Very Important - S. 54EC – Disallowance of exemption u/s 54EC

Whether capital gain on sale of property should be invested after the date of registration only?

 

Shri Harkirat Singh vs. ACIT (ITAT)

Dated: 9^th Sep 2011

 

S. 54EC – Disallowance of exemption u/s 54EC – Assessee made sale of property for 30 lacs and earned long term capital gain of Rs. 24,20,000/- . Assessee claimed investment of NHB Bond and sought exemption u/s 54EC and an investment of 10 lacs was made on 7.6.2005 and 14,20,000/- on 13.9.2005 in NHB Bonds. Agreement to sell was executed in August, 2005.

 

The assessee claimed that assessee has received advance against sale of property in March, 2005 as first installment of sales proceeds and invested the same in June, 2005 in NHB Bonds, was not accepted by the Assessing Officer. Assessing Officer did not grant exemption u/s 54EC with respect to investment of Rs. 10 lacs in NHB bond. On the plea that the long term capital gain on sale of property should be invested after the date of registration only.

 

Held, exemption under this section can be claimed when the assessee earns capital gains from transfer of long term capital asset. A very strict interpretation of section would mean only after the sale has been complete, that investment under section 54EC can be done. However, in the present case assessee had received Rs. 10 lacs in March, 2005 out of the gross sale proceeds of Rs. 30 lacs. The receipt of Rs. 10 lacs was part of the total receipt and assessee in good faith with a motive of compliance of law had invested the same in NHB bond to avail the exemption u/s 54EC. This act of the assessee was a bonafide. Under the circumstances, assessee should be granted exemption on Rs.10 lacs u/s 54EC. Hence, orders were set aside and decided the issue in favour of the assessee. Appeal allowed.