Exemption u/s. 54EC cannot be denied to assessee due to deeming fiction created U/s. 50

Issue – The assessee- respondent for the Assessment Year 2007- 08 had filed the return of income. Assessee Company had sold ‘Automatic Electric Load Monitoring System’ for the sum of Rs. 240 lacs and the assessee had invested the gain amount in Rural Electrification Bonds and claimed exemption under Section 54EC. On scrutiny of the assessment under Section 143(3) of the Act, the Assessing Officer found that short term capital gain was offered by the assessee in respect of Automatic Electric Load Monitoring System under Section 50 of the Act being the amount of Rs. 30,28,732/-. It had also claimed exemption under Section 54EC of the Act for investing the said amount in Rural Electrification Bond. The Assessing Officer disallowed such exemption on the ground that the same was not available on short term capital gain and invocation of Section 54EC was permissible only on long term capital gain.

Held – Capital gain arising of long term capital asset, if invested in specified asset, the assessee is not to be charged capital gains and exemption provided under Section 54EC of the Act cannot be denied to the assessee only on account of the fact that deeming fiction is created under Section 50 of the Act. In other words, legal fiction created under Section 50 of the Act is though restricted to computation of capital gains, such deeming fiction cannot restrict application of Section 54EC which allows exemption of capital gains, if assessee makes investment in the specified assets. Thus, the assessee cannot be charged to capital gains when short term gains of long terms capital assets get invested in the areas specified under the law.

HIGH COURT OF GUJARAT AT AHMEDABAD

TAX APPEAL NO. 730 of 2013

COMMISSIONER OF INCOME TAX

Versus

ADITYA MEDISALES LTD.

CORAM: HONOURABLE MR.JUSTICE M.R. SHAH

and HONOURABLE MS JUSTICE SONIA GOKANI

Date : 02/09/2013

ORAL JUDGMENT