1990 (10) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Date of transfer for the purpose of Section 54E of the Income-tax Act.
2. Applicability of the second proviso to Section 54E(1) of the Income-tax Act.
3. Eligibility of investments in specified securities under Section 54E.

Detailed Analysis:

1. Date of Transfer for the Purpose of Section 54E:
The primary issue was whether the date of transfer for the purpose of Section 54E should be the date when the government took possession of the land (November 19, 1982) or the date when the compensation was received by the assessee. The Income-tax Officer considered the date of transfer as November 19, 1982, which led to the rejection of the assessee's claim for benefits under Section 54E, as the investments were made beyond six months from this date. However, the learned single judge held that the date of transfer should be reckoned as the date immediately following the date on which the compensation is received by the assessee. This interpretation was supported by the Andhra Pradesh High Court's decision in S. Gopal Reddy v. CIT [1990] 181 ITR 378, emphasizing that the law cannot insist on investing an amount not yet received.

2. Applicability of the Second Proviso to Section 54E(1):
The second proviso to Section 54E(1) was added by the Taxation Laws (Amendment) Act, 1984, effective from April 1, 1984. This proviso states that in cases of compulsory acquisition, if the full amount of compensation is not received on the date of transfer, the six-month period for investment in specified assets should be reckoned from the date of receipt of compensation. The learned single judge and the appellate court both held that this proviso is clarificatory in nature and should be applied retrospectively from the date of enforcement of Section 54E. This interpretation ensures that the assessee has six months from the receipt of compensation to make the necessary investments, aligning with the legislative intent to provide relief in cases of compulsory acquisition.

3. Eligibility of Investments in Specified Securities:
The assessee invested Rs. 3,10,200 in the Seven Year National Rural Development Bonds (Second Issue) on August 26, 1983, and Rs. 4,26,150.58 in specified units of the Unit Trust on July 28, 1984. The learned single judge concluded that both investments were in specified securities as per the relevant notifications. The National Rural Development Bonds (Second Issue) were notified as specified securities, and the special series of units issued under the Capital Gains Unit Scheme of 1983 were also recognized as specified securities by Notification No. G. S. R. 804 (E) dated October 27, 1983. Therefore, the investments made by the assessee qualified for the benefits under Section 54E.

Conclusion:
The appellate court upheld the learned single judge's decision, confirming that the second proviso to Section 54E(1) is clarificatory and applicable retrospectively. The date of transfer for the purpose of Section 54E should be the date of receipt of compensation, allowing the assessee to make the investments within six months from this date. Both investments made by the assessee were in specified securities, entitling him to the benefits under Section 54E. Consequently, the writ appeal was dismissed, and the Income-tax Officer was directed to rework the benefits available to the assessee in light of these observations.