2017 (9) TMI 1987 - HC - Income Tax

Denying the exemption claimed u/s 54EC - Capital gain not to be charged on investment in certain bonds - Learned counsel contended that he is entitled for the benefit of the investment which has been made in the subsequent date - whether word used is whole and the two investments which have been made are within six months and the whole capital gain is invested in two different financial years? - HELD THAT - Taking into account the object of Section 54EC is to give benefit to the assessee to invest in the Government bond and where proviso came for the first time on 01.4.2007 providing benefit of 50 lacs each of the transaction of the property the view taken by the Tribunal is just and proper. We are not in agreement with the view taken by the Madras High Court 2014 (11) TMI 54 - MADRAS HIGH COURT . The benefit is qua one transaction. It cannot have for different financial years. The purpose is to have investment for benefit of long term capital and once there is interpretation put forward by the basic connotation of law, in that view of the matter, we are affirming the view of the Tribunal. Decided against the assessee.

Summary

Issues:
Interpretation of Section 54EC of the Income Tax Act regarding the time limit for investment and quantum of investment for capital gains in bonds.

Analysis:
The appellant challenged the Tribunal's decision allowing the department's appeal and confirming the Assessing Officer's order, raising the issue of the correct interpretation of Section 54EC. The key question was whether the time limit for investment after property sale is restricted to six months or extends to any financial year within the six-month period.

The appellant argued that the word 'whole' in the section allows for investments in different financial years within the six-month period. Citing a Madras High Court decision, the appellant contended that the investment should not be capped and should be allowed in subsequent financial years.

In contrast, the respondent maintained that Section 54EC intends to provide benefits for a single transaction and the proviso inserted in the same year should not be disregarded. The Tribunal's view, according to the respondent, aligns with the legislative intent of the section.

Upon deliberation, the High Court emphasized the objective of Section 54EC to encourage investment in government bonds and noted the proviso introduced in 2007, allowing a benefit of 50 lakhs for each transaction. The Court disagreed with the Madras High Court's interpretation, affirming that the benefit is specific to one transaction and cannot be extended to different financial years. The Court upheld the Tribunal's view, ruling in favor of the department and against the appellant.

In conclusion, the appeal was dismissed, with the Court supporting the Tribunal's decision based on the fundamental purpose of encouraging long-term capital investment and the specific provisions of Section 54EC.