Karnataka HC Allows Section 54EC Capital Gains Exemption Despite Delay

Dr. (Smt.) Sujatha Ramesh Vs Central Board of Direct Taxes (Karnataka High Court)

 The Karnataka High Court ruled in favor of Dr. Sujatha Ramesh, allowing her to claim a capital gains tax exemption under Section 54EC of the Income Tax Act, 1961, despite a six-month delay in investing in infrastructure bonds. The petitioner had sold immovable property in the 2013-14 assessment year and was required to invest the proceeds in eligible bonds within six months to claim the exemption. However, due to her travel to the USA, she missed the deadline and sought a one-time extension from the Central Board of Direct Taxes (CBDT). The CBDT refused to condone the delay, citing that she had sufficient time to invest while in India and that modern banking facilities allowed remote transactions. The Board concluded that her case did not meet the criteria for “genuine hardship” under Section 119(2)(b) of the Act.

The High Court disagreed with the CBDT’s strict approach, emphasizing that the exemption’s substantive conditions had been met and that the delay was not excessive. The Court stated that tax authorities should adopt a balanced and judicious approach rather than a strictly pro-revenue stance. It ruled that the CBDT had the discretion to condone such delays in cases where the taxpayer had made the required investment, even if belatedly. Given that Dr. Ramesh had ultimately invested in eligible bonds and satisfied the lock-in requirements, the Court set aside the CBDT’s order and directed tax authorities to grant her the exemption. The decision underscores the judiciary’s role in ensuring that tax laws are applied fairly, particularly when procedural delays do not defeat the purpose of the exemption provisions.