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2020 (11) TMI 314 - AT - Income TaxDisallowance of the claim u/s 54EC - permissible investment in a particular financial year - a sum of ₹ 50 lacs each was invested during F.Ys 2012-13 and 2013-14 respectively and as per first proviso of Section 54EC maximum amount allowable as an exemption under Section 54EC is only one financial year is ₹ 50 lacs - 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 - An identical issue came up for consideration before the Hon'ble Madras High Court in the case of CIT Vs. Coromandel Industries Ltd. 2014 (12) TMI 852 - MADRAS HIGH COURT rom 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. It would have made a difference, if the restriction on the investment in bonds to ₹ 50,00,000/- is incorporated in Section 54EC(1) of the Act itself. However, the ambiguity has been removed by the legislature with effect from 1.4.2015 in relation to the assessment year 2015-16 and the subsequent years 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 ₹ 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 - Decided in favour of assessee.
Issues Involved:
1. Interpretation of Section 54EC of the Income Tax Act regarding investment in specified bonds. 2. Clarification on the time limit for investment and quantum of investment under Section 54EC. 3. Application of the first and second provisos to Section 54EC(1) of the Act. 4. Consideration of amendments made by Finance (No.2) Act, 2014 regarding investment in long-term specified assets. 5. Comparison of decisions by different Tribunals and High Courts on similar issues. Issue 1: Interpretation of Section 54EC of the Income Tax Act regarding investment in specified bonds: The case involved a dispute over the interpretation of Section 54EC of the Income Tax Act concerning the exemption on investment in certain bonds. The assessee had claimed exemption under Section 54EC for capital gains arising from the sale of shares. The dispute arose due to the investment of Rs. 1 crore being made in two installments of Rs. 50 lakhs each in two financial years. Issue 2: Clarification on the time limit for investment and quantum of investment under Section 54EC: The Assessing Officer disallowed the claim under Section 54EC as he believed that the maximum amount allowable as an exemption under Section 54EC for one financial year was only Rs. 50 lakhs. This led to a disagreement between the assessee and the revenue authorities regarding the permissible quantum of investment in a single financial year under Section 54EC. Issue 3: Application of the first and second provisos to Section 54EC(1) of the Act: The Tribunal analyzed the provisions of Section 54EC(1) and the first proviso, which restricted the investment to Rs. 50 lakhs in any financial year. The Tribunal also considered the insertion of a second proviso by the Finance (No.2) Act, 2014, which clarified that the investment in the subsequent financial year should not exceed Rs. 50 lakhs. Issue 4: Consideration of amendments made by Finance (No.2) Act, 2014 regarding investment in long-term specified assets: The Tribunal discussed the amendments made by the Finance (No.2) Act, 2014, which aimed to remove the ambiguity in the proviso to Section 54EC(1) of the Act. The amendments clarified the quantum of investment allowed in the subsequent financial year and provided for a cap of Rs. 50 lakhs on such investments. Issue 5: Comparison of decisions by different Tribunals and High Courts on similar issues: The Tribunal referred to decisions by various Tribunals and High Courts, including the Madras High Court and other co-ordinate Benches, to support its interpretation of Section 54EC. The Tribunal highlighted that the time limit for investment was six months from the date of transfer, and the benefit claimed by the assessee could not be denied even if the investment spanned two financial years. In conclusion, the Tribunal ruled in favor of the assessee, allowing the exemption under Section 54EC of the Act, based on the interpretation of relevant provisions and amendments made by the Finance (No.2) Act, 2014. The decision was supported by previous judgments and clarifications provided by the legislature to remove ambiguity in the application of Section 54EC.
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