into consideration these investments which are eligible u/s 54EC of the Act….”

5.

Aggrieved, the Revenue has come up in appeal before us. During the course of hearing, the learned DR submitted that the CIT (A) LTU erred in holding that the assessee was eligible to claim the exemption of Rs.100 lakhs u/s 54EC of the Act during the same financial year. The learned DR drew our reference to the CBDT Circular No.3/2008 dated 13/03/2008 which has clearly stated that the investments in such specified assets to avail of exemption u/s 54EC of the Act on or after April, 1, 2007 will not exceed Rs.50 lakhs in a financial year. It was, therefore, pleaded that the stand of the AO requires to be sustained and that of the findings of the learned CIT (A) be rejected.

6. On the other hand, the learned AR reiterated what has been represented before the CIT (A). In furtherance, it was submitted that the amended provisions of s. 54EC of the Act make them clear that “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”. It was, therefore, pleaded that as there was no any ambiguous on the stand of the CIT (A), the same requires to be sustained. The learned Counsel has also placed strong reliance on the findings of the earlier Bench of this Tribunal in the case of VivekJairazbhoy v. DCIT (Intl. Taxation) in dated: 14.12.2012 for the AY 2008-09 to substasntiate his contention.

7.

We have carefully considered the rival submissions, perused the relevant materials on record, the findings of the CIT (A), the CBDT’s Circular No.3/2008 dated 12.3.2008 and also the case law on which the learned counsel for the assessee has placed reliance. As rightly contended by the learned Counsel for the assessee, as per the provisions of s. 54EC of the Act, the proviso restricts the investment in any financial year to Rs.50 lakhs which doesn’t mean to restrict the deduction to Rs.50 lakhs. The assessee had invested Rs.50 lakhs on 31.3.2012 during the FY 2011-12 and further sum of Rs.50 lakhs on 16.4.2012during the FY 2012-13 and, thus, each of those investments were limited to Rs.50 lakhs in an FY which were incidentally within six months from the date of transfer. Hence, the assessee was entitled to the deduction to the tune of Rs.1 crore from the capital gains as rightly claimed by him.

4 IT(IT)A No.1322/Bang/2015 7.1. The above view is in concurrence with the findings of the earlier Bench of this Tribunal in the case of VivekJairazbhoy v. DCIT (Intl. Taxation) (supra). For appreciation of facts, the relevant portions of the same are reproduced as under:

“9.7……………….Circular No.3/2008 dated 12.3.2008 issued by the CBDT, being an explanatory note on the provisions relating to Direct Taxes in Finance Act, 2007. In the said para 28.2.thereof the reason for it to set a limit on the quantum of investment by a person in a financial year reads as under: ’28.2. The quantum of investible bonds issued by NHAI and REC being limited, it was felt necessary to ensure that the benefit was available to all the investors. For this purpose, it was necessary to ensure that the limited number of bonds available for subscription is also available for small investors. Therefore, with a view to ensure equitable distribution of benefits amongst prospective investors, the Government decided to impose a ceiling on the quantum of investment that could be made in such bonds. Accordingly, the said section has been amended so as to provide for aceiling on investment by an assessee in such long- term specified assets. Investments in such specified assets to avail exemption under section 54EC, on or after 1st day of April, 2007, will not exceed fifty lakh rupees in a financial year.’ It is clear from the Circular No.3/2008 of CBDT (supra) that the Government only intended to restrict the investment in a particular financial year and thus has fixed a limit of Rs.50 lakhs as permissible investment in a particular financial year. It also appears clear that the Government did not intend to restrict the maximum amount of exemption permissible under section 54EC of the Act. The fact that the Legislature has consciously used the words ‘in a financial year’ in the proviso to section 54EC of the Act also fortifies the same. If the legislature wanted to restrict the exemption itself to Rs.50 lakhs it could have simply dispensed with using the words ‘in a financial year.’’ 7.2. Extensively quoting the ruling of the Hon’ble Supreme Court in the case of Vikrant Tyres Ltd v. I ITO reported in 247 ITR 821 (SC) and also in the cases of (i) CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd (196 ITR 149 – SC) and (ii) Bajaj Tempo Ltd v. CIT [196 ITR 188 (SC)], the earlier Bench of this Tribunal was of the view that –

“9.8…………………………………………………………………………… Taking into consideration the overall facts and circumstances of the case, the CBDT’s Circular No.3/2008 and the principles laid down by the Hon’ble Apex Court for interpreting statues, we of the considered view that it would be in the fitness of things to follow

5 IT(IT)A No.1322/Bang/2015 the decision of the ITAT, Ahmedabad Bench in the case of AspiGinwala& Others [in & 3227/Ahmd/2011 dated 30.3.2012] relied on by the assessee and hold that the assessee is entitled to total deduction under section 54EC of the Act spread over a period of two financial years @Rs.50 lakhs each on investments made in specified instruments within a period of six months from the date of sale of the property.” 7.3. On an identical issue, the Hon’ble Madras High Court in the case of CIT v. C Jaichander [TCA NO.419 and 533 of 2014 dated 15/9/2014] has held as under:

“(i) on a plain reading of section 54EC (1) of the Act, it is clear that it 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 lakhs 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.50,000/- in any financial year, it would have the benefit of section 54EC(1) of the Act. (ii) The Legislature has chosen to remove the ambiguity in the proviso to section 54(1) of the Act by inserting a second proviso with effect from 1.4.2015. The Memorandum explaining the provisions in the Finance (No.2) Bill, 2014 also states that the same will be applicable from 1.4.2015 in relation to the 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 2015-16 to avoid unwanted litigation of the previous years.

7.4. In the same way, following its earlier order in the case of CIT v. Jaichander (supra), the Hon’ble Madras High Court in the case of CIT, Chennai v. Coromandel Industries Ltd (2015) 56 Taxman.com 209 (Mad), has ruled thus:

“4. In view of the decision in CIT v. C Jaichander [Order, dated 15.9.2014 made in T.C.(Appeal) Nos.419 and 533 of 2014] wherein it was held that from a reading of section 54EC (1) and the first proviso, it is clear that the time limit or investment is six months from the date of transfer and even if such investments falls under two financial years, the benefit claimed by the assessee cannot be 6 IT(IT)A No.1322/Bang/2015 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) 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.

7.5. Incidentally, in the impugned assessment order, the AO had herself conceded that “4.6. Though the above provision is effective from 1.4.2015 onwards, it supports the above position taken that the eligible investment in the specified asset would be only Rs.50 lakhs and it cannot exceed that sum….”

7.6. In overall consideration of the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs and also in consonance with the findings of the earlier Bench of this Tribunal (supra) and the views of the judiciaries as discussed above, we are of the view that the CIT (A)-LTU was justified in directing the AO to re-compute the capital gains taking into consideration those investments which were eligible for exemption u/s 54EC of the Act. It is ordered accordingly.

8.

In the result: The Revenue’s appeal is dismissed.

Order pronounced in the open court on 13-4-2016.

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