2016 (12) TMI 1481 - AT - Income Tax

Exemption u/s 54 EC eligibility - Held that - The shares were registered in the name of the transferee on 31.12.2009 and accordingly recorded in the books of account of the transferor. The said shares after complying with the formalities as per the original agreement which provided for carrying out all due diligence within a period of 60 days from the date of original agreement dated 29.7.2009 which was revised from time to time. Also as during the pendency of due diligence the shares with duly executed transfer deeds and consideration for shares were deposited with the escrow agent by both transferor as well as transferee. After completion of all the formalities both the parties approached the escrow agent to finally transfer the shares as all the formalities were completed and consequently all the equity shares were transferred in the names of transferee on 31.12.2009. We are in agreement with the finding of facts recorded by the ld.CIT(A) as has been reproduced above that the shares were transferred on 31.12.2009 and therefore the investment was made within a period of six months from the date of transfer on 29.6.2010. We therefore inclined to uphold the order of ld. CIT(A) by dismissing the appeal of the revenue. - Decided in favour of assessee

Summary

Issues:
Allowing exemption under section 54EC - Compliance with conditions for exemption - Date of investment in bonds - Transfer of shares - Due diligence period - Interpretation of agreements - Date of transfer for tax purposes.

Analysis:

1. The appeal before the Appellate Tribunal ITAT Mumbai concerned the exemption of ?50 lakhs under section 54 EC of the Income Tax Act, 1961, allowed by the CIT(A)-33, Mumbai, for the assessment year. The primary issue revolved around the compliance with the conditions for exemption under section 54EC, specifically regarding the timing of the investment in bonds following the sale of shares.

2. The case involved the sale of shares by the assessee, resulting in long-term capital gains. The assessee claimed exemption under section 54EC by investing in Rural Electric Bonds. The Assessing Officer (AO) disallowed the exemption, contending that the investment in bonds was made beyond six months from the date of sale of shares, thus not meeting the conditions specified under section 54EC.

3. The AO's position was based on the initial agreement dated 29.7.2009 for the transfer of shares, which was later revised, culminating in the final transfer on 31.12.2009. The AO argued that the investment made on 29.6.2010 fell within six months of the initial agreement, not the final transfer date. The assessee, however, argued that the actual transfer occurred on 31.12.2009, after due diligence and completion of formalities, justifying the investment timeline.

4. The CIT(A) allowed the appeal of the assessee, emphasizing that the principal agreement dated 29.07.2009 was for the transfer of shares and not the deed of transfer itself. The CIT(A) accepted that the capital gain arose on 31.12.2009, the effective transfer date, enabling the assessee to claim exemption under section 54EC due to timely investment in eligible securities.

5. The Revenue challenged the CIT(A)'s decision, asserting that the investment was made beyond six months from the initial agreement date of 29.7.2009. The assessee countered, highlighting the completion of due diligence and the actual transfer on 31.12.2009 as per the agreements, supporting the eligibility for exemption under section 54EC.

6. The Tribunal upheld the CIT(A)'s order, noting that the shares were registered in the transferee's name on 31.12.2009 after due diligence and formalities. The Tribunal agreed that the investment in bonds on 29.6.2010 fell within six months of the actual transfer date, thereby affirming the assessee's entitlement to the exemption under section 54EC.

7. Ultimately, the Tribunal dismissed the Revenue's appeal, endorsing the CIT(A)'s decision regarding the timing of the investment in bonds and the eligibility for exemption under section 54EC based on the actual transfer date of the shares.