Case Law Details
Kirankumar Popatlal Shah Vs ITO (ITAT Pune)
The Pune Bench of the Income Tax Appellate Tribunal (ITAT) allowed the appeals filed by three co-owners, including Kirankumar Popatlal Shah, concerning the deduction available under Section 54EC of the Income-tax Act for Assessment Year 2009-10. The common issue was whether an assessee could claim a deduction of ₹1 crore by investing ₹50 lakh each in specified bonds during two different financial years, provided both investments were made within six months from the date of transfer of the capital asset.
The assessees, who were co-owners of a property sold for ₹3.51 crore, had each invested ₹50 lakh in REC bonds during Financial Year 2008-09 and another ₹50 lakh during Financial Year 2009-10. They accordingly claimed a deduction of ₹1 crore under Section 54EC. The Assessing Officer restricted the deduction to ₹50 lakh on the ground that the transfer took place in Financial Year 2008-09 and allowing ₹1 crore would defeat the object of the provision. The CIT(A) affirmed the restriction by following the Jaipur Bench decision in ACIT v. Raj Kumar Jain & Sons (HUF).
Before the Tribunal, the assessees relied upon several Tribunal decisions holding that where the six-month investment period extended into the next financial year, investments of ₹50 lakh in each financial year qualified for deduction under Section 54EC. They also relied upon the Supreme Court decision in CIT v. Vegetable Products Ltd. to contend that where two interpretations were possible, the one favourable to the assessee should be adopted.
The Tribunal observed that the issue had been considered by the Panaji and Bangalore Benches of the Tribunal, which had held that the proviso to Section 54EC imposed a ceiling of ₹50 lakh on investment made in each financial year, and not on the total exemption available where the statutory six-month period covered two financial years. It noted that the language of the proviso clearly restricted only the amount of investment during any financial year. Had the legislature intended to restrict the total exemption itself to ₹50 lakh, it would not have used the words “in a financial year.”
The Tribunal also referred to CBDT Circular No. 3/2008, which explained that the ceiling on investment was introduced to ensure equitable distribution of the limited quantity of eligible bonds among investors. According to the Tribunal, the Circular supported the view that the restriction applied only to investment in a particular financial year and not to the aggregate deduction where investments were made in two different financial years within the prescribed six-month period.
Following the decisions of the Panaji and Bangalore Benches, and in the absence of any contrary binding authority, the Tribunal held that the assessees were entitled to deduction under Section 54EC for investments of ₹50 lakh each made in two separate financial years, as both investments were made within six months from the date of transfer of the capital asset. The Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to allow the deduction claimed under Section 54EC. Since the other two appeals involved identical facts and co-owners of the same property, they were also allowed on the same reasoning.
Cases Discussed:
- Kirankumar Popatlal Shah v. ITO (ITAT Pune)
- ITO v. Ms. Rania Faleiro – 142 ITD 21 (ITAT Panaji)
- Vivek Jairazbhoy v. DCIT – ITA No. 236/Bang/2012 (ITAT Bangalore)
- Shri Aspi Ginwala v. ACIT – ITA No. 3226/Ahd/2011 (ITAT Ahmedabad)
- ACIT v. Raj Kumar Jain & Sons (HUF) – 50 SOT 213 / 19 taxmann.com 27 (ITAT Jaipur)
- Smt. Sriram Indubal v. ITO – ITA No. 1950/Mds/2012 (ITAT Chennai)
- Coromandel Industries Pvt. Ltd. v. ACIT – ITA No. 411/Mds/2013 (ITAT Chennai)
- CIT v. Vegetable Products Ltd. – 88 ITR 192 (SC)
- IPCA Laboratory Ltd. v. DCIT – 266 ITR 521 (SC)
- Ram Aganval v. JCIT – 81 ITD 163 (ITAT Mumbai)
- Vikrant Tyres Ltd. v. First ITO – 274 ITR 821 (SC)
FULL TEXT OF THE ORDER OF ITAT PUNE
The above 3 appeals filed by the respective assessees are directed against the separate orders dated 26-11-2012 of the CIT(A)-III, Pune relating to Assessment Year 2009-10. Since identical grounds have been taken by the respective assessees in all these appeals, therefore, these were heard together and are being disposed of by this common order.
ITA No. 286/PN/2013 (Ajitkumar Popatlal Shah) :
2. The only effective ground raised by the assessee reads as under: “On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in not allowing deduction u/s.54EC of I.T. Act, 1961 to the tune of Rs.50 lakhs as claimed by the assessee”.
2.1 Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 10-10-2011 disclosing income of Rs.21,32,710/-. During the course of assessment proceedings the Assessing Officer noted that the assessee has disclosed income from capital gains on transfer of land at Baramati. From the transfer document he noted that there are 3 co-owners viz., Ajitkumar Popatlal Shah, Kirankumar Popotlal Shah and Smt. Sarika Sanjaykumar Shah. The co-owners are from the same family and the total consideration involved in the transfer is Rs.3,51,00,000/-. From the computation of total income of the assessee the Assessing Officer noted that the assessee has claimed exemption of Rs.1 Crore u/s. 54EC of the Act. From the REC bond certificates the Assessing Officer noted that the assessee has invested Rs.50 lakhs on 30-11-2008 and another Rs.50 lakhs on 30-04-209. He, therefore, asked the assessee to explain as to why exemption u/s.54EC should not be restricted only to the investment made in F.Y. 2008-09 since the transfer of the capital asset took place in F.Y. 2008-09 relevant to A.Y. 2009-10 in respect of which exemption is being claimed. The assessee replied that the statute has only put a restriction on the quantum of investment to be made during the financial year and not on the quantum of exemption which can be claimed by the assessee.
3. However the Assessing Officer was not satisfied with the explanation given by the assessee. He noted that there are 3 co-owners and each co-owner has invested Rs. 1 Crore by investing in REC bonds amounting to Rs.50 lakhs each in F.Y. 2008-09 and F.Y. 2009-10. Thus, out of the total amount of Rs.3,51,00,000/- they are getting exemption of Rs.3 crores u/s.54EC. According to the Assessing Officer, such claim defeats the very purpose of the section enacted in the statute. Since the transfer was effected in F.Y. 2008-09, therefore, the Assessing Officer, following the provisions of section 54EC restricted the exemption u/s.54EC at Rs.50 lakhs and denied the exemption of the balance Rs.50 lakhs.
4. In appeal the Ld.CIT(A) distinguishing the decision of the Ahmedabad Bench of the Tribunal in the case of Shri Aspi Ginwala and others Vs. ACIT reported in 146 TTJ 385 and following the decision of Jaipur Bench of the Tribunal in the case of ACIT Vs. Shri Raj Kumar Jain & Sons (HUF) reported in 50 SOT 213 held that the admissible deduction u/s.54EC cannot exceed Rs.50 lakhs. He accordingly upheld the action of the Assessing Officer in restricting the deduction to Rs.50 lakhs.
4.1 Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
5. The Ld. Counsel for the assessee at the outset referred to the decision of the Panaji Bench of ITAT in the case of ITO Vs. Ms.Rania Faleiro reported in 142 ITD 21 and submitted that the Tribunal in the said decision after considering the decision of the Jaipur Bench of the Tribunal in the case of Shri Raj Kumar Jain & Sons (HUF) (Supra) has held that for claiming deduction u/s.54EC the assessee can make investment in two different financial years provided that the investment made did not exceed Rs.50 lakhs in a financial year. Referring to the decision of the Bangalore Bench of the Tribunal in the case of Shri Vivek Jairazbhoy Vs. DCIT in ITA No.236/Bang/2012 order dated 14-12-2012 he submitted that the Tribunal in the said decision has also held that assessee is entitled to total deduction u/s.54EC of the Act spread over a period of 2 financial years @Rs.50 lakhs each on investments made in specified instruments within a period of 6 months from the date of sale of the property. He also relied on the decision of the Ahmedabad Bench of the Tribunal in the case of Shri Aspi Ginwala Vs. ACIT vide ITA No.3226/Ahd/2011 order dated 30-03-2012 for A.Y. 2008-09 and the Chennai Bench of the Tribunal in the case of Smt. Sriram Indubal Vs. ITO vide ITA No.1950/Mds/2012 order dated 30-01-2013 for A.Y. 2008-09 and M/s. Coromandel Industries Pvt. Ltd. Vs. ACIT vide ITA No.411/Mds/2013 order dated 25-06-2013 for A.Y. 2009-10. Referring to the decision of the Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. reported in 88 ITR 192 he submitted that when two views are possible the view which is favourable to the assessee should be accepted. He accordingly submitted that the claim of the assessee should be allowed.
6. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A).
7. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions relied on by both the sides. The only dispute to be decided in the instant case is as to whether the assessee is entitled to deduction u/s.54EC on account of investment of Rs.50 lakhs each in two financial years which otherwise were invested within a period of 6 months from the date of transfer of the capital asset. We find the CIT(A) upheld the action of the Assessing Officer by following the decision of the Jaipur Bench of the Tribunal in the case of Shri Raj Kumar Jain & Sons (HUF) (Supra). However, we find the Panaji Bench of the Tribunal and the Bangalore Bench of the Tribunal after considering the decision of Jaipur Bench of the Tribunla in the case of Shri Raj Kumar Jain & Sons (HUF) (Supra) has held that for claiming deduction u/s.54EC the assessee can make investment in 2 different financial years provided in a financial year the investment made did not exceed Rs.50 lakhs.
7.1 We find the Panaji Bench of the Tribunal after considering various decisions including the decision of the Jaipur Bench of the Tribunal in the case of Shri Raj Kumar Jain & Sons (HUF) (Supra) has decided the issue in favour of the assessee and dismissed the appeal filed by the Revenue by holding as under :
“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 Vs. Dy. Commissioner of Income- tax, ITA No. 236/Bang/2012 and Ahmedabad Bench in the case of Aspi Ginwala, Shree Ram Engg. & Mfg. Industries Vs. Asst. Commissioner of Income-tax, 20 taxmann.com 75 (Ahd.). In the case of Aspi Ginwala, the coordinate 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 22-10-2007for 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 26-052008 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 31-122007 in REC Bonds. The dispute is only about further investment of Rs. 50 lakhs in NHAI Bonds made on 26-052008. 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 2605-2008. 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 26-052008 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 2605-2008.
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] 81ITD163 (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 318-1995 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 318-1995, 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 2605-2008.
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 Asst. Commissioner of Income-tax vs. Raj Kumar Jain & Sons (HUF), 19 taxmann.com 27 (Jp.). Subsequent to that decision, the Bangalore bench in the case of Vivek Jairazbhoy Vs. Dy. Commissioner of Income-tax 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 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 simply dispensed with using the words ‘in a financial year’. The Hon’ble Supreme Court while deciding the case of Vikrant Tyres Ltd. Vs. First ITO, 274 ITR 821 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. “
Even in the case of CIT vs. Vegetable Products Ltd., 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.
In the result, the appeal filed by the Revenue stands dismissed.”
7.2 Respectfully following the decision of the Panaji Bench of the Tribunal in the case of Shri Raj Kumar Jain & Sons (HUF) (Supra) which has considered the decision of the Jaipur Bench of the Tribunal relied on by the Ld. CIT(A) and in absence of any contrary material brought to our notice we hold that the assessee is entitled to deduction u/s.54EC for the amount of Rs.50 lakhs each invested in two different financial years which otherwise are invested within a period of 6 months from the date of sale of the capital asset. We accordingly set-aside the order of the CIT(A) and direct the Assessing Officer to allow the claim of deduction u/s.54EC made by the assessee. The ground raised by the assessee is accordingly allowed.
ITA No.285/PN/2013 (Kirankumar Popatlal Shah) & ITA No.287/PN/2013 (Sarika Sanjaykumar Shah) :
8. After hearing both the sides, we find identical grounds have been raised by the above assessees being co-owners. We have already decided the issue in ITA No.286/PN/2013 in favour of the assessee. Following the same ratio, the grounds raised by the respective assessees in the above appeals are also allowed.
9. In the result, all the above appeals filed by the respective assessees are allowed.
Pronounced in the Open court on 31-01-2014.
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