ASSISTANT COMMISSIONER OF INCOME TAX, BANGALORE vs. SRI SRINIVASAN RADHESH,, BANGALORE

O R D E R Per Shri Jason P. Boaz, A.M. : This appeal by Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-II, Bangalore dt.25.6.2014 for Assessment Year 2010-11.

3. The learned CIT (Appeals) erred in placing reliance on the decision of the Hon'ble ITAT, Bangalore C Bench in the case of Vivek Jairazbhoy Vs. DCIT which has not been accepted by the Department and appeal under Section 260A is pending before the Hon'ble High Court of Karnataka.” 4.0 Grounds S.No.1 to 3 : Exemption under Section 54EC of the Act. 4.1 In the course of assessment proceedings, the Assessing Officer noticed that the assessee had disclosed income from Long Term Capital Gains of Rs.3,45,51,297 arising on account of sale of shares held by the assessee in a private limited company in Feb., 2010, after claiming exemption of Rs.1 Crore under Section 54EC of the Act, on account of investment in REC Bonds in two tranches of Rs.50 lakhs each on 28.2.2010 and 30.5.2010, on the ground that the investments were made within the six month period stipulated thereunder; even though the second tranche of investment was made in the subsequent financial year. The Assessing Officer rejected the assessee's claim for deduction under Section 54EC of the Act in respect of the second tranche of investment of Rs.50 lakhs invested in REC Bonds on 30.5.2010 as it fell in the subsequent financial year and restricted the assessee's exemption under Section 54EC of the Act to Rs.50 lakhs in respect of the investment of Rs.50 lakhs made on 28.2.2010, as it was made within the year/period under consideration relevant to Assessment Year 2010-11. On appeal, the learned CIT (Appeals) following the decisions of the co-ordinate bench of this Tribunal in the case of Vivek Jairazbhoy (supra) and of the ITAT, Ahmedabad Bench in the case of Aspi Ginwala,Shree Shri Srinivasan Radhesh Ram Engg. & Mfg. (supra) held that the assessee is entitled to exemption under Section 54EC of the Act on the entire amount of Rs.1 Crore invested by him in REC Bonds in two tranches of Rs.50 lakhs each on 28.2.2010 and 30.5.2010 as they were within a period of six months from the date of sale of shares held by the assessee in a private limited company even though spread over a period of two financial years. 4.2 The learned Departmental Representative was heard in support of the grounds raised and relied on the finding in the order of assessment wherein the Assessing Officer had restricted and allowed the assessee's claim for exemption under Section 54EC of the Act to Rs.50 lakhs. It was submitted that the impugned order of learned CIT (Appeals) was erroneous since the Act had explicitly stated that the exemption under Section 54EC of the Act should not exceed Rs.50 lakhs in any financial year. It is submitted that the learned CIT (Appeals) had erred in following the decision of the co-ordinate bench in the case of Vivek Jairazbhoy (supra) since the said decision had not been accepted by the Department and the Revenue’s appeal is pending before the Hon'ble High Court of Karnataka. 4.3 Per contra, the learned Authorised Representative for the assessee submitted that Revenue’s appeal is liable to be dismissed as there was no error in the impugned order of the learned CIT (Appeals) in allowing the assessee's claim for exemption under Section 54EC of the Act by following the decisions of the co-ordinate bench of this Tribunal in the case of Vivek Jairazbhoy (supra) and of the ITAT, Ahmedabad Bench in the case of Aspi Ginwala (supra).

Shri Srinivasan Radhesh 4.4.1 We have heard the rival contentions and perused and carefully consdiered the material on record; including the judicial pronouncements cited and placed reliance on by the assessee. The facts of the case on this issue of the assessee's claim for exemption under Section 54EC of the Act as laid out in para 4.1 of this order (supra) are not in dispute. The Assessing Officer restricted/allowed the exemption to Rs.50 lakhs for the investment of the same amount in REC Bonds on 28.2.2010 in the period relevant to Assessment Year 2010- 11 as he was of the view that this was the maximum exemption envisaged under Section 54EC of the Act in one assessment year. The assessee's claim for the exemption in respect of the second tranche of Rs.50 lakhs invested in REC Bonds on 30.5.2010 was rejected by the Assessing Officer as it fell in the next financial year relevant to Assessment Year 2011- 12. The assessee's claim for exemption under Section 54EC of the Act is based on the use of phrase ‘in any financial year’ in Section 54EC of the Act. We find that on similar facts as those of the case on hand, the Ahmedabad Bench of the ITAT in the case of Aspi Ginwala, Shree Ram Engg. & Mfg (supra) has decided the issue in favour of the assessee's holding that even though the second tranche of investment falls in the subsequent financial year/assessment year, the assessee is entitled to deduction on the entire amount invested in specific securities, provided the aggregate amount so invested has been made iwthin the six month period from the date of sale of asset and does not exceed Rs.50 lakhs for each of the two assessment years. 4.4.2 The co-ordinate bench of this Tribunal while dealing with similar factual situation in the case on hand, in the case of Vivek Jairazbhoy (supra) followed the above referred Shri Srinivasan Radhesh decision in the case of Aspi Ginwala, Shree Ram Engg. & Mfg. (supra) and at paras 9.4 to 9.8 thereof has held as under :- “ 9.4 The issues now before us for adjudication are the following : (i) Whether the proviso to section 54EC of the Act restricts the exemption to Rs.50 lakhs or does it merely restrict the investment that can be made in a single financial year to Rs.50 lakhs ? (ii) If the answer to the above is that it is the investment that is restricted and not the exemption, then in view of the fact that NHAI had allotted the Bonds only on 30.6.2008 in respect of the second investment of Rs.50 lakhs, which is beyond the period of six months from the date of sale of property, can it be said that the second investment of Rs.50 lakhs is said to have been made outside the period of six months and no exemption is to be allowed under section 54EC of the Act in respect of the same. 9.5 The learned counsel for the assessee has placed reliance on the decision of the ITAT, Ahmedabad Bench in the case of Aspi Ginwala & Others Vs. ACIT in & 3227/Ahd/2011 dt.30.3.2012 wherein on similar facts i.e investment of Rs.50 lakhs each was made in two different financial years but within the period of six months from the date of sale, it was held in para 8 of the said order that the assessee is entitled to exemption of Rs.1 Crore as the six months period for investment in eligible investments involved in two financial years. 9.6 The learned Departmental Representative however placed before us an earlier judgment, contrary to the decision of the Ahmedabad Bench of the ITAT, rendered by the ITAT, Jaipur Bench in the case of ACIT Vs. Raj Kumar Jain & Sons in ITA No.648/JP/2011 dt.30.1.2012 wherein the Tribunal on similar facts, was of the view that a liberal interpretation will lead to discrimination adversely affecting those who sell a property at any time from April to September of a financial year vis-à-vis those who sell property in the period October to March of the same financial year. In this view of the matter, they came to the conclusion that for the investment to be made within a period of six months, the exemption under section 54EC of the Act is to be restricted to Rs.50 lakhs only. 9.7 The learned counsel for the assessee placed reliance on circular No.3/2008 dt.12.3.2008 issued by 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 Shri Srinivasan Radhesh 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 a ceiling 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 form 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.” 9.8 The judicial decisions relied upon by the learned counsel for the assessee also support the stand of the assessee. The Hon'ble Apex Court while deciding the case of Vikrant Tyres Ltd Vs. First ITO reported in 247 ITR 821 have already laid down the law on interpreting of statutes by holding thereof that :- “ It is settled principle in law that the courts while construing Revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other, meaning thereby that no tax or levy can be imposed on a subject by an Act of Parliament without the words of the statute clearly showing an intention to lay the burden on the subject. In this process, the courts must adhere to the words of the statute and the so called equitable construction of those words of the statute is not permissible. The task of the court is to construe the provisions of the taxing enactments according to the ordinary and natural meaning of the language used and then to apply that meaning to the facts of the case and in that process if the tax payer is brought within the net he is caught, otherwise he has to go free.” In the case of CWT Vs. Hashmatunnisa Begum reported in 176 ITR 98 (SC), the Hon'ble Apex Court held that while interpreting statutes, literal construction has to be applied regardless of results and that only in a situation where two views are reasonably possible, should reference be given to that view which promotes constitutionality and not where the statute can be read only in a particular way. The following decisions of the Hon'ble Apex Court have laid down the proposition that provisions for deduction, exemption or relief are to be construed liberally in order to advance the objective and not to frustrate it. (i) CIT Vs. Gwalior Rayon Silk Manufacturing Co. Ltd. (196 ITR 149)(SC)

Shri Srinivasan Radhesh (ii) CIT Vs. Vegetable Products Ltd. ( 88 ITR 192) (iii) Bajaj Tempo Ltd. Vs. CIT (196 ITR 188)(SC) 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 statutes, we are of the considered view that it would be in the fitness of things, to follow the decision of the ITAT, Ahmedabad Bench in the case of Aspi Ginwala & Others (supra) 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.” Following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of Vivek Jairazbhoy (supra) and of the ITAT, Ahmedabad Bench in Aspi Ginwala, Shree Ram Engg. & Mfg. (supra),we concur with and uphold the finding of the learned CIT (Appeals) that the assessee, in the case on hand, is entitled to exemption under Section 54EC of the Act of the entire amount of Rs.1 Crore invested by him, from out of the sale proceeds of shares held by him in a private limited company, in REC Bonds in two instalments of Rs.50 lakhs each on 28.2.2010 and 30.5.2010, even though spread over a period of two financial years but was within a period of six months from the date of sale of the concerned asset. Consequently, Grounds at S.No. 1 to 3 raised by Revenue are dismissed.