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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI JASON P. BOAZ & SHRI SANDEEP GOSAIN
This appeal by the assessee is directed against the order of the CIT(Appeals)-27, Mumbai dated 4/09/2014 for the assessment year 2009-10.
The facts of the case as emanate from the record are, briefly, as under:-
2.1 The assessee, an individual deriving income from capital gains and other sources, filed his return of income for the assessment year 2009-10 on 27/07/2009 declaring total income of Rs.1,71,24,320/-. The return was processed under section 143(1) of the Income tax Act, 1961 (in short ‘the Act’).On the basis of AIR information, the case was subsequently taken up for scrutiny by initiation of re-assessment proceedings under section 147 of the Act. In response to notice under section 148 dated 23/01/2013, the assessee filed a return of income on 11/02/2013 declaring income of Rs.1,71,24,320/-. In the course of assessment proceedings, the Assessing Officer (A.O.) observed that the assessee had sold two properties for Rs.3.00 crores on 28/04/2008 and Rs.1.5 crores on 14/10/2008 and claimed exemption of Rs.1.00 crores u/s. 54EC of the Act in respect of two separate investments of Rs.50.00 lakhs each in two different financial years. The AO was of the view that the assessee’s claim for exemption of Rs.1.00 crores under section 54EC of the Act was based on a wrong interpretation of the provisions of Section 54EC(1) of the Act, to a claim of double deduction of Rs.1.00 crores over two financial years instead of Rs.50.00 lakhs and consequently restricted the assessee’s exemption under section54EC of the Act to Rs.50.00 lakhs. The assessment was accordingly completed under section143(3) r.w.s. 147 of the Act vide order dated 28/03/2013.
2.2 Aggrieved by the order of assessment dated 28/03/2013 for assessment year 2009-10, the assessee preferred an appeal before the CIT(Appeals)-27, Mumbai challenging on both the technical issue –i.e., re-opening of the assessment for the assessment year 2009-10 under section 147/148 of the Act and also on the issue of restriction of the exemption claimed under section 54EC of the Act to Rs.50 lakhs as against Rs.1.00 crores claimed by the assessee . The Ld. CIT(A), vide order dated 4/09/2014 upheld the order of the assessment for the assessment year 2009-10; both on the issue of re-opening of the assessment under section 147 of the Act and also affirmed the Assessing Officer’s action in restricting the assessee’s claim for exemption under section 54EC of the Act to Rs.50.00 lakhs, inter-alia, by placing reliance on the decision of the Jaipur Bench of the ITAT in the case of ACIT vs. Sri Rajkumar Jain & Sons (HUF) in and the Memorandum explaining the provisions contained in the Finance (No.2) Bill 2014, amending the existing provisions of sub- section (1) of the section 54EC of the Act w.e.f. 1/04/2015, i.e., effective from assessment year 2015-16.
Aggrieved by the order of the CIT(A)-27, Mumbai dated 04/09/2014 for AY 2009-10, the assessee has preferred this appeal, raising the following grounds:-
“ 1.1 The Learned Commissioner of Income-tax (Appeals)-27,Mumbai[“Ld. CIT(A)”] erred in confirming the action of the A.O in framing reassessment under section 147 r.w.s. 143(3) of the Income –tax Act, 1961[“the Act”]. 1.2 It is submitted that in the facts and the circumstances of the case, and in law, the reassessment was bad in law in as much as the requisite preconditions for initiating the reassessment proceedings as well completion thereof were not fulfilled. WITHOUT PREJUDCIE TO THE ABOVE 2.1 The Ld. CIT(A) erred in confirming the action of the A.O in confirming the deduction under section 54EC to Rs.50 lacs, as against the deduction of Rs.1 lac claimed by the Appellant under section 54EC of the Act. 2.2 The Ld. CIT(A) failed to appreciate that the investments in the bonds under section 54EC of the Act were made [Rs.50 lacs each] in two different accounting years.
2.3 It is submitted that in the facts and circumstances of the case, and in law, no such rejection of the claim was called for. 3. The Appellant craves leave to add, alter, delete or modify all or any the above ground at the time of hearing.” 4. Ground No.1.1 and 1.2 Initiation of re-assessment proceedings:
4.1 At the outset, the ld.AR for the assessee submitted, before the Bench, that these grounds 1.1 and 1.2 (supra), are not being pressed or urged by the assessee in this appeal. Since Grounds 1.1 and 1.2 are not being pressed before us, they are rendered infurctuous and are accordingly dismissed.
5. Ground No.3: Being general in nature, no adjudication is called for thereon.
6. Grounds no.2.1 to 2.3-Exemption u/s.54EC :
6.1.1. In these grounds (supra), the assessee assails the impugned order of the ld. CIT(A), in confirming the AO's action in restricting the assessee’s claim for exemption u/s.54EC of the Act to Rs.50 lakhs as against Rs.1.00 crores claimed by the assessee, without appreciating the fact that the investment in specified Bonds under section 54EC of the Act was made in two different financial years. According to the assessee , the ld. CIT(A) has come to a wrong conclusion of restricting the assessee’s exemption under section54EC of the Act to Rs.50.00 lakhs only, by following the decision of the ITAT, Jaipur Bench in the case of Raj Kumar Jain & Sons (HUF)(supra), and in invoking the provisions of the amendment to sub-section (1) of section 54EC of the Act inserted by Finance (No.2) Bill, 2014, which is w.e.f. 1/04/2015 i.e. therefore, effective only for and from assessment year 2015-16.
6.1.2 The ld.AR contends that the assessee’s claim for exemption of Rs.1.00 crores, under section 54EC of the Act, in the facts and circumstances of the case on hand, that investment in Specified Bonds was made by the assessee twice; @ Rs.50 lakhs each in two different financial years, i.e., on 30/09/2008 and 9/04/2009, is to be allowed. In support of this proposition, the ld. AR for the assessee placed reliance, inter-alia, on the following judicial pronouncements which are stated to be directly on the issue of exemption under section 54EC of the Act on similar facts and circumstances as in the case on hand and cover the issue squarely in favour of the assessee :-
(i) CIT vs.C. Jaichander (2015) 370 ITR 579(Mad.); (ii) CIT vs. Coromandal Industries Ltd. (2014) 370 ITR 586(Mad); (iii) Dr. Kumar M. Dhawale vs. ACIT- 11(2) (ITA No.7585/M/2012 dated 9/10/2015); (iv) JNR Securities Broking Ltd.(ITA No.6987/Mum/2013 dated 8/07/2015); (v) Vivek Jairozbhoy vs. DCIT (ITA No.236/Bang/2012 dated 14/12/2012).
6.2 Per contra, the ld.DR for the Revenue supported the order of the authorities below on this issue.
6.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited. The undisputed facts of the matter as emanate from the record is that the assessee in the year under consideration sold two properties on 28/04/2008 and 14/04/2008 and in its computation of income from capital gains claimed exemption for Rs.1.00 crores under section 54EC of the Act in respect of two separate investments within the specified period in specified Bonds of Rs.50 lakhs each in two different financial years i.e. one on 30/08/2008 and, the other on 9/04/2009. The authorities below were of the opinion that the exemption u/s.50EC of the Act is to be allowed only to the extent of Rs.50.00 lakhs, and restricted allowance of the assessee’s claim to Rs.50.00 lakhs and disallowed the balance Rs.50.00 lakhs.
6.3.2 We have had occasion to peruse the judicial pronouncements cited and placed reliance upon by the assessee . In the case of CIT vs. C. Jaichander (supra), Their Lordships were of the view that on a plain reading of section 54EC (1) of the Act, it restricts the time limit for the period of investment after the sale of property to six months. The first proviso to section 54EC(1) of the Act specifies that the question of investment so made after 1/04/2007 in the specified asset by an assessee during any financial year does not exceed Rs.50.00 lakhs. There is no cap placed on the investments to be made is specified Bonds. It was explained that as per the mandate of section 54 EC(1) of the Act, the time limit for investment is six months after sale of property and the benefit that flows from the first proviso is that, if the assessee makes an investment of Rs.50 lakhs in any financial year, it would have the benefit of section 54 EC(1) of the Act and the assessee’s claim cannot be denied . The Hon’ble Court observed that it was only after the amendment by Finance (No.2) Act, 2014 w.e.f. 1/04/2015, a second proviso was inserted after the existing proviso to sub-section (i) of the section 54 EC of the Act, that the investment made by an assessee in the specified Bonds, out of Capital Gains arising from the transfer of one or more original assets during the financial year in which the asset/assets are transferred and in the subsequent financial year does not exceed Rs.50.00 lakhs. At para 5 to 11 of its order the Hon'ble Madras High Court held as under :-
The key issue that arises for consideration is whether the first proviso to Section 54EC(1) of the Act would restrict the benefit of investment of capital gains in bonds to that financial year during which the property was sold or it applies to any financial year during the six months period.
For better understanding of the issue, it would be apposite to refer to Section 54EC(1) of the Act, which reads as under:
“Section 54EC. Capital gain not to be charged on investment in certain bonds.
(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.”
7. On a plain reading of the above said provision, we are of the view that Section 54EC(1) of the Act 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 lakh 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.50,00,000/- in any financial year, it would have the benefit of Section 54EC(1) of the Act.
The legislature noticing the ambiguity in the above said provision, by Finance (No.2) Act, 2014, with effect from 1.4.2015, inserted after the existing proviso to sub-section (1) of Section 54EC of the Act, a second proviso, which 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”
At this juncture, for better clarity, it would be appropriate to refer to the Notes on Clauses Finance Bill 2014 and the Memorandum explaining the provisions in the Finance (No.2) Bill, 2014, which read as under:
“Notes on Clauses Finance Bill 2014:
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 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.
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 lakh 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:
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 transfer of a long-term capital asset and the assessee has, at any time within a period of six months, invested the whole or any part of capital gains 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 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.
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 lakh rupees.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and � subsequent as sessment years.
The legislature has chosen to remove the ambiguity in the proviso to Section 54EC(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 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 2015-2016 to avoid unwanted litigations of the previous years. Even otherwise, we do not wish to read anything more into the first proviso to Section 54EC(1) of the Act, as it stood in relation to the assessees.
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. For the foregoing reasons, we find no infirmity in the orders passed by the Tribunal warranting interference by this Court. The substantial questions of law are answered against the Revenue and these appeals are dismissed. No costs.”
6.3.3. We also find on a perusal thereof that the decisions of this Tribunal in the case of (i) Lilavati M. Sayani(supra) (ii) D.C.Kumar M. Dhawla v. ACIT(supra);(iii)M/s. JNR Securities Ltd., in respect of assessee’s entitlement to claim and be allowed exemption under section 54EC(i) of the Act, subscribe to the same view as held by the Hon’ble Madras High Court in the case of CIT v. C.Jaichandar (2015) 370 ITR 579(Mad)(supra). Respectfully following the decision of the Hon’ble Madras High Court in the case of CIT v. C.Jaichandar(supra) and the above referred cases of the co-ordinate benches of this Tribunal, we hold that the language of the provisions of section 54EC(1) of the Act clearly and unambiguously mandate that the assessee can make the investments in two different financial years, provided the investment in a financial year does not exceed Rs.50.00 lakhs. In the factual and legal matrix of the case on hand, we, therefore, reverse the findings of authorities below and direct the Assessing Officer to allow the assessee exemption of Rs.1.00 crore under section 54EC(1) of the Act in respect of the investment of Rs.50.00 lakhs each made by it in specified bonds on 30/9/2008 and 9/4/2009 i.e. in two separate financial years, pursuant to the sale of two properties on 28/4/2008 and 14/10/2008.
We hold and direct accordingly. Consequently, the assessee’s grounds at S.No.s 2.1 to 2.3 are allowed.
In the result, the assessee’s appeal for assessment year 2009-10 is partly allowed as indicated above.
Order pronounced in the open court on 24/08/2016