Tuesday, July 2, 2013

[aaykarbhavan] ITAT allows 1 crore exemption under sec. 54EC as 6 months fall under 2 financial years



 IT : Condition for availing of exemption under section 54EC requires that investment can be made within a period of 6 months and if 6 months fall within two different financial years, assessee can make investment in two different financial years provided in a financial year investment made did not exceed Rs. 50 lakhs
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[2013] 33 taxmann.com 611 (Panaji - Trib.)
IN THE ITAT PANAJI BENCH
Income-tax Officer, Ward - 2, Margas, Goa
v.
Ms. Rania Faleiro*
P. K. BANSAL, ACCOUNTANT MEMBER
AND D.T. GARASIA, JUDICIAL MEMBER
IT APPEAL NO. 9 (PANAJI) OF 2013
[ASSESSMENT YEAR 2008-09]
APRIL  18, 2013 
Section 54EC of the Income-tax Act, 1961 - Capital gains - Not to be charged on investment in certain bonds [Quantum of exemption] - Assessment year 2008-09 -Whether condition for availing of exemption under section 54EC requires that investment can be made within a period of 6 months and if 6 months fall within two different financial years, assessee can make investment in two different financial years provided in a financial year investment made did not exceed Rs. 50 lakhs - Held, yes - Assessee sold a property on 5-2-2008 and computed capital gain at Rs. 1.16 crores - She had invested in Capital Gains Bonds a sum of Rs. 50 lakhs on 31-3-2008 and a sum of Rs. 50 lakhs on 30-6-2008 - In return of income for assessment year 2008-09, she claimed exemption under section 54EC of capital gain amounting to Rs. one crore - Whether assessee was eligible for exemption under section 50EC for Rs. one crore - Held, yes [Para 4] [In favour of assessee]
Circulars and Notifications : CBDT Circular No. 3/2008, dated 12-3-2008
FACTS
 
 The assessee had sold a property [long-term capital asset] on 5-2-2008 and computed the capital gain at Rs. 1.16 crores. She had invested in the Capital Gains Bonds [REC Bonds] a sum of Rs. 50 lakhs on 31-3-2008 and a sum of Rs. 50 lakhs on 30-6-2008. In the return of income for the assessment year 2008-09, she claimed exemption under section 54EC of the capital gain amounting to Rs. one crore.
 The Assessing Officer referred to the proviso inserted in section 54EC(1) by the Finance Act, 2007, with effect from 1-4-2007, and on the basis of this proviso took the view that the assessee could have made the investment only upto Rs. 50 lakhs. Therefore, she could have got exemption under section 54EC only for a sum of Rs. 50 lakhs. Accordingly he allowed exemption for Rs. 50 lakhs and made the addition of Rs. 50 lakhs.
 On appeal, the Commissioner (Appeals) deleted the addition made by the Assessing Officer.
 On second appeal:
HELD
 
 The plain reading of section 54EC(1) as well as the proviso thereto clearly suggests that the limit of Rs. 50 lakhs as given under the proviso is per person per financial year. There is no ambiguity in the interpretation. Had there been an intention of the legislature to restrict the exemption to Rs. 50 lakhs, the legislature would have provided the embargo in this regard. Restriction relates only to the investment made in any financial year by the assessee. Making of the investment is a condition for availing of the exemption. Condition for availing of the exemption requires that the investment can be made within a period of 6 months. If 6 months fall within two different financial years, as has happened in the instant case, the Tribunal cannot add the embargo that the assessee cannot make the investment to avail of the exemption under section 54EC in the different financial years if he had already made the investment in the financial year in which the capital asset is transferred. The language of section 54EC is clear and unambiguous and it leads to the interpretation that the assessee can make the investment in two different financial years provided in a financial year the investment made did not exceed Rs. 50 lakhs.
 From the Circular No. 3/2008, dated 12-3-2008 issued by the CBDT being an explanatory note on the provisions relating to direct taxes in the Finance Act, 2007, it is apparent that the Government only intended to restrict the investment in a particular financial year and accordingly has fixed the limit of Rs. 50 lakhs as permissible limit in a particular financial year. The Government did not intend to restrict the maximum amount of exemption permissible under section 54EC. Legislature has consciously used the words 'in a financial year' in the proviso to section 54EC. If the legislature wanted to restrict the exemption itself to Rs. 50 lakhs, it could have simply dispensed with using the words 'in a financial year'. [Para 4]
 Accordingly, the Commissioner (Appeals) had rightly deleted the addition made by the Assessing Officer. [Para 5]
CASE REVIEW
 
Vivek Jairazbhoy v. Dy. CIT [IT Appeal No. 236(Bang.) of 2012, dated 14-12-2012] (para 3) and Aspi Ginwala, Shree Ram Engg. & Mfg. Industries v. Asstt CIT [2012] 20 taxmann.com 75/52 SOT 16 (Ahd.) (para 3) followed.
CASES REFERRED TO
 
Vivek Jairazbhoy v. Dy. CIT [IT Appeal No. 236(Bang.) of 2012, dated 14-12-2012] (para 3), Aspi Ginwala, Shree Ram Engg. & Mfg. Industriesv. Asstt CIT [2012] 20 taxmann.com 75/52 SOT 16 (Ahd.) (para 3), Asstt. CIT v. Raj Kumar Jain & Sons (HUF) [2012] 19 taxmann.com 27/50 SOT 213 (JP.) (para 4), Vikrant Tyres Ltd. v. First ITO [2001] 247 ITR 821/115 Taxman 202 (SC) (para 4) and CIT v. Vegetable Products Ltd.[1973] 88 ITR 192 (SC) (para 5).
Prasanna Kumar for the Appellant. Sham J. Kamat and Chinmay S. Kamat for the Respondent.
ORDER
 
P.K. Bansal, Accountant Member - This appeal has been filed by the Revenue against the order of CIT(A) dtd. 31.10.2012 by taking following grounds of appeal :
"1. The order of the Ld. Commissioner of Income Tax (Appeals) is opposed to law and facts of the case.
2. The learned Commissioner of Income-tax (Appeals) has erred in interpreting the provisions of section 54EC.
3. As per proviso to Section 54EC the amount allowable for the financial year is Rs. 50,00,000/- only. Accordingly the amount allowable for the corresponding financial year 2007-08 is Rs. 50,00,000/-.
4. The Ld. CIT(A) has erred in allowing relief of Rs. 50,00,000/- thereby allowing deduction u/s. 54EC of Rs. 1,00,00,000/- in one financial year only.
5. Reliance is placed on the decision of ITAT Jaipur Bench vide ITA No. 648/JP/2011 for A.Y. 2008-09, dated 31-01-2012 in the case of ACIT, Circle-2, Ajmer Vs Shri Raj Kumar Jain & Sons (HUF) which upheld the order of Assessing Officer and held that the ld. CIT(A) was not justified in allowing deduction to the assessee to the extent of Rs. 1 crore u/s. 54EC of the Act."
2. The only issue involved in this appeal filed by the Revenue relates to the allowing of relief under Section 54EC. The brief facts of the case are that the Assessee filed its return of income on 29.9.2008 declaring income of Rs.24,00,118/- in which the assessee claimed deduction under Section 54EC amounting to Rs. 50,00,000/-. Assessment was completed on 30.12.2010 at an income of Rs. 7400118/-. The Assessing Officer during the course of assessment noted that the assessee has sold capital asset and computed Capital Gains at Rs.1,16,83,128/-. The Assessee claimed the exemption of the Capital Gains amounting to Rs. 1,00,00,000/- by making the following investments in Capital Gains Bonds under Section 54EC :
(a) REC Bonds of Rs.50,00,000/- on 31.3.2008
(b) REC Bonds of Rs.50,00,000/- on 30.6.2008
 
The Assessee claims that he has invested the funds within 6 months and therefore is entitled for exemption under Section 54EC. The Assessing Officer noted that a proviso which reads as under, has been inserted w.e.f. 1.4.2007 in Section 54EC(1):
"provided that the investment made on or after the first day of April, 2007 in the long term specified asset by an assessee during any financial year does not exceed fifty lakh rupees"
On the basis of this proviso, the Assessing Officer took the view that the Assessee could have made the investment only upto Rs.50,00,000/- and he could have therefore got exemption under Section 54EC only for a sum of Rs.50,00,000/- and accordingly, he allowed exemption for Rs.50,00,000/- and made the addition of Rs.50,00,000/-. When the matter went before the CIT(A), the CIT(A) deleted the addition by holding as under :
"I have gone through the facts of the case, contents of the assessment order and written submissions of the assessee. The fact is that the assessee has sold the property on 05.02.2008 and Rs.50,00,000/- was invested in the same financial year and Rs. 50,00,000/- was invested during the next F.Y. As per the proviso to Section 54EC of the Act that the long term specified asset by and assessee during any financial year does not exceed Rs. 50,00,000/-. As a result, the disallowance made by the AO is dismissed and the assessee's ground of appeal is allowed."
3. We have heard the rival submissions and carefully considered the same. We noted that this issue is duly covered in favour of the Assessee by the decision of the Bangalore Bench in case of Vivek Jairazbhoy v. Dy. CIT [ITA No. 236/Bang/2012, dated 14-12-2012] and Ahmedabad Bench in the case of Aspi Ginwala, Shree Ram Engg. & Mfg. Industries v. Asstt CIT [2012] 20 taxmann.com 75/52 SOT 16 (Ahd.). In the case of Aspi Ginwala, the co-ordinate bench has held as under :
"7. We have heard both the parties and perused the records and find that the assessee and his brother Shri Rustom Ginwala sold a property on 22-10-2007 for Rs. 6.21 Crores. The assessee and his brother had 50% share in this property. The assessee made investment of Rs. 50 lakhs on 31 -12-2008 in REC Bonds and Rs. 50 lakhs on 26-05-2008 in NHAI Bonds and claimed exemption of Rs. 1 Crore u/s 54EC of the Act. The investment in REC Bonds was allowed by the AO as it was within the time limit of six months prescribed in section 54EC of the Act, while the investment in NHAI Bonds which was made only on 26-05-2008 was not allowed as according to the lower authorities the assessee is only entitled for exemption u/s 54EC upto Rs. 50 lakhs only. The assessee's case, however, is that as per the proviso to section 54EC, investment made on or after 1st April, 2007 in the Long Term Specified Asset by an assessee during any financial year should not exceed Rs. 50 lakhs. The assessee's case is that since the property was sold on 22-10-2007 he could have invested in eligible investment within six months i.e. on or before 21-04-2008 in order to avail exemption u/s 54EC of the Act. There is no dispute about Rs. 50 lakhs invested on 31-12-2007 in REC Bonds. The dispute is only about further investment of Rs. 50 lakhs in NHAI Bonds made on 26-05-2008. Since six months in this case involves two financial years, the assessee's case is that if he had deposited another Rs. 50 lakhs from 1st April, 2008 to 21-04-2008, he was entitled for exemption u/s 54EC of the Act. As during this period from 01-04-2008 to 26-05-2008 subscription in eligible investment was closed, the investment made by the assessee on 26-05-2008 i.e. 1st day of the reopening of the subscription of eligible investment in NHAI Bonds should be treated in time. There is also no dispute about the fact that subscription to the eligible investment was closed during the period 01-04-2008 to 26-05-2008. The dispute which remains to be decided by us in this case is whether as per the provisions of section 54EC the assessee is entitled for exemption of Rs. 1 Crore as six months period for investment in eligible investment involves two financial years. If the answer to this question is "yes", whether investment made by the assessee on 26-05-2008 beyond six months period is eligible for exemption in view of the fact that no subscription for eligible investment was available to the assessee from 1st April, 2008 to 26-05-2008.
8. While going through the proviso of section 54EC, we find that the proviso to section reads as under. -
"[Provided that the investment made on or after the 1st Day of April, 2007 in the long term specified asset by an assessee during any financial year does not exceed fifty lakh rupee]"
It is clear from this proviso that where assessee transfers his capital asset after 30th September of the financial year he gets an opportunity to make an investment of Rs. 50 lakhs each in two different financial years and is able to claim exemption upto Rs. 1 Crore u/s 54EC of the Act. Since the language of the proviso is clear and unambiguous, we have no hesitation in holding that the assessee is entitled to get exemption upto Rs. 1 Crore in this case. This view of ours gets support from the following finding of the Hon'ble Supreme Court in the case of IPCA Laboratory Ltd. v. Dy. CIT[2004] 266 ITR 521 /135 Taxman 594 (SC), wherein it has been held by the Hon'ble Supreme Court that -
"even though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wording of the section. If the wording of the section is clear, then benefits which are not available cannot be conferred by ignoring or misinterpreting words in the section"
Here the situation is reverse. Since the wording of the proviso to section 54EC is clear, the benefits which are available to the assessee cannot be denied. In view of above, it is hereby held that the assessee is entitled for exemption of Rs. 1 crore as six months' period for investment in eligible investments involved is two financial years.
9. Now, coming to the second aspect of the matter, whether investment of Rs. 50 lakhs made in NHAI Bonds on 26-05-2008 can be considered to be made within six months period as per the proviso to sec. 54EC, we find that the assessee was to make investment in such Bonds between 01-04-2008 to 21-04-2008. There is no dispute about the fact that subscription of eligible Bonds was closed during this period till 26-05-2008 and on the 1st day of the reopening of the subscription, the assessee made this investment. Under the circumstances, we are of the considered opinion that the assessee was prevented by sufficient cause which was beyond his control in making investment in these Bonds within the time prescribed. We further find that various judicial authorities have taken a view that exemption should be granted in such cases where there is a delay in making investment due to non-availability of the bonds and have held that it is a reasonable cause and the exemption should be granted. In the case of Ram Aganval v. Jt. CIT [2002] 81 ITD 163 (Mum), it has been held as under:
"In regard to claim of exemption under section 54F we may mention that it is found by the learned CIT(A) that the bank was closed on 31 -8-1995 on account of strike as certified by the officials of the concerned bank. From the certification given by the bank officials, the assessee had approached the bank officials with the cheque for the amount of deposit on 30-8-1995. The assessee remained unable to obtain receipt on 31-8-1995 due to bank strike and the cheque was cleared on 1-9-1995. In this view of the situation, it can well be said that the deposit of the assessee was in accordance with the provisions of statute as on the last date i.e. the 31-8-1995, the deposit could not be made due to the reason which was beyond the control of the assessee particularly in view that the efforts were made by the assessee a day prior to last date to deposit the requisite amount in the bank to make him entitle for exemption under sec 54F. As mentioned earlier, this position has also been accepted by the learned CIT(A). Therefore, we direct the Assessing officer to allow the necessary exemption to the assessee.
Before parting we may observe that section 54F is a beneficial provision to encourage assessee to invest in house properties, Keeping in mind the above object behind the insertion of section 54F and considering the fact that the assessee was not at fault in not depositing the amount before 31-8-1995, we hold that the deposit made on 1-9-1995 satisfies the condition laid down in section 54F of the Act." Since no contrary decision was cited on behalf of the Revenue, we are left with no option but to hold that the investments made by the assessee on 26-05-2008 beyond six months is eligible for exemption in view of the fact that no subscription for eligible investment was available to the assessee from 1st April, 2008 to 26-05-2008.
10. In the result, both the appeals are allowed. "
4. We have also noted that subsequently, a contrary view has been taken by Jaipur bench in Asstt. CIT v. Raj Kumar Jain & Sons (HUF) [2012] 19 taxmann.com 27/50 SOT 213 (JP.). Subsequent to that decision, the Bangalore bench in the case of Vivek Jairazbhoy (supra) vide order dtd. 14.12.2012 took view in favour of the assessee. From the provisions of Sec. 54EC we noted that the limit of Rs. 50,00,000/- as given under the proviso is per person per financial year. The plain reading of the section as well as the proviso clearly suggests the same interpretation. There is no ambiguity in the interpretation. Had there been an intention of the legislature to restrict the exemption to Rs.50,00,000/-, the legislature would have provided the embargo in this regard. Restriction relates only to the investment made in any financial year by the assessee. Making of the investment is a condition for availing of the exemption. Condition for availing of the exemption requires that the investment can be made within a period of 6 months. If 6 months falls within a different financial year, as has happened in this case, in our opinion, this Tribunal cannot add the embargo that the assessee cannot make the investment to avail of the exemption under Section 54EC in the different financial year if he had already made the investment in the financial year in which the capital asset is transferred. In our opinion, the language of Section 54EC is clear and unambiguous and it leads to the interpretation that the assessee can make the investment in two different financial years provided in a financial year the investment made did not exceed Rs.50,00,000/-. We have also gone through the circular no. 3/2008 dtd. 12.3.2008 issued by the CBDT being an explanatory note on the provisions relating to direct taxes in Finance Act, 2007. In para 28.2 thereof the reason for it to set the limit on the quantum of the investment by a person in a financial year are given as under :
"28.2 The quantum of investible bonds issued by NHAI and REC being limited, it was felt necessary to ensure that the benefit was available to all the investors. For this purpose, it was necessary to ensure that the limited number of bonds available for subscription is also available for small investors. Therefore, with a view to ensure equitable distribution of benefits amongst prospective investors, the government decided to impose a ceiling on the quantum of investment that could be made in such bonds. Accordingly, the said section has been amended so as to provide for a ceiling on investment by an assessee in such long-term specified assets. Investments in such specified assets to avail exemption under Section 54EC, on or after 1st day of April, 2007 will not exceed fifty lakh rupees in a financial year."
From this circular also, it is apparent that the Government only intended to restrict the investment in a particular financial year and accordingly has fixed the limit of Rs. 50,00,000/- as permissible limit in a particular financial year. The Government did not intend to restrict the maximum amount of exemption permissible under Section 54EC. Legislature in our opinion has consciously used the words "in a financial year" in the proviso to Sec. 54EC of the Act. If the legislature wanted to restrict the exemption itself to Rs. 50,00,000/-, it could have have simply dispensed with using the words 'in a financial year'. The Hon'ble Supreme Court while deciding the case of Vikrant Tyres Ltd. v. First ITO [2001] 247 ITR 821/115 Taxman 202 laid down law of interpretation of the statute by holding therein as under :
"It is settled principle of law that the courts while construing Revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other, meaning thereby that no tax or levy can be imposed on a subject by an Act of Parliament without the words of the statute clearly showing an intention to lay the burden on the subject. In this process, the courts must adhere to the words of the statute and the so called equitable construction of those words of the statute is not permissible. The task of the court is to construe the provisions of the taxing enactments according to the ordinary and natural meaning of the language used and then to apply that meaning to the facts of the case and in that process if the tax payer is brought within the net he is caught, otherwise he has to go free."
5. Even in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 the Hon'ble Supreme Court has taken view that if there are two views possible, the view favourable to the subject should be taken. In view of the aforesaid discussion, we are of the view that no interference is called for in the order of CIT(A) and CIT(A) has rightly deleted the addition made by the Assessing Officer. We, accordingly, dismiss the appeal filed by the Revenue.
6. In the result, the appeal filed by the Revenue stands dismissed.
SKJ


Regards
Prarthana Jalan


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