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2023 (12) TMI 1030 - AT - Income TaxLTCG - Deduction u/s 54EC on account of investment in REC Bonds - whether exemption under Section 54EC can be denied on account of the fact that deeming fiction of short term capital gain was created u/s 50 ? - HELD THAT - As decided in the case of Aditya Medisales Ltd. 2013 (11) TMI 576 - GUJARAT HIGH COURT has held that exemption u/s 54EC of the Act could not be denied on account of the fact that deeming fiction of short term capital gain was created under Section 50 of the Act. In this case the assessee company sold automatic electric monitoring system. The company invested gain amount in Rural Electrification Bonds and claimed exemption under Section 54EC of the Act. AO found that short term capital gain was offered by assessee under Section 50 of the Act and disallowed exemption under Section 54EC claimed by the assessee on the ground that same was not available on a short term capital gains. The High Court held that since capital gains arose out of long term capital asset and same was invested in specified assets, exemption under Section 54EC could not be denied on account of the fact that deeming fiction of short term capital gain was created - The aforesaid decision has also been followed by Ahmedabad Tribunal in the case of DCIT M/s. Liva Healthcare Ltd. 2019 (1) TMI 210 - ITAT AHMEDABAD Whether benefit u/s 54EC of the Act is available in case the assessee invested a sum of Rs. 50 lakhs in two Financial Years? - As decided in C. Jaichander 2014 (11) TMI 54 - MADRAS HIGH COURT held that where assessee invested a sum of Rs. 50 lakhs each in two different Financial Years, within a period of six months from date of transfer of capital asset, he was eligible for deduction u/s 54EC - The facts in this cases were that the assessee sold a property vide sale agreement dated 18.02.2008 and invested a sum of Rs. 1 crores out of sale proceeds in certain bonds in two Financial Years 2007-08 and 2008-09. AO held that assessee could take benefit of investment in said Bonds to a maximum of Rs. 50 lakhs only under Section 54EC(1) and accordingly, held that the other sum of Rs. 50 lakhs invested over and above ceiling prescribed did not qualify for exemption. However, the Madras High Court held that from a reading of Section 54EC(1) and first proviso, it was clear that time limit for investment was six months from the date of transfer and even if such investment felt under two Financial Years, benefit claimed by the assessee could not be denied and there was no cap on investment in Bonds. Accordingly, the Madras High Court held that the assessee was eligible for deduction under Section 54EC of the Act in respect of said investments. The position becomes clear that for the impugned A.Y. 2014-15, as it stood at the relevant time, if the assessee made investment in REC Bonds for Rs. 50 lakhs each, the assessee would be eligible for deduction under Section 54EC of the Act, provided both the investments were made within a period of six months as prescribed under 54EC of the Act. In the present case, the assessee had sold the asset under consideration on 16.12.2013, whereas the second investment in REC Bond was made on 30.06.2014. In the case of Alkaben B. Patel vs. ITO 2014 (3) TMI 842 - ITAT AHMEDABAD held that in terms of General Clauses Act, 1897 the period of six months mentioned in Section 54EC has to be recorded as six British Calendar months. The issue for consideration before ITAT Special Bench was that whether for the purpose of Section 54EC, the period of investments should be calculated as six months after the date of transfer or to be reckoned as 180 days from date of transfer . The ITAT held that the term month is not defined in the Act and therefore, as per the definition of the term month as per General Clauses Act, 1897 shall mean of month recognized according to the British Calendar. Again, in the case of Niamat Mahroof Virji 2016 (12) TMI 1081 - ITAT MUMBAI held that in terms of General Clauses Act 1897, period of six months mentioned in Section 54EC has to be recorded as six British Calendar months. Accordingly, it was held that where assessee sold his ancestral property on 13.10.2010, investment of capital gain made in REC Bonds on 30.04.2009 was eligible for deduction under Section 54EC of the Act. Thus we are of the considered view that investment of Rs. 50 lakhs in REC Bonds on 30.06.2014 falls within the period of six months as stipulated under Section 54EC of the Act and is hence eligible for deduction under Section 54EC of the Act. Appeal of assessee allowed .
Issues Involved:
1. Disallowance of deduction under Section 54EC of the Income Tax Act. 2. Enhancement of income by treating the capital gain as short-term capital gain. 3. Legality of the order passed by the Ld. CIT(A). Summary: Issue 1: Disallowance of Deduction under Section 54EC The assessee filed an appeal against the disallowance of Rs. 50,00,000/- claimed under Section 54EC. The Assessing Officer (A.O.) argued that the amendment effective from 01.04.2015 clarified the maximum deduction limit of Rs. 50 lakhs under Section 54EC. The A.O. disallowed the excess claim of Rs. 50 lakhs as the second investment in REC Bonds was made beyond the prescribed six-month period. Issue 2: Enhancement of Income as Short-Term Capital Gain The Ld. CIT(A) further enhanced the income by disallowing the deduction of Rs. 50 lakhs invested in REC Bonds on 31.03.2014. It was held that the asset sold was a depreciable asset, and under Section 50, the profit from such a sale is deemed to be short-term capital gain, regardless of the holding period. Thus, the assessee was not eligible for exemption under Section 54EC. Issue 3: Legality of the Order by Ld. CIT(A) The assessee contested the legality of the order passed by Ld. CIT(A), citing precedents where courts held that the deeming fiction under Section 50 does not affect the eligibility for exemption under Section 54EC if the asset is otherwise a long-term capital asset. Tribunal's Findings: 1. On Disallowance of Deduction: The Tribunal referred to the Gujarat High Court's ruling in Aditya Medisales Ltd., which held that exemption under Section 54EC cannot be denied due to the deeming fiction of short-term capital gain under Section 50. The Tribunal also cited the Madras High Court's decision in C. Jaichander, which allowed deduction for investments made in two different financial years within six months from the date of transfer. 2. On Enhancement of Income: The Tribunal noted that the amendment effective from 01.04.2015 does not apply retrospectively. For the assessment year 2014-15, the assessee's investment of Rs. 50 lakhs each in two financial years within six months was eligible for deduction under Section 54EC. 3. On Legality of the Order: The Tribunal concluded that the investment in REC Bonds made on 30.06.2014 falls within the six-month period as interpreted under the General Clauses Act, 1897, and thus, the assessee is eligible for the claimed deduction. Conclusion: The Tribunal allowed the appeal, holding that the assessee is entitled to the deduction under Section 54EC for the investments made in REC Bonds, both within the stipulated six-month period. The order pronounced in open court on 20/12/2023.
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