2009 (6) TMI 605 - AT - Income Tax

Exemption U/S 54EC- Assessee submitted before the Bench that the assessee-HUF sold the property by a registered sale deed.- The HUF received advances before the transfer and the money was deposited in the specified bonds as required under s. 54EC. On the basis of the same, the appellant claimed exemption under s. 54EC to the extent of value of bonds- The AO allowed the exemption in the original assessment under s. 54EC of the IT Act- But the CIT assuming jurisdiction under s. 263 held that exemption under s. 54EC was not available to the assessee as the investment in the bonds was made before the execution of the sale deed instead of within six months from the date of transfer of the property - Held that As per the provision of s. 263, neither by the conduct of the assessee there is loss to Revenue nor the conduct of the assessee is prejudicial to the interests of the Revenue; rather the assessee was fair enough to deposit the amount immediately after receipt of the same as advance payments on the basis of the agreement to sale - Thus, the assessee succeeds in this appeal

Summary

Issues:
1. Jurisdiction under section 263 of the IT Act, 1961
2. Interpretation of provisions under section 54EC regarding investment in specified bonds
3. Application of Circular No. 359, dated 10th May, 1983
4. Definition of "transfer" under section 2(47) of the IT Act, 1961
5. Compliance with section 54EC requirements regarding investment timing
6. Legal implications of possession in part performance of a contract under section 53A of the Transfer of Property Act, 1882

Analysis:

1. The case involved an appeal by an assessee-HUF against an order passed under section 263 of the IT Act, challenging the jurisdiction of the CIT in invoking the provisions of section 263. The primary contention was that the investment made in specified bonds under section 54EC was not entitled to deduction and exemption from capital gain as per the CIT's order.

2. The appellant-HUF sold a property and invested the proceeds in specified bonds within the required timeframe. However, the CIT held that the investment was not made within six months from the date of transfer of the property, leading to the disallowance of the exemption under section 54EC. The CIT rejected the applicability of Circular No. 359, dated 10th May, 1983, as it pertained to an earlier provision, section 54E, which was not applicable in this case.

3. The CIT's order under section 263 emphasized a strict interpretation of the term "transfer" as per section 54EC, requiring the investment to be made within six months from the exact date of execution of the sale deed. However, the Tribunal highlighted that the term "transfer" has a broader definition under section 2(47) of the IT Act, encompassing various scenarios beyond the execution of a sale deed.

4. The Tribunal further referenced section 53A of the Transfer of Property Act, 1882, which allows transfer by possession in part performance of a contract. The Tribunal concluded that the assessee's actions, including depositing the amount based on the advance received as per the agreement, did not violate the provisions of section 54EC.

5. Considering both factual and legal aspects, the Tribunal disagreed with the CIT's interpretation and quashed the invocation of section 263. It was determined that the assessee's conduct did not result in any loss to the Revenue and was not prejudicial to its interests, as the investment was made promptly after receiving the advance payments based on the agreement to sale.

6. Ultimately, the Tribunal ruled in favor of the assessee, highlighting the compliance with section 54EC requirements and the absence of any unjust conduct that would warrant the invocation of section 263.