2015 (2) TMI 527 - AT - Income Tax

Deduction u/s 54EC - investment of Short Term Capital Gain arising from the sale of depreciable asset - CIT(A) allowed the claim - Held that - Section 50 and Section 54EC are independent provisions. Section 54E does not make any distinction between depreciable asset and non-depreciable asset, therefore, exemption available to depreciable asset u/s 54E cannot be denied by referring to fiction created u/s 50 of the Act. In the present facts, we note that the assessee has fulfilled the conditions set out in section 54E of the Act to avail exemption which was denied by the Assessing Officer, in view of fiction created u/s 50. Section 54E of the Act specifically provide that where capital gain arising on transfer of long term capital asset is invested or deposited in the manner prescribed by the Government at the relevant time in the specified asset, the assessee shall not be charged to capital gain tax. Our view is squarely covered by the decision from Hon ble jurisdictional High Court in the case of ACE Builders (P.) Ltd. (2005 (3) TMI 36 - BOMBAY High Court). - Decided against revenue. Disallowance on account restricted exemption available to only ₹ 50 lakh u/s 54EC - Held that -Section 54EC (1) of the Act restrict the time limit for the period of investment after the property was sold to six month and there was no cap on the investment to be made in bonds, meaning thereby, as per the mandate of section 54EC(1) of the Act, the time limit for investment is six month and the benefit that flows from the first proviso is that if the assessee makes the investment of ₹ 50 lakh in any financial year, it would have benefit of section 54EC (1) of the Act. However, the ambiguity, if any, was removed by the legislature with effect from 01/04/2015. Thus, the Assessing Officer is directed to examine the claim of the assessee and allow the exemption up to ₹ 1 crore if the investment is found to be made within six month in two different financial years - Cross objection of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Allowance of deduction u/s 54EC on Short Term Capital Gain arising from the sale of depreciable asset.
2. Interpretation of provisions of section 50 and section 54EC of the Income Tax Act.
3. Claiming full relief u/s 54EC of the Act within the specified time limit.

Issue 1: Allowance of deduction u/s 54EC on Short Term Capital Gain arising from the sale of depreciable asset:

The Revenue challenged the order of the CIT(A) granting relief to the assessee by allowing deduction u/s 54EC on the investment of Short Term Capital Gain from the sale of a depreciable asset. The Revenue contended that the decision of the Hon'ble Bombay High Court in a similar case was not accepted on merit, and SLP was not filed due to low tax effect. However, the assessee defended the decision by citing the same High Court's judgment. The Tribunal examined the case details where the assessee declared income, sold a flat, offered capital gain, and claimed deduction u/s 54EC. The Assessing Officer disallowed the exemption, leading to an appeal. The CIT(A) relied on the High Court's decision and allowed the claim. The Tribunal analyzed the legal fiction created by the legislature in section 50 and the exemption provision u/s 54EC. It concluded that the assessee fulfilled the conditions for exemption under section 54E, as supported by various judicial pronouncements. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 2: Interpretation of provisions of section 50 and section 54EC of the Income Tax Act:

The Tribunal discussed the conflicting interpretations of section 50 and section 54EC presented by the Revenue and the assessee. It highlighted that section 50's deeming fiction is limited to the mode of computation of capital gains and cannot be extended beyond that. The Tribunal emphasized that section 54E does not differentiate between depreciable and non-depreciable assets for granting exemptions, supporting the assessee's position. By applying the High Court's decision and other judicial precedents, the Tribunal reaffirmed that the assessee was entitled to the exemption u/s 54EC. The Tribunal's detailed analysis showcased the legal basis for allowing the deduction and rejected the Revenue's contentions based on section 50's provisions.

Issue 3: Claiming full relief u/s 54EC of the Act within the specified time limit:

The assessee raised a Cross Objection regarding the non-granting of full relief u/s 54EC. The contention was that until a specific assessment year, the assessee could claim exemption up to a certain amount in capital gain bonds spread over two financial years. The Tribunal examined the amendment made by the Finance Act and referred to decisions by the High Court to clarify the time limit and investment cap under section 54EC. It directed the Assessing Officer to reevaluate the claim and allow the exemption up to a specified amount if the investment was made within the stipulated time frame in two different financial years. Consequently, the Cross Objection of the assessee was allowed for statistical purposes, ensuring compliance with the amended provisions.

In conclusion, the Tribunal dismissed the Revenue's appeal and allowed the Cross Objection of the assessee for statistical purposes, providing a comprehensive analysis of the issues related to the allowance of deduction u/s 54EC and the interpretation of relevant provisions of the Income Tax Act.