Where assessee within six months from date of transfer of capital asset was able to place investment of Rs. 50 lakhs each in specified assets in two different financial year, restrictive proviso to section 54EC would not limit claim to Rs. 50 lakhs only

IT: Where assessee within six months from date of transfer of capital asset was able to place investment of Rs. 50 lakhs each in specified assets in two different financial year, restrictive proviso to section 54EC would not limit claim to Rs. 50 lakhs only

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[2013] 36 taxmann.com 6 (Chennai - Trib.)

IN THE ITAT CHENNAI BENCH 'B'

Coromandel Industries (P.) Ltd.

v.

Assistant Commissioner of Income-tax, Company Circle I(3), Chennai*

DR. O.K. NARAYANAN, VICE-PRESIDENT 
AND V. DURGA RAO, JUDICIAL MEMBER

IT APPEAL NO. 411(MDS.) OF 2013
[ASSESSMENT YEAR 2009-10]

JUNE  25, 2013 

Section 54EC of the Income-tax Act, 1961 - Capital gains - Not to be charged on investment in certain bonds [Limit of investment] - Assessment year 2009-10 - Assessee sold capital assets and earned long-term capital gain of Rs. 1.10 crores - Assessee invested Rs. 50 lakhs each in two different assessment year in REC bonds within six months - Case of revenue was that assessee was eligible for claiming deduction only for Rs. 50 lakhs and remaining claim of Rs. 50 lakhs was denied - Tribunal in case of Smt. Sriram Indubal v. ITO [2013] 32 taxmann.com 118 (Chennai) held that if assessee had invested Rs. 50 lakhs each in specified assets in two different financial year but within six months from date of transfer of capital asset, restrictive proviso to section 54EC would not limit exemption claim to Rs. 50 lakhs only - Whether following same, exemption claimed by assessee upto Rs. 1 crore was allowed - Held, yes [Para 9][In favour of assessee]

CASE REVIEW

 

Smt. Sriram Indubal v. ITO [2013] 32 taxmann.com 118 (Chennai) (para 9) followed.

Areva T & D India Ltd. v. Asstt. CIT [2010] 326 ITR 540/[2009] 177 Taxman 192 (Mad.) (para 10) distinguished.

CASES REFERRED TO

 

Areva T & D India Ltd. v. Asstt. CIT [2010] 326 ITR 540/[2009] 177 Taxman 192 (Mad.) (para 3) and Smt. Sriram Indubal v. ITO [2013] 32 taxmann.com 118 (Chennai) (para 6).

Saroj Kumar Parida for the Appellant. Guru Bashyam for the Respondent.

ORDER

 

V. Durga Rao, Judicial Member - This assessee's appeal is directed against the order of the Commissioner of Income Tax (Appeals) - IX, Chennai dated 27.12.2012 relevant to the assessment 2009-10.

2. The only effective ground raised in the appeal of the assessee is that the CIT(Appeals) has erred in confirming the restriction of exemption claimed under section 54EC of the Income Tax Act of Rs. 50.00 lakhs instead of Rs. 1,00,00,000/- invested in long term bonds.

3. Brief facts of the case are that the assessee is a company engaged in the business of manufacturing engineering components and offering engineering consultancy. The assessee has sold the land and building of Hyderabad unit for a total consideration of Rs. 1.75 crores. So far as the sale of land component is concerned, the assessee sold the asset at Hyderabad for Rs. 1,13,74,000/- and after adjusting the indexed cost of acquisition, the total long term capital gains was calculated at Rs. 1,09,98,256/- and Rs. 1.00 crore claimed as deduction under section 54EC of the Act by investing Rs. 50.00 lakhs in REC bonds on 31.03.2009 and another Rs. 50.00 lakhs in the same organization on 31.04.2009. The Assessing Officer restricted the deduction to Rs. 50.00 lakhs by stating that the intention of the legislature is to limit the investment in long term specified asset to Rs. 50.00 lakhs only by following the decision of the Hon'ble Madras High Court in the case of Areva T & D India Ltd. v. Asstt. CIT [2010] 326 ITR 540/[2009] 177 Taxman 192.

4. The assessee carried the matter in appeal before the ld. CIT(Appeals) and it was submitted that the assessee has invested in REC Bonds in two different assessment years and therefore, it is eligible for deduction under section 54EC of the Act of Rs. 50.00 lakhs each in two different assessment years. The ld. CIT(Appeals) has not agreed to the submissions of the assessee and confirmed the order of the Assessing Officer by following the decision of Hon'ble Madras High Court in the case of Areva T&D India Ltd. (supra).

5. On being aggrieved, the assessee preferred an appeal before the Tribunal.

6. At the time of hearing, the ld. Counsel for the assessee submitted that the issue involved in this appeal of the assessee is squarely covered by the decision of the Coordinate Bench of the Tribunal in the case of Smt. Sriram Indubal v. ITO [2013] 32 taxmann.com 118 (Chennai).

7. On the other hand, the ld. DR supported the order passed by the authorities below.

8. We have heard both sides, perused the materials available on record and gone through the orders of authorities below. The only issue involved in this appeal is whether the assessee is eligible for deduction under section 54EC for Rs. 50.00 lakhs or Rs. 1.00 crores. In this case, the assessee sold the property and invested Rs. 50.00 lakhs each in two different assessment years in REC Bonds within six months. The case of the Revenue is that the assessee is eligible claiming deduction only for Rs. 50.00 lakhs and remaining claim of Rs. 50.00 lakhs was denied. It is an undisputed fact that the assessee has invested in REC Bonds in two different assessment years. In similar circumstances, the Coordinate Bench of the Tribunal in the case of Smt. Sriram Indubal (supra) has considered the entire issue of eligibility under section 54EC and held that the assessee is eligible for claiming deduction of Rs. 50.00 lakhs in each assessment years. The relevant portion of the order is extracted as under:

7. We have perused the orders and heard the rival submissions. There is no dispute that assessee had transferred the capital asset on which she had claimed exemption under Section 54EC on 18.2.2008. Assessee had also claimed exemption under Section 54EC on investments made in REC and NHAI Bonds. Section 54EC(1), which is relevant to the case, is reproduced hereunder, for brevity:-

"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 1^st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees".

8. The first condition mentioned in Section 54EC(1) 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 is 18.2.2008, six months period will elapse on 17.8.2008. Assessee had purchased REC Bonds worth of Rs. 50 lakhs on 27.2.2008 and Bonds of NHAI for Rs. 50 lakhs on 30.6.2008. Both these purchases were within the six months' period. Only question that arises is whether proviso to Section 54EC(1) would limit the claim of exemption to Rs. 50 lakhs. Said proviso 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. No doubt, Explanatory Memorandum does say that limitation has been placed with a view to ensure equitable distribution of benefits among the prospective investors. Relevant Explanatory Memorandum is reproduced for brevity:-

'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 the 1st day of April, 2007 will not exceed fifty lakh rupees in a financial year.'

Last sentence of the Explanatory Memorandum clearly states that the exemption for investment cannot exceed Rs. 50 lakhs in a financial year. Therefore, if the assessee is able to keep the six months' limit from the date of transfer of capital asset, but, still able to place investment of Rs. 50 lakhs each in two different financial years, we cannot say that the restrictive proviso will limit the claim to Rs. 50 lakhs only. Since assessee here had placed Rs. 50 lakhs in two different financial years but within six months period from the date of transfer of capital asset, assessee was definitely eligible to claim exemption upto Rs. 1 Crore. The same view has been taken by Ahmedabad Bench of this Tribunal in the case of Aspi Ginwala & Others (supra). We are, therefore, of the opinion that the assessee has to succeed in this appeal. Claim of the assessee for exemption upto Rs. 1 Crore has to be allowed in accordance with Section 54EC of the Act."

9. No material has been brought on record or before us by the Revenue to show that the decision of the Tribunal is either modified or reversed by any higher Court. Therefore, following the decision of Coordinate Bench of the Tribunal in the case of Smt. Sriram Indubal (supra), we allow the ground raised by the assessee.

10. So far as case law of Areva T&D India Ltd. (supra) relied on by the ld. DR is concerned, before the Hon'ble Madras High Court, a writ petition was filed challenging the amendment to section 54EC by Finance Act, 2007 with retrospective effect from 01.04.2006. The Hon'ble Madras High Court by considering the Notification No. 380 of 2006 dated 22.12.2006 writ petitions were dismissed. Therefore, the case law relied on by the ld. DR is not applicable to the present case.

11. In view of the above, the appeal filed by the assessee is allowed.

12. In the result, the appeal of the assessee stands allowed.