2009 (10) TMI 631 - HC - Income Tax

Claim of exemption u/s 54EA for investment made around 5 years after the date of transfer instead of within 6 (six) months - Transfer took place in 1992 - compensation received in June 1997 - invested the same in UTI Monthly Income Scheme on July 5, 1997, and July 15, 1997 - Held that - provisions of section 54EA is available to the assessee for the period relevant for the assessment year 1998-99 notwithstanding the provisions of section 54H not containing or not making reference to the provisions of section 54EA of the Act for the period corresponding to the assessment year, answer is answered in favour of the assessee and against the Revenue, appeal is dismissed

Summary

Issues Involved:

1. Whether the Tribunal was correct in holding that the compensation received by the assessee and invested in UTI Monthly Income Scheme would be exempted from capital gains tax under section 54EA of the Act.
2. Whether the Assessing Officer was correct in holding that the compensation received should be brought to tax under the head 'Capital gains' in accordance with section 45(5) of the Income-tax Act.

Issue-wise Detailed Analysis:

Issue 1: Exemption under Section 54EA

The Revenue appealed under section 260A of the Income-tax Act, 1961, challenging the Tribunal's decision that the compensation received by the assessee and invested in UTI Monthly Income Scheme would be exempted under section 54EA. The Tribunal had allowed the appeal of the assessee, interpreting that the enhanced compensation received on June 30, 1997, July 15, 1997, and November 6, 1997, should be considered for exemption under section 54EA, despite the original acquisition occurring in 1992. The Tribunal relied on section 54H, which allows the period for acquiring a new asset to be reckoned from the date of receipt of compensation. The Revenue contended that section 54H did not include section 54EA for the relevant period, making the Tribunal's decision erroneous.

Issue 2: Taxation under Section 45(5)

The Assessing Officer had brought the compensation received by the assessee to tax under section 45(5), which deals with capital gains from compulsory acquisition. The assessee had invested the enhanced compensation in UTI Monthly Income Scheme within six months of receipt, claiming exemption under section 54EA. The Assessing Officer and the first appellate authority rejected this claim, stating that section 54EA was not applicable as it was not on the statute book at the time of the original transfer in 1992. The Tribunal, however, found that the provisions of section 54EA, which came into effect from October 1, 1996, should be applied to the enhanced compensation received in 1997.

Court's Analysis:

The court noted that the legislative intent behind sections 54EA and 54H was to encourage reinvestment in specified securities and to extend benefits to assessees who received additional compensation from compulsory acquisition. The court emphasized that a pragmatic and equitable interpretation should be adopted to advance the object of the statute, rather than a technical or pedantic approach. The court referred to the judgment in ITO v. H. P. Vishweswaraiah, which supported a purposive interpretation to extend benefits to assessees who made bona fide investments.

The court acknowledged the Revenue's argument that section 54H did not include section 54EA for the relevant period. However, it found that denying the benefit to the assessee, who had made investments within six months of receiving enhanced compensation, would lead to an absurd and inequitable result. The court concluded that the benefit of section 54EA should be extended to the assessee for the assessment year 1998-99, notwithstanding the absence of a reference to section 54EA in section 54H for that period.

Conclusion:

The court affirmed the Tribunal's decision, holding that the assessee was entitled to the benefit of section 54EA for the investments made within six months of receiving the enhanced compensation. The first question was answered in favor of the assessee, and the second question was deemed irrelevant in light of the answer to the first question. The appeal by the Revenue was dismissed.