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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI JASON P. BOAZ
Per N.V. Vasudevan, Judicial Member
This appeal by the assessee is against the order dated 18.3.2014 of the Commissioner of Income Tax-IV, Bangalore passed u/s. 263 of the Act relating to assessment year 2009-10.
The facts and circumstances under which the order u/s. 263 of the Act was passed by the CIT were as follows. The assessee is an individual.
She filed return of income declaring a total income of Rs.1,32,59,530. During the previous year relevant to the A.Y. 2009-10, the assessee sold her share in a property and derived long term capital gain on such sale of Rs.2,28,57,608. The transfer resulting in capital gain took place on 3.12.08. The assessee invested capital gains in REC Bonds and claimed deduction u/s. 54EC(1) of Rs.1 crore. The assessee purchased REC Bonds worth Rs.50 lakhs on 31.3.2009 and another Rs. 50 lakhs on 31.5.2009. Both these purchases of REC Bonds were made within a period of six months from the date of transfer. The deduction claimed u/s. 54EC of the Act was allowed by the AO in his order dated 22.11.2011 passed u/s. 143(3) of the Act.
The ld. CIT, in exercise of his powers u/s. 263 of the Act, was of the view that the aforesaid order of the AO was erroneous and prejudicial to the interests of the revenue. According to him, the maximum amount of deduction that ought to have been allowed u/s. 54EC was only Rs.50 lakhs and the AO fell into error in allowing deduction of a sum of Rs.One crore. The assessee in reply to the show cause notice u/s. 263 of the Act, submitted as follows:-
“The first condition mentioned in 54EC(l) is that the investment has to be made within a period of six months from the date of transfer of capital asset. Since, the date of transfer in the given case is 03/12/2008, six months period elapse on 03/06/2009. Assessee had purchased REC bonds worth of Rs. 50 lakhs on 31/03/2009 and another Rs.50 lakhs on 31/05/2009. Both these purchases were within the six months period.
……… The said provision mentions that investment on which an assessee could claim exemption under Section 54EC(1) shall not exceed Rs.50 lakhs during a financial year. So, the exemption provision has to be construed not transaction-wise but financial year wise. Accordingly, the assessee is entitled to claim exemption of Section 54EC in respect of total investment in REC Bonds of Rs.One crore.”
The ld. CIT was of the view that the law indicates that the use of the phrase “during any financial year” is closely linked to the first part of the proviso, which lays down the operative time for the stipulation as “on or after the first day of April 2007”. According to the CIT the phrase “during any financial year” means during any financial year after the first day of April 2007. Therefore according to CIT the intention of law was to identify any one of the financial years following 1.4.2007, and did not intend to include therein more than one financial year simultaneously. The CIT referred to the decision of the ITAT Jaipur Bench in ACIT v. Sri Rajkumar Jain & Sons HUF [2012] 19 taxmann.com 27 (Jaipur Trib). The Tribunal in the aforesaid decision took the view that the maximum allowable deduction u/s. 54EC of the Act is only a sum of Rs.50 lakhs. The CIT accordingly directed the AO to disallow the claim for deduction u/s. 54EC to the extent of Rs.50 lakhs.
Aggrieved by the order of CIT(A), the assessee has preferred the present appeal before the Tribunal.
We have heard the submissions of the ld. counsel for the assessee, who brought to our notice the decision of the Bangalore Bench of the Tribunal in the case of Shri Vivek Jairazbhoy v. DCIT, dated 14.12.2012 wherein on identical facts, this Tribunal held that the benefit of section 54EC in a case such as the present case at Rs.1 Crore should be allowed.
The ld. DR relied on the order of CIT.
The provisions of section 54EC(1) read as follows:-
“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.” (emphasis supplied)
We have considered the rival submissions. We are of the view that the order of CIT u/s. 263 of the Act cannot be sustained. Identical issue had directly come up for consideration before the coordinate Bench of the Tribunal in the case of Shri Vivek Jairazbhoy (supra) and the same was dealt with as follows:-
“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 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 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) (ii) CIT Vs. Vegetable Products Ltd. ( 88 ITR 192) (iii) Bajaj Tempo Ltd. Vs. CIT (196 ITR 188)(SC) 17 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.”
It may also be mentioned that section 54EC has been amended by the Finance (No.2) Act, 2014 w.e.f. 1.4.2015 as follows:-
“The following second proviso shall be inserted after the existing proviso to sub-section (1) of section 54EC by the Finance (No. 2) Act, 2014, w.e.f. 1-4-2015 : 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 purpose of insertion of the above proviso is explained in the extract from the ‘Explanatory Memorandum to Finance (No.2) Bill, 2014, which is reproduced below:-
“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, 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 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 lakh 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 1” April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years. [Clause 23] (Emphasis supplied)
It can be seen from the above statutory amendment and the explanatory memorandum to Finance (No.2) Bill, 2014 that the legislature has accepted the ambiguity in the language of the proviso, but has amended the law with prospective effect i.e., from A.Y. 2015-16. It is therefore clear that for AY prior to AY 2015-16, on interpretation of the provisions it is possible for an Assessee claim deduction of Rs.1 Crore by investing Rs.50 lacs in each of the financial years, but within 6 months from the date of transfer. In the given circumstances, it cannot be said that the view entertained by the AO was not a possible view. In the circumstances, the jurisdiction u/s.263 of the Act could not have been exercised by the CIT.
For the reasons stated above, the order u/s. 263 is hereby quashed.
In the result, the appeal by the assessee is allowed. 14.
Pronounced in the open court on this 5th day of March, 2015.