ANIL SHANKAR PALEWAR,NAGPUR vs. INCOME TAX OFFICER, WARD-5(1), NAGPUR

This appeal is filed against the order of ld. Commissioner of Income Tax[NFAC], Delhi dated 26.12.2021under section 250 of the Act, 1961 for the Assessment Year 2015-16. The assessee has raised following grounds of appeal : “1) On the facts and circumstances of the case and in law, the Ld. AO grossly erred in disallowing and the Ld. CIT(A) NFAC, Delhi grossly erred in confirming the denial of benefit of exemption under section 54EC of the Income Tax Act, 1961 as claimed by the Appellant in his return of income. The exemption under section 54EC Anil Shankar Palewar [A] as claimed deserves to be allowed as per law and in the interest of natural justice.

We agree with the ld.AR that the time limit of six months shall be calculated from the date of receipt of actual consideration. In this context, we find support from the order of ITAT Pune in the case Mahesh NemichandraGaneshwade147 TTJ 0488 [2012], the ITAT in para 16,17,18has held as under : “16. We have carefully considered the rival submissions. In this case, the dispute before us is with respect to the claim of exemption of long term capital gain on sale of land with respect to investments of Rs 12,50,000/- and Rs 37,50,000/- made on 3.8.2007 and 27.10.2007 respectively. Section 54EC prescribes that the exemption 5 Anil Shankar Palewar [A] shall be available if the investment in specified Bonds is made within a period of six months after the date of transfer of the capital asset which, in the present case, is 12.7.2005. The assessee has explained that he could not make the investments within six months from the date of transfer, i.e. 12.7.2005 because the aforestated consideration was received on subsequent dates, namely, 12.12.2007, 14.5.2007, 19.6.2007 and 3.7.2007. A technical interpretation of section 54EC in this regard would imply that the exemption from tax on capital gains is not available qua the impugned investment of Rs 50 lakhs. So, however, the plea set-up by the assessee is on account of the purpose and spirit of the section and on account of the fact that the right to collect such sale consideration arose after the period of six months from the date of transfer. It is pleaded that the requirement of section 54EC stipulating investment in six months from the date of transfer has to be appropriately understood and applied so as to further the purpose and spirit of the section.

In a somewhat similar situation, the requirement of section 54EC to the effect that investment in specified assets is to be made within a period of six months from the date of transfer, was put to some clarification by the CBDT in Circular No 791 (supra). The question arose before the CBDT regarding exemption of a long term capital asset which had arisen on conversion of a capital asset into stock-in- trade. Such capital gain would arise in the year of conversion, so however, in terms of section 45(2) of the Act, its taxability is postponed to the year in which such stock-in-trade is actually sold or otherwise transferred by the assessee. The question arose as to whether the date of transfer as referred to in section 54E of the Act is the date of conversion of capital asset into stock-in-trade or the date on which the stock-in-trade is sold or otherwise transferred by the assessee. As per the phraseology of sections 54EA, 54EB and 54EC the date of transfer in such cases is the date on which the capital asset is converted by the assessee into stock-in-trade and not the date on which such stock-in-trade is sold or otherwise transferred by the assessee. Thus, as per the aforesaid understanding it may not be 6 Anil Shankar Palewar [A] possible for an assessee to make the required investment under the aforesaid sections at the point of conversion of capital into stock-in- trade because right to collect sale consideration in such cases arises only at the point of sale or transfer otherwise of stock-in-trade. The CBDT in consultation with the Ministry of Law decided that the period of six months for making investment in specified assets for the purpose of sections 54EA, 54EB and 54EC of the Act should be taken from the date such stock-in-trade is sold or otherwise transferred in terms of section 45(2) of the Act, though the taxability of capital gain was on the basis of 'transfer' as understood in section 45(2) of the Act. Therefore, having regard to the impossibility of performance to invest the amount in specified assets within six months from the date of transfer (i.e. the date of conversion of capital asset into stock-in- trade) the CBDT appreciated and has clarified that the period of six months for making investment in specified assets has to be reckoned from the date of the sale of such stock-in-trade when the right to collect sale consideration in such cases arose, which was much after the date of transfer as contemplated for the purpose of taxation.

In our considered opinion, the interpretation placed by the CBDT in consultation with the Ministry of Law to the condition of making investment within six months from the date of transfer in section 54EC would support the claim of the assessee in this case also for exemption from capital gain with respect to the impugned sum of Rs 50 lakhs invested in specified assets on 3.8.2007 and 27.10.2007. In the present case, admittedly the impugned amount of sale proceeds have been received by the assessee much after the date of transfer i.e. 12.7.2005, so however, it is also emerging from the record that the investments of Rs 12,50,000/- and Rs 37,50,000/- made on 3.8.2007 and 27.10.2007 respectively have been made within six months of receipt of such consideration. Therefore, having regard to the interpretation placed by the CBDT to understand the requirement of making investment within six months from the date of transfer in section 54EC of the Act we are inclined to uphold the plea of the assessee for exemption from tax on capital 7 Anil Shankar Palewar [A] gains qua impugned amount of Rs 50 lakhs. Therefore on this aspect, assessee has to succeed. Thus, this Ground of appeal is allowed.”