2016 (6) TMI 479 - AT - Income Tax

Denial of exemption u/s.54EC of the Act investment in REC capital gains bonds falling in two financial years - Held that - On combined reading of both the provisions, the legislative intent in the subsequent amendment is to restrict the investment of ₹ 50,00,000/- to one financial year only. There was ambiguity and confusion on interpreting the provisions as the Commissioner of Income Tax (Appeals) examined the issue on the interpreting the word any referring to dictionary meaning because there was no certainty was visualized considering the provisions, CBDT circulars and facts of the case. The Assessing Officer tried to make a distinction of provisions for restricting investment of ₹ 50,00,000/- only in one financial year. The assessee has invested in two installments falling in two financial years and availed tax exemption. Amendment of provisions of Sec.54EC in Finance Act, 2014 are prospective and apply from 01.04.2015 effective from assessment year 2015-16 onwards. Thus we direct the Assessing Officer to delete the addition and allow the grounds in favour of the assessee.

Summary

Issues:
Interpretation of provisions of Sec.54EC of the Income Tax Act regarding exemption for investments in REC capital gains bonds falling in two financial years.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income-tax (Appeals) concerning the denial of exemption u/s.54EC of the Income Tax Act for investments in REC capital gains bonds across two financial years.

2. The assessee contended that investments were made within six months from the date of asset transfer and relied on Tribunal decisions. The Assessing Officer disagreed due to a pending appeal by the Department in the High Court, restricting the exemption to ?50,00,000 and increasing the total income.

3. In the appellate proceedings, the Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision, limiting the exemption to ?50,00,000 despite the assessee's arguments and supporting documents. The assessee then appealed to the Tribunal.

4. The Tribunal considered the investments in REC bonds made by the assessee within the specified time frame under Sec.54EC of the Act. The legislative intent, subsequent amendment, and ambiguity in interpreting the provisions were discussed, along with relevant case laws.

5. The Tribunal noted that the amendment in the Finance Act, 2014 aimed to restrict the investment to ?50,00,000 in one financial year only. Considering the facts and legal precedents, the Tribunal set aside the Commissioner's order and directed the Assessing Officer to delete the addition, allowing the appeal in favor of the assessee.

6. Ultimately, the Tribunal allowed the appeal of the assessee, emphasizing compliance with the provisions of Sec.54EC and the legislative intent behind the subsequent amendment. The order was pronounced in Chennai on April 27, 2016.