2017 (4) TMI 522 - AT - Income Tax

Allowability of exemption u/s 54EC - Held that - Section 54 EC of 1961 Act is a beneficial provision and is to be reasonably interpreted to give effect to the intention of Parliament while legislating the said provision and it cannot be construed in manner to frustrate the intention of legislature. In this case, the assessee admittedly received payments after execution of the agreement on 06-08-2008, which were received over a period of time from 07-08-2008 to 15-11-2008 and investments of ₹ 43,51,000/- were made in NHAI/REC Bonds on 26-03-2009 which is within six months if reckoned from the date of receipt of last installment of sale consideration by the assessee on 15-11- 2008 and also is within six months from the receipt of second installment of ₹ 35,00,000/- on 26-09-2008. It is also admitted and undisputed that first installment of ₹ 19,92,750/- received by the assessee on 07-08-2008 was utilized by assessee for paying architect fee and payment of share of his brother in TDR. Considering the factual matrix of the case as discussed above, we are of the considered view that the assessee is eligible for exemption u/s 54EC of the Act and addition of ₹ 24,85,420/- made by the AO and as confirmed by learned CIT(A) is not sustainable in eyes of law and is hereby ordered to be deleted. The alternate ground raised by the assessee that capital gain on sale of TDR is not taxable has become academic and infructuous and the said question of law is kept open

Issues Involved:
1. Validity of the exemption claim under Section 54EC of the Income Tax Act.
2. Determination of the date of transfer for the purpose of Section 54EC.
3. Applicability of judicial precedents and CBDT circulars.
4. Taxability of capital gains on the sale of Transfer of Development Rights (TDR).

Detailed Analysis:

1. Validity of the Exemption Claim under Section 54EC:

The primary issue was whether the assessee was eligible for an exemption under Section 54EC of the Income Tax Act, 1961, for investments made in REC/NHAI bonds beyond six months from the date of transfer of TDR. The AO and CIT(A) denied the exemption, stating that the investment was made beyond the stipulated six-month period from the date of transfer (06-08-2008). The tribunal, however, noted that the investments were made within six months from the date of receipt of the last installment of the sale consideration (15-11-2008). The tribunal emphasized that Section 54EC is a beneficial provision and should be interpreted reasonably to fulfill the legislative intent, which is to encourage investments in specified bonds from the sale proceeds of long-term capital assets.

2. Determination of the Date of Transfer for the Purpose of Section 54EC:

The tribunal examined whether the six-month period for making investments in specified bonds should be reckoned from the date of the transfer agreement (06-08-2008) or from the date of receipt of the sale consideration. The tribunal referred to the CBDT Circular No. 791 dated 02-06-2000, which clarified that the period of six months for making investments should be reckoned from the date of receipt of the sale consideration. The tribunal also cited judicial precedents, including decisions from the ITAT Pune and Kolkata benches, which supported the view that the period should be reckoned from the date of receipt of the sale consideration to avoid an impossible situation for the taxpayer.

3. Applicability of Judicial Precedents and CBDT Circulars:

The tribunal relied on various judicial precedents and CBDT Circular No. 791 dated 02-06-2000, which clarified that for the purpose of Sections 54EA, 54EB, and 54EC, the period of six months for making investments should be taken from the date the sale consideration is received. The tribunal cited the decisions of the ITAT Pune in Mahesh Nemichand Ganeshwade v. ITO and the ITAT Kolkata in Chanchal Kumar Sircar v. ITO, which supported the assessee's claim. These precedents emphasized that the period should be reckoned from the date of receipt of the sale consideration to ensure a reasonable and practical interpretation of the law.

4. Taxability of Capital Gains on the Sale of TDR:

The tribunal noted the alternative contention of the assessee that the gains arising from the sale of TDR are not taxable, relying on the Supreme Court's decision in CIT v. B.C. Srinivasa Setty. However, since the tribunal allowed the exemption under Section 54EC, this issue became academic and was not addressed in detail. The tribunal kept the question of law open for future consideration.

Conclusion:

The tribunal allowed the appeal filed by the assessee, holding that the assessee was eligible for exemption under Section 54EC of the Income Tax Act, 1961, as the investments in REC/NHAI bonds were made within six months from the date of receipt of the sale consideration. The tribunal ordered the deletion of the addition of ?24,85,420/- made by the AO and confirmed by the CIT(A). The tribunal emphasized a reasonable interpretation of Section 54EC to fulfill the legislative intent and avoid an impossible situation for the taxpayer.

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