S. 54EC Exemption can be up to Rs. 1 crore if investment falls in two different FYs but within 6M

CA Sandeep Kanoi

Coromandel Industries Pvt. Ltd. vs ACIT (ITAT Chennai)

The only issue involved in this appeal is whether the assessee is eligible for deduction under section 54EC for Rs. 50.00 lakhs or Rs. 1.00 crores. In this case, the assessee sold the property and invested Rs. 50.00 lakhs each in two different assessment years in REC Bonds within six months. The case of the Revenue is that the assessee is eligible claiming deduction only for Rs. 50.00 lakhs and remaining claim of Rs. 50.00 lakhs was denied. It is an undisputed fact that the assessee has invested in REC Bonds in two different assessment years. In similar circumstances, the Coordinate Bench of the Tribunal in the case of Smt. Sriram Indubal (supra) has considered the entire issue of eligibility under section 54EC and held that the assessee is eligible for claiming deduction of Rs. 50.00 lakhs in each assessment years. The relevant portion of the order is extracted as under:

7. We have perused the orders and heard the rival submissions. There is no dispute that assessee had transferred the capital asset on which she had claimed exemption under Section 54EC on 18.2.2008. Assessee had also claimed exemption under Section 54EC on investments made in REC and NHAI Bonds. Section 54EC(1), which is relevant to the case, is reproduced hereunder, for brevity:-

“54EC. Capital gain not to be charged on investment in certain bonds.—(1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say;—

(a) If the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) If the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45:

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 rupees”.

8. The first condition mentioned in Section 54EC(1) is that the investment has to be made within a period of six months from the date of transfer of capital asset. Since the date of transfer in the given is 18.2.2008, six months period will elapse on 17.8.2008. Assessee had purchased REC Bonds worth of Rs. 50 lakhs on 27.2.2008 and Bonds of NHAI for Rs. 50 lakhs on 30.6.2008. Both these purchases were within the six months’ period. Only question that arises is whether proviso to Section 54EC(1) would limit the claim of exemption to Rs. 50 lakhs. Said proviso mentions that investment on which an assessee could claim exemption under Section 54EC(1) shall not exceed Rs. 50 lakhs during a financial year. So, the exemption provision has to be construed not transaction-wise but, financial year-wise. No doubt, Explanatory Memorandum does say that limitation has been placed with a view to ensure equitable distribution of benefits among the prospective investors. Relevant Explanatory Memorandum is reproduced for brevity:-

‘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 the 1st day of April, 2007 will not exceed fifty lakh rupees in a financial year.’

Last sentence of the Explanatory Memorandum clearly states that the exemption for investment cannot exceed Rs. 50 lakhs in a financial year. Therefore, if the assessee is able to keep the six months’ limit from the date of transfer of capital asset, but, still able to place investment of Rs. 50 lakhs each in two different financial years, we cannot say that the restrictive proviso will limit the claim to Rs. 50 lakhs only. Since assessee here had placed Rs. 50 lakhs in two different financial years but within six months period from the date of transfer of capital asset, assessee was definitely eligible to claim exemption upto Rs. 1 Crore. The same view has been taken by Ahmedabad Bench of this Tribunal in the case of Aspi Ginwala & Others (supra). We are, therefore, of the opinion that the assessee has to succeed in this appeal. Claim of the assessee for exemption upto Rs. 1 Crore has to be allowed in accordance with Section 54EC of the Act.”

No material has been brought on record or before us by the Revenue to show that the decision of the Tribunal is either modified or reversed by any higher Court. Therefore, following the decision of Coordinate Bench of the Tribunal in the case of Smt. Sriram Indubal (supra), we allow the ground raised by the assessee.