2014 (12) TMI 852 - HC - Income Tax

Benefit of investment on capital gains u/s 54EC(1) - Intention of the legislature is to limit the investment in the long term specified asset to Rs. 50 Lakhs or not - Whether the first proviso to Section 54EC(1) of the Act would restrict the benefit of investment of capital gains in bonds to that financial year during which the property was sold or it applies to any financial year during the six months period Held that - The Tribunal rightly held that the exemption granted under proviso to Section 54EC(1) of the Act should be construed not transaction-wise but financial year-wise - if an assessee is able to invest a sum of Rs. 50, 00, 000/- each in two different financial years within a period of six months from the date of transfer of the capital asset it cannot be said to be inadmissible - Following the decision in Commissioner of Income Tax v. C. Jaichander and another 2014 (11) TMI 54 - MADRAS HIGH COURT - Section 54EC(1) of the Act restricts the time limit for the period of investment after the property has been sold to six months - There is no cap on the investment to be made in bonds. The first proviso to Section 54EC(1) of the Act specifies the quantum of investment and it states that the investment so made on or after 1.4.2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees - as per the mandate of Section 54EC(1) of the Act the time limit for investment is six months and the benefit that flows from the first proviso is that if the assessee makes the investment of Rs. 50, 00, 000/- in any financial year it would have the benefit of Section 54EC(1) - The intention of the legislature probably appears to be that the amendment should be for the AY 2015-2016 to avoid unwanted litigations of the previous years - from a reading of Section 54EC(1) and the first proviso it is clear that the time limit for investment is six months from the date of transfer and even if such investment falls under two financial years the benefit claimed by the assessee cannot be denied. The decision of this Court in Areva T and D India Ltd. v. Assistant Commissioner of Income tax 2008 (9) TMI 510 - Madras High Court is not applicable to the facts of the present case as in the decision the writ petitions filed for issuance of writ of declaration declaring that the conditions occurring in Notification No. 380 of 2006 F. No. 142/09/ 2006-TPL dated December 22 2006 along with the words subject to the following conditions namely issued by the Central Board of Direct Taxes are ultra vires Section 54EC of the Income-tax Act 1961 and arbitrary and violative of Articles 14 and 265 of the Constitution of India and consequently unenforceable were dismissed as infructuous taking note of the subsequent amendment to Section 54EC of the Act incorporating the limit on amount of investment in bonds in the section itself thus no substantial question of law arises for consideration Decided against revenue.

Summary

Issues:
1. Interpretation of Section 54EC(1) of the Income Tax Act regarding investment in long-term specified assets.
2. Application of the proviso to Section 54EC(1) limiting investment to Rs. 50 lakhs during a financial year.

Issue 1 - Interpretation of Section 54EC(1):
The case involved a dispute over the interpretation of Section 54EC(1) of the Income Tax Act regarding the investment of capital gains in long-term specified assets. The assessee claimed a deduction under Section 54EC by investing Rs. 50 lakhs in REC Bonds on two different dates within six months of transferring a capital asset. The Assessing Officer restricted the deduction to Rs. 50 lakhs, citing the intention of the legislature to limit the investment to that amount. The Tribunal, however, held that the exemption should be construed on a financial year basis, allowing the deduction claimed by the assessee. The High Court referred to a previous decision and clarified that the time limit for investment is six months, with no cap on the investment amount. The court emphasized that the benefit of the investment should be available if Rs. 50 lakhs is invested in any financial year.

Issue 2 - Application of the proviso to Section 54EC(1):
The High Court discussed the insertion of a second proviso to Section 54EC(1) by the Finance (No.2) Act, 2014, effective from April 1, 2015, to remove ambiguity regarding investment limits. The court referred to the legislative intent to clarify the investment restrictions and avoid litigations from previous years. It was highlighted that the time limit for investment is crucial, and even if the investment spans two financial years, the benefit claimed by the assessee cannot be denied. The court dismissed the appeal by the Revenue, emphasizing that the restriction on investment in bonds to Rs. 50 lakhs was clarified by the legislature for subsequent years, and the ambiguity was removed.

In conclusion, the High Court dismissed the appeal by the Revenue, finding no substantial question of law for consideration. The court upheld the Tribunal's decision regarding the interpretation of Section 54EC(1) and the application of the investment limits, emphasizing the importance of the time limit for investment and the legislative intent to clarify investment restrictions.