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TMI Blog2006 (4) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... , since the sale proceeds were invested in the specified assets within a period of six months from the date of sale. The assessee claimed that he had utilized the entire sale consideration for the purchase of HUDCO Bonds from his father Mr. Jaswantlal S. Shah for a total consideration of Rs. 43 lakhs having face value of Rs. 50 lakhs. The father of the assessee had purchased the HUDCO Bonds having face value of Rs. 1 crore as part of secured investment. The assessee purchased HUDCO Bonds having face value of Rs. 50 lakhs for a total consideration of Rs. 43 lakhs from his father. The father of the assessee had not claimed any benefit under section 54EA of the I.T. Act. The assessee claimed that the said purchase of HUDCO Bonds in open market does not disqualify the assessee from claiming the deduction of benefit under section 54EA of the I.T. Act, as under the said section there is stipulation that the sale proceeds should be invested in such Bonds. This explanation was filed before the Assessing Officer in reply to the Show Cause Notice issued for denial of benefit of deduction under section 54EA of the I.T. Act, as the case of the assessee was a case of purchase and not investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer holding that the sum so invested by the assessee in purchase of HUDCO Bonds had landed up in the hands of a private individual, instead of going into the priority sector of the economy as desired by the Scheme. 6. The learned AR for the assessee vehemently argued that the assessee is entitled to the claim of deduction under section 54EA of the Act. He further stressed that the father of the assessee Mr. Jaswantlal Shah had bought the said Bonds for investment purpose, but, had never claimed the deduction under section 54EA of the I.T. Act. Under the provisions of the section 54EA of the Act, the assessee in order to save capital gains is required to make investment and the word investment means to buy something useful. The money consideration has already given to HUDCO by the father of the assessee and those Bonds were transferred in the name of the assessee against which deduction was claimed for setting off of the capital gains earned by the assessee. The learned DR relied on the order of CIT(A). Reference was also invited by the learned AR to Press Note issued by CBDT, which talks of issue of Bonds of HUDCO. 7. We have heard the rival submissions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of seven years. Another restriction of investment in the securities was that the assessee was not entitled to take any loan or advance on the security of such specified securities and in case of such situation the assessee is deemed to have converted the said security into money, resulting in withdrawal of exemption allowed under section 54EA of the Act. The CBDT vide its notification dated 3-2-1997 provided that Bonds of Housing Urban Development Corporation (HUDCO) redeemable after a period of three years issued or to be issued by the HUDCO would qualify for the purpose of investment as per the provisions of section 54EA of the Act. The Bonds of HUDCO were in addition to other securities notified by the CBDT for the purpose of investment for claiming exemption under section 54EA of the Act. 8. In addition to the notification issued for the purpose of specifying the securities in which investment had to be made for availing the exemption under section 54EA of the Act, the CBDT issued guidelines by way of departmental Circulars for Companies and Mutual Funds which were obtaining approval with regard to investment instruments for the purpose of sections 54EA and 54EB of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that the words issued or to be issued covers cases of reinvestment as in the facts of the present case. The scheme of the Act is to boost investment in providing infrastructure facilities to the State and by way of injecting money in the priority sectors of economy by issue of bonds, debentures etc. which are eligible for claiming exemption from tax on income arising on account of capital gains on transfer of long-term capital assets. The exchequer would be benefited in case tax is levied on such gains arising on transfer of long-term capital assets. A scheme was formulated under the provisions of section 54EA of the Act wherein exemption from tax was provided to the assessee in case he invested such gains on transfer of long-term capital assets in specified securities as notified by the Board, by way of notification in Official Gazette. The investment in such securities would help in the development of the country. The said investment is further regulated by the other provisions of the Act which provide that ( a ) such asset is to be held for a period of three years ( b ) no loan can be taken against such asset. In order to check on the nature of investment made by the invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such specified shares of public companies, which entitles the said person to claim exemption under sections 54EA and 54EB of the Act, a restriction is placed on the Indian Companies with regard to investment of such capital. Such shares are also to be held by the investors for a period of 3 years. It is necessary for the said public companies, to make such cross-checks which will ensure them to keep a check on such investments made for the purpose of sections 54EA and 54EB of the Act. In analogy similar provisions are provided for investment in bonds and mutual funds of company i.e., HUDCO Ltd., in the facts of the present case. The requirements of the section are very clear and categoric. The investment has to be made by the person claiming exemption under sections 54EA and 54EB of the Act by giving a categoric undertaking in this regard. And the company accepting such investment has to specifically utilize the capital for specified purpose as per the guidelines issued in this regard. 11. The argument of the assessee that in the Press Note dated 19-12-1996, it has been provided that for the purpose of claiming exemption under section 54EA of the Act, the specified Bonds of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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