Case Law Details

Case Name : Shri Mahesh NemichandraGaneshwade Vs Income Tax Officer, Pune (ITAT Pune)
Appeal Number : 29/03/2012
Date of Judgement/Order : 2006-07
Related Assessment Year :
Courts : All ITAT (4274) ITAT Pune (128)

Requirement of section 54EC to the effect that investment in specified assets is to be made within a period of six months from the date of transfer, was put to some clarification by the CBDT in Circular No 791 (supra). The question arose before the CBDT regarding exemption of a long term capital asset which had arisen on conversion of a capital asset into stock-in-trade.

Such capital gain would arise in the year of conversion, so however, in terms of section 45(2) of the Act, its taxability is postponed to the year in which such stock-in-trade is actually sold or otherwise transferred by the assessee. The question arose as to whether the date of transfer as referred to in section 54E of the Act is the date of conversion of capital asset into stock-in-trade or the date on which the stock-in-trade is sold or otherwise transferred by the assessee. As per the phraseology of sections 54EA, 54EB and 54EC the date of transfer in such cases is the date on which the capital asset is converted by the assessee into stock-in-trade and not the date on which such stock-in-trade is sold or otherwise transferred by the assessee. Thus, as per the aforesaid understanding it may not be possible for an assessee to make the required investment under the aforesaid sections at the point of conversion of capital into stock-in-trade because right to collect sale consideration in such cases arises only at the point of sale or transfer otherwise of stock-in-trade. The CBDT in consultation with the Ministry of Law decided that the period of six months for making investment in specified assets for the purpose of sections 54EA, 54EB and 54EC of the Act should be taken from the date such stock-in-trade is sold or otherwise transferred in terms of section 45(2) of the Act, though the taxability of capital gain was on the basis of ‘transfer’ as understood in section 45(2) of the Act. Therefore, having regard to the impossibility of performance to invest the amount in specified assets within six months from the date of transfer (i.e. the date of conversion of capital asset into stock-in-trade) the CBDT appreciated and has clarified that the period of six months for making investment in specified assets has to be reckoned from the date of the sale of such stock-in-trade when the right to collect sale consideration in such cases arose, which was much after the date of transfer as contemplated for the purpose of taxation.

In our considered opinion, the interpretation placed by the CBDT in consultation with the Ministry of Law to the condition of making investment within six months from the date of transfer in section 54EC would support the claim of the assessee in this case also for exemption from capital gain with respect to the impugned sum of Rs 50 lakhs invested in specified assets on 3.8.2007 and 27.10.2007. In the present case, admittedly the impugned amount of sale proceeds have been received by the assessee much after the date of transfer i.e. 12.7.2005, so however, it is also emerging from the record that the investments of Rs 12,50,000/- and Rs 37,50,000/- made on 3.8.2007 and 27.10.2007 respectively have been made within six months of receipt of such consideration. Therefore, having regard to the interpretation placed by the CBDT to understand the requirement of making investment within six months from the date of transfer in section 54EC of the Act we are inclined to uphold the plea of the assessee for exemption from tax on capital gains qua impugned amount of Rs 50 lakhs . Therefore on this aspect, assessee has to succeed. Thus, this Ground of appeal is allowed.

INCOME TAX APPELLATE TRIBUNAL, PUNE

S. No ITA No Asstt.year Appellant Respondent
1 594/PN/10 2006-07 Shri Mahesh NemichandraGaneshwade, 12 KothrudIndustrial Estate, Pune411 038 –

PAN -AAVPG2476R

Income-tax Officer,Wd 3(4), Pune
2 727/PN/10 2006-07 ITO, Wd. 3(4), Pune Shri MaheshNemichandraGaneshwade, Pune
3 595/PN/1 0 2006-07 Shri Nemichandra DGaneshwade, Pune –PAN AAVPG2707K Income-tax Officer,Wd. 3(4), Pune
4 596/PN/1 0 2006-07 Mrs Hansabai NGGneshwade, Pune – I.T.O Wd 3(4), Pune
5 597/PN/1 0 2006-07 Shri Dinesh NGaneshwade, PunePAN – ADTPG2705Q I.T.O Wd. 3(4) Pune
6 728/PN/1 0 2006-07 I.T.O Wd 3(4), Pune Shri Dinesh NGaneshwade, Pune

Date of pronouncement : 29.03.2012

ORDER

PER G.S. PANNU, A.M.:

Since common issues are involved in the captioned appeals, they were heard together and a consolidated order is being passed for the sake of convenience and brevity.

2. Since the facts are common and arguments raised by the parties are identical, we shall take up the appeal filed by the assessee Shri Mahesh Nemichandra Ganeshwade (ITA No 594/PN/2010) as a lead case.

3. The Grounds of appeal raised in this appeal are as follows:

“1. The ld CIT(A) erred in holding that capital gain on transfer of land at S. No 48/1, village Bavdhan Khurd, Tal : Haveli, Dist. Pune was assessable in this asst. yea without appreciating that as per law, the same was not taxable in this assessment year.

2. The ld CIT(A) erred in holding that the sale consideration on transfer of land should be adopted at Rs 4,90,00,000/- as against Rs 2,50,00,000/- without appreciating that the original sale consideration was only Rs 2,50,00,000/- and only by way of correction deed in F V 2007-08 the consideration was increased and hence, there was no reason to adopt the sale consideration at Rs 4,90,00,000/- as against Rs 2,50,00,000/- as determined in the original agreement.

3. The ld CIT(A) erred in holding that the assessee was not entitled to exemption u/s 54EC in respect of the investment in the eligible bonds on the grounds that the assessee had not invested in those bonds within a period of six months from the date of transfer of the land.

3.1 The ld CIT(A) failed to appreciate that the assessee had invested in the eligible bonds within a period of 6 months from the receipt of the sale consideration and accordingly, he was entitled to claim the deduction u/s 54EC.

3.2 The ld CIT(A) erred in not appreciating that if the assessee did not receive the sale consideration within 6 months from the date of transfer, he had no source to invest the amount and accordingly, the benefit of exemption u/s 54EC ought to have been granted if the assessee had invested in the specified bonds within 6 months from the date of receipt of the sale consideration.”

4. The facts, in brief, are that that the assessee jointly owned with three others a land at Survey No 48/1 village Bavdhan Khurd, Haveli, Pune. The assessee entered into a joint venture development agreement with M/s Rohan Builders and Developers Pvt. Ltd. dated 12.7.2005, in which the consideration was fixed at Rs 2,50,00,000/-.This document was registered later by way of confirmation deed dated 23.1.2007. Thereafter, a correction deed was entered into on 2.7.2007 in which the sale consideration was increased to Rs 4,90,00,000/-. Out of the total sale consideration at Rs 4,90,00,000/-, assessee’s share was 1/4th i.e. Rs 1,22,50,000/-. On these facts, the Assessing Officer inferred that the Date of joint venture agreement, i.e. 12.7.2005 was the date of transfer for the capital asset and in accordance with  the provisions of section 45(3) of the Act, the consideration of Rs 2,50,00,000/- subsequently revised to Rs 4,90,00,000/- was the consideration on transfer which was liable to be considered for computation of capital gain in assessment year 2006-07. When confronted with the above stand of the Assessing Officer, the assessee objected to taxation of the capital gain in assessment year 2006-07, and contended that it should be considered in the assessment year 2007-08 since the joint venture agreement was registered on 23.1.2007 and only after which it was acted upon and implemented. The Assessing Officer rejected this contention of the assessee and concluded that the transfer had actually taken place on account of the development agreement in assessment year 2006-07 itself. As per the Assessing Officer, in so far as the year of taxability was concerned, it was the year in which the transfer took place in accordance with the development agreement and as to the amount to be taxed, it was in accordance with the total consideration including the revised consideration recorded in the books of accounts as per the provisions contained in section 45(3) of the Act. He accordingly held that the capital gain was taxable in the assessment year 2006-07 and it could not be taxed at any other consideration than what was actually recorded in the books of account as a whole. Being aggrieved with such order, the assessee preferred appeal to the Commissioner of Income-tax (Appeals).

5. Before the Commissioner of Income-tax (Appeals), assessee filed detailed written submissions assailing the order of the Assessing Officer. In so far as the taxability of capital gain is concerned, the Commissioner of Income-tax (Appeals) agreed with the conclusion of the Assessing Officer that the capital gain is taxable in the year of transfer and the date of entering into the development agreement with the builder is to be treated as date of transfer. He also noticed from the development agreement that the irrecoverable permission for development of the said land was granted by the assessee and  the other members of the family, being the co-owners, to the builder and, therefore, the date of development agreement would be treated as the date of transfer. As per the Commissioner of Income-tax (Appeals), merely because the deed was registered in a later assessment year or that the consideration was in accordance with a correction deed made later, would not postpone the date of transfer of an asset. He further observed that capital gain can be charged only once, and it cannot be taxed partly in this year and the remaining part in a later year; since there was no such specific provision in the Act, otherwise than in the case of enhanced compensation as provided by section 45(5) of the Act. As per the Commissioner of Income-tax (Appeals), the correction deed was made for correction in the name in one of the persons and secondly for enhancing the amount of consideration from Rs 2,50,00,000/- to Rs 4,90,00,000/- and by merely entering into the correction deed, the incidence of transfer or levying of capital gains did not get postponed to the later year. Reliance has been placed on the judgment of the Hon’ble jurisdictional High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT 260 ITR 491 (Bom). He accordingly affirmed the stand of the Assessing Officer.

6. Before us, the learned Counsel for the assessee has pointed out that the four assessees in question are co-owners of the land for whose development, they entered into a joint venture with Rohan Builders & Developers P. Ltd in terms of an agreement dated 12.7.2005 placed at pages 7 to 32 of the Paper Book. At the outset, the learned Counsel submitted that in so far as the assessment year under consideration is concerned, the authorities below have wrongly interpreted the same to hold that a transfer has occurred for the purposes of determination of capital gains in the instant assessment year. Countering the claim of the Revenue that a transfer within the meaning of section 2(47) of the Act has taken place on account of the joint venture agreement dated 12.7.2005 in the instant assessment year itself on the basis of the judgment of the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia (supra), it has been contended that the said decision is inapplicable in the present case, inasmuch as the rights in the land have not been passed in favour of Rohan Builders as a transferee, but it is a case where in terms of a joint venture agreement, assessee and Rohan Builders have come together to jointly develop the land and share the profits. In this connection, reference has been made to the various clauses of the joint venture agreement. Pointing out to clause No. 2 of the agreement, which defines the purpose of the agreement, it is pointed out that it clearly states that the parties wish to develop the land jointly and the respective obligations of the parties have also been provided for. Similarly, it is pointed out that as per clause 5 of the agreement, the assessee had permitted Rohan Builders to enter upon the land and commence the development work alongwith the assessee jointly. Therefore, it is not a case of per se transfer of land/development rights to Rohan Builders as a transferee. In so far as clause 5B is concerned, the same provides that the assessee shall not be entitled to revoke the permission granted to Rohan Builders. In this connection, it is pointed out that the said clause means that if Rohan Builders violates the agreement, assessee could withdraw the permission granted and it is not a case of transfer of rights in the land in favour of Rohan Builders. In support of its plea, reference has also been made to clause 9 of the agreement which states that possession will be passed in favour of the ultimate buyers of the flats and what is allowed as a permission to the Builders is to be accepted as a license to commence construction. Further-more in terms of clause 3 of the agreement the value of the land has been determined at Rs 2,50,00,000/- and apart therefrom, the assessee was entitled to a share in the profits from the development of the land jointly with Rohan Builders. It is asserted by the assessee that it is not a case whereby accepting the consideration of Rs 2,50,00,000/-, which was subsequently revised to Rs 4,90,00,000/-, the assessee has lost all the rights in the land in favour of Rohan Builders. On the contrary, the relation between the assessees and Rohan Builders is that of members of a joint venture whereby the assessee brings in the land and Rohan Builders undertakes construction of flats and the profits thereupon are shared by the members of the joint venture. Therefore, in this connection, it is contended that the provisions of section 53A of the Transfer of Property Act, 1882 cannot be applied so as to construe the agreement dated 12.7.2005 as a transfer of land for the purposes of taxing the capital gains in the instant assessment year.

7. On the other hand, the learned Departmental Representative, appearing for the Revenue, has supported the orders of the authorities below by pointing out that the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia (supra) clearly brings out that after insertion of clauses (v) and (vi) in section 2(47) of the Act, the expression ‘transfer’ will include any transaction which allowed possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 and, therefore, in this case, the assessee granted possession with an irrevocable permission for development of the land in favour of the builder, i.e. Rohan Builders and, therefore, the date of development agreement dated 12.7.2005 is liable to be treated as the date of transfer for the purpose of ascertaining the year of taxability of capital gains.

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8. We have carefully considered the rival submissions. Chapter IVE of the Act provides for taxability of capital gains. Section 45(1) provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to tax under the head ‘capital gains’ and it is further explained that such profits shall be deemed to be the income of the previous year in which the transfer takes place. In so far as the present case is concerned, the only dispute revolves around the point of time at which the ‘transfer’ is said to have taken place. The captioned assessees are co-owners of a land which has been the subject-matter of a joint venture agreement dated 12.7.2005 between the assessee and the builder, M/s Rohan Builders & Developers Pvt. Ltd. In terms of the said joint venture agreement, assessees and the builder decided to undertake a scheme to develop the said land in co¬operation with each other. The assessees on their part brought in the land and the builder constructed the flats thereon in terms of the provisions of the agreement dated 12.7.2005. Notably in terms of the said agreement, the consideration for the land was fixed at Rs 2,50,00,000/- which had since been revised upwards to Rs 4,90,00,000/- in terms of a subsequently executed correction deed dated 24.7.2007. The moot question is as to whether in terms of clauses (v) and (vi) of section 2(47) of the Act, an event of ‘transfer’ had taken place as a result of the execution of the agreement in the instant year on 12.7.2005. That the said agreement indeed envisages a transfer, is not disputed by the assessee, only point disputed is the timing of transfer. The point of contention raised by the assessee is that there is no transfer in terms of giving possession of land to Rohan Builders in this year, inasmuch as such possession is intended only for further development work to be carried out by Rohan Builders jointly with the assessee and not as an independent transferee. The provisions of clauses (v) and (vi) of section 2(47) of the Act which provides the meaning of the expression ‘transfer’ have been exhaustively explained by the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia (supra). It has been explained by the Hon’ble High Court that in situations attracting clauses (v) and (vi) of section 2(47) of the Act, capital gains will be taxable in the year in which such transactions are entered into even if the transfer of the immovable property is not effected or complete under the general law. It has been explained that in terms of the aforesaid clauses of section 2(47) of the Act any transaction involving allowing of possession to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act would come within the ambit of the expression ‘transfer’. It has been explained that for this purpose there should be a contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to transfer of an immovable property; transferee should have taken possession of the property; lastly, transferee should be ready and willing to perform the part of contract. As per the Hon’ble High Court, even arrangements confirming privileges of ownership without transfer of title also fall under section 2(47) of the Act. In this manner, the plea of the assessee before the Hon’ble High Court that no transfer takes place till execution of the conveyance was rejected by the Hon’ble High Court. The High Court dealt with a situation where the assessee was found to enter into contract for developing property with the builders and in terms with the arrangement with the builders, it conferred privileges of ownership without executing conveyance and to plug that loophole as per the Hon’ble High Court, clause (v) was inserted in section 2(47) of the Act with effect from 1.4.1988.

9. Considered in the above background, in our view, the impugned agreement entered on 12.7.2005 which contemplates taking over of possession of the property by Rohan Builders for development fulfills the requirements of section 2(47)(v) as understood and explained by the Hon’ble High Court and, therefore, ‘transfer’ in terms of section 2(47)(v) has taken place during the year under consideration. The plea of the assessee that there is no transfer in favour of Rohan Builders as an independent transferee is not relevant to determine the question as to whether qua the assessees, a ‘transfer’ as envisaged under section 2(47)(v) of the Act has taken place or not. Even if for the sake of argument it is accepted that Rohan Builders have not taken possession of the property as transferee per se, yet there is a transfer resulting on account of handing over possession qua assessee and such possession is taken by Rohan Builders as part of the joint venture, which is again distinct from the assessee. Be that as it may, in our view, the controversy on the timing of the taxability of capital gains in this case is liable to be held in favour of the Revenue, inasmuch as capital gains on transfer of land are liable to be taxed in the instant assessment year on the strength of the agreement dated 12.7.2005.

10. Another aspect disputed by the assessee is with regard to the adoption of full value of consideration for the purpose of computation of capital gain. In this case, in terms of the agreement dated 12.7.2005 the consideration was fixed at Rs 2,50,00,000/- which has since been upwardly revised by another agreement styled as Correction deed dated 2.7.2007. In terms of the Deed dated 2.7.2007 the consideration was increased to Rs 4,90,00,000/-. The Assessing Officer and thereafter, the Commissioner of Income-tax (Appeals) have considered the enhanced consideration of Rs 4,90,00,000/- for the purpose of computing capital gains in the hands of the four co-owner assessees. Though the assessee disputes the aforesaid position, we find no justifiable reason to deviate from what has been adjudicated by the lower authorities on this aspect. Therefore, on this aspect also the assessee has to fail. In this manner, in so far as Ground Nos. 1 & 2 are concerned, the same are dismissed.

11. The next issue relates to granting of exemption under section 54EC of the Act in respect of the investment in eligible bonds. As per the Assessing Officer, the investment in eligible bonds was not made by the assessee within the stipulated period of 6 months from the date of transfer of land. The contention of the assessee was that the investment was made within 6 months from the date of receipt of sale consideration and, therefore, it was entitled to exemption under section 54EC of the Act. The Assessing Officer noticed that the assessee was making the investments in the specified bonds only after receiving the payments from time to time during the assessment year 2006-07, 2007-08 and 2008-09, etc., and, therefore, he did not grant exemption under section 54EC, considering the date of transfer of the land as 12.7.2005. Being aggrieved, assessee took up the matter in appeal to the Commissioner of Income-tax (Appeals).

12. Before the Commissioner of Income-tax (Appeals), assessee filed detailed written submissions challenging the order of the Assessing Officer. The Commissioner of Income-tax (Appeals), after considering the submissions of the assessee, affirmed the decision of the Assessing Officer by holding as follows:

“5.3 I have considered the submission of the appellant and material available on record. It is an admitted that the investment in the specified bonds for the purpose of section 54EC of the Act was not made within the stipulated period of 6 months from the date of transfer, which has been held to be 12.7.2005. Only an amount of Rs 25,00,000/- was received within this time limit which has already been considered by the AO. The fact that the amounts were received subsequently and the deposits were made in these bonds within a period of 6 months from the date of receipts was not relevant as it is not as per the provisions of the Act. Even the CBDT circulars cited by the appellant were on different issues and in different context and not with reference to the provisions of section 54EC of the Act. Circular No 791 is in context of section 45(2) r. w.s 2(47) of the Act which relates to the conversion of capital assets into stock in trade, whereas the circular No 359 ius with reference to the provisions of section 54E, when the consideration is received in advance. Accordingly, the appellant’s contention is not found to be acceptable nd this ground of appeal is, therefore, dismissed.”

Aggrieved by such decision, assessee is in appeal before us in terms of the aforestated Ground of Appeal No. 3.

13. Section 54EC of the Ac prescribes that capital gain arising on transfer of a long term capital asset is not chargeable to tax in case the whole or any part of the capital gains is invested in certain specified Bonds. In this case, the bone of contention is the condition prescribed in section 54EC(1) that investment in the specified Bonds is required to be made “within a period of six months after the date of such transfer’. There is no dispute that the assessee has earned capital gains on transfer of a long term capital asset being the land and, therefore, investments made in specified Bonds would be eligible for exemption under section 54EC. In order to appreciate the dispute, we may refer to the following tabulation in the case of Mr Mahesh Ganeshwade, which is as per page 57 of the Paper Book filed before us:-

S. No. Date          Of
Pay Recd
Name Of The Bank Che.

NoAmountParticularDate Of InvestmentAmt. Invested112.07. 05Janata Sah. Bk.5185532500000National       Bk    For

Agricultural         And
Rural

Development05.01.062500000231.05. 06Janata Sah. Bk.5838732500000National Highway Authority Of India31.08.06250000312.02. 07Hdfc             Bank
Ltd3680961250000Rural Electrification Corporation Ltd.03.08.071250000414.05. 07 19.06. 07 03.07. 07Hdfc             Bank
Ltd

Janata Sah. Bk. Hdfc             Bank
Ltd413183 672122 4133001175000 1250000 1250000}Rural

Electrification Corporation27.10.073750000517.09. 07Hdfc             Bank
Ltd450242325000  Nil1225000010000000

In so far as the investment of Rs 25 lakhs on 5.1.2006 is concerned, the Assessing Officer granted relief under section 54EC of the Act as it was invested within a period of six months from the date of transfer, i.e. 12.7.2005. Before us, the assessee has staked his claim for relief under section 54EC on account of investments of Rs 12,50,000/- and Rs 37,50,000/- made on 3.8.2007 and 27.10.2007 respectively. The Revenue has denied the claim on the ground that such amounts have not been invested within a period of 6 months from 12.7.2005, i.e. the date of transfer of the land and, therefore, the condition prescribed under section 54EC has not been fulfilled.

14. Before us, the learned Counsel for the assessee submitted that the consideration of Rs 2,50,00,000/- was finalized in the Agreement dated 12.7.2005 which has been further revised to Rs 4,90,00,000/- in the subsequent Agreement dated 2.7.2007. It is further pointed out that the consideration has been received by the assessee on various dates falling beyond the period of 6 months from the date of transfer, i.e. 12.7.2005 and, therefore, it was not possible for the assessee to have invested the amounts in the specified Bonds within a period of 6 months from 12.7.2005. It is pointed out that in so far as the present claim of the assessee for a further relief on the investment of Rs 50 lakhs is concerned, it is evident that such investments have been made within a period of 6 months from the date of receipt of the consideration. The learned Counsel submitted that if a technical interpretation of section 54EC is adopted, assessee would unjustly be denied the relief. As per the assessee, this would be against the purpose and spirit of the section and in this regard he has referred to CBDT Circular No 359 dated 10.5.1983 which is issued with respect to the scheme of exemption under section 54E of the Act. Section 54E of the Act provides for exemption of long term capital gains if the net consideration was invested by the assessee in specified Bonds within a period of 6 months after the date of such transfer. On being approached with the situation where part of the consideration was invested prior to the date of transfer, the CBDT Circular explained that having regard to the purpose and spirit of the section even if the assessee invests part of the consideration in the specified Bonds before the date of transfer, the amount so invested would qualify for deduction under section 54E of the Act. In this manner, it is sought to be pointed out that in the present case also the purpose and spirit of section 54EC has been complied with by the assessee inasmuch as the assessee has invested the consideration in the specified assets as and when it was received and in so far as the period of 6 months from the date of transfer is concerned, the same is not relevant because as on the date of transfer the entire consideration had not been received. Further reliance has also been placed on the CBDT Circular No 791 dated 2.6.2000 wherein also the purpose and spirit of the sections 54EA, 54EB and 54EC prevailed on the CBDT to clarify that relief’s under the said sections are available even in cases where technically the assessee had not invested in specified Bonds within a period of 6 months. In this view of the matter, the learned Counsel has submitted that the assessee be granted relief under section 54EC with respect to the investments of Rs 12,50,000/- and Rs 37,50,000/- made in specified Bonds on 3.8.2007 and 27.10.2007 respectively.

15. On the other hand, the learned Departmental Representative, appearing for the Revenue, has pointed out that the aforesaid relief is not allowable, inasmuch as the phraseology of section 54EC makes it mandatory that investments have to be made in specified asset within a period of six months from the date of transfer and, in this case, such condition has not been fulfilled with regard to the amounts of Rs 12,50,000/- and Rs 37,50,000/- paid on 3.8.2007 and 27.10.2007 respectively.

16. We have carefully considered the rival submissions. In this case, the dispute before us is with respect to the claim of exemption of long term capital gain on sale of land with respect to investments of Rs 12,50,000/- and Rs 37,50,000/- made on 3.8.2007 and 27.10.2007 respectively. Section 54EC prescribes that the exemption shall be available if the investment in specified Bonds is made within a period of six months after the date of transfer of the capital asset which, in the present case, is 12.7.2005. The assessee has explained that he could not make the investments within six months from the date of transfer, i.e. 12.7.2005 because the aforestated consideration was received on subsequent dates, namely, 12.12.2007, 14.5.2007, 19.6.2007 and 3.7.2007. A technical interpretation of section 54EC in this regard would imply that the exemption from tax on capital gains is not available qua the impugned investment of Rs 50 lakhs. So, however, the plea set-up by the assessee is on  account of the purpose and spirit of the section and on account of the fact that the right to collect such sale consideration arose after the period of six months from the date of transfer. It is pleaded that the requirement of section 54EC stipulating investment in six months from the date of transfer has to be appropriately understood and applied so as to further the purpose and spirit of the section.

17. In a somewhat similar situation, the requirement of section 54EC to the effect that investment in specified assets is to be made within a period of six months from the date of transfer, was put to some clarification by the CBDT in Circular No 791 (supra). The question arose before the CBDT regarding exemption of a long term capital asset which had arisen on conversion of a capital asset into stock-in-trade. Such capital gain would arise in the year of conversion, so however, in terms of section 45(2) of the Act, its taxability is postponed to the year in which such stock-in-trade is actually sold or otherwise transferred by the assessee. The question arose as to whether the date of transfer as referred to in section 54E of the Act is the date of conversion of capital asset into stock-in-trade or the date on which the stock-in-trade is sold or otherwise transferred by the assessee. As per the phraseology of sections 54EA, 54EB and 54EC the date of transfer in such cases is the date on which the capital asset is converted by the assessee into stock-in-trade and not the date on which such stock-in-trade is sold or otherwise transferred by the assessee. Thus, as per the aforesaid understanding it may not be possible for an assessee to make the required investment under the aforesaid sections at the point of conversion of capital into stock-in-trade because right to collect sale consideration in such cases arises only at the point of sale or transfer otherwise of stock-in-trade. The CBDT in consultation with the Ministry of Law decided that the period of six months for making investment in specified assets for the purpose of sections 54EA, 54EB and 54EC of the Act should be taken from the date such stock-in-trade is sold or otherwise transferred in terms of section 45(2) of the Act, though the taxability of capital gain was on the basis of ‘transfer’ as understood in section 45(2) of the Act. Therefore, having regard to the impossibility of performance to invest the amount in specified assets within six months from the date of transfer (i.e. the date of conversion of capital asset into stock-in-trade) the CBDT appreciated and has clarified that the period of six months for making investment in specified assets has to be reckoned from the date of the sale of such stock-in-trade when the right to collect sale consideration in such cases arose, which was much after the date of transfer as contemplated for the purpose of taxation.

18. In our considered opinion, the interpretation placed by the CBDT in consultation with the Ministry of Law to the condition of making investment within six months from the date of transfer in section 54EC would support the claim of the assessee in this case also for exemption from capital gain with respect to the impugned sum of Rs 50 lakhs invested in specified assets on 3.8.2007 and 27.10.2007. In the present case, admittedly the impugned amount of sale proceeds have been received by the assessee much after the date of transfer i.e. 12.7.2005, so however, it is also emerging from the record that the investments of Rs 12,50,000/- and Rs 37,50,000/- made on 3.8.2007 and 27.10.2007 respectively have been made within six months of receipt of such consideration. Therefore, having regard to the interpretation placed by the CBDT to understand the requirement of making investment within six months from the date of transfer in section 54EC of the Act we are inclined to uphold the plea of the assessee for exemption from tax on capital gains qua impugned amount of Rs 50 lakhs . Therefore on this aspect, assessee has to succeed. Thus, this Ground of appeal is allowed.

19. In the result, the appeal of the assessee (ITA No 594/PN/10) is partly allowed.

20 Similarly other three appeals of the co-owners, namely, ITA Nos 595/PN/1 0, 596/PN/1 0 & 597/PN/1 0 pertaining to the assessment year 2006- 07 which are on identical disputes are also disposed off in the aforesaid light and treated as partly allowed.

21. The Revenue vide ITA No 727/PN/1 0 in the case of Mahesh N Ganeshwade and ITA No 728/PN/10 in the case of Dinesh N Ganeshwade has raised a Ground that the Commissioner of Income-tax (Appeals) was not justified in directing the Assessing Officer to allow the claim of the assessee under section 54B of the Act.

22. The relevant facts are that the assessee, Mahesh N Ganeshwade, had claimed exemption of Rs 10,50,000/- under section 54B of the Act in respect of purchase of agriculture land. According to the Assessing Officer, keeping in view the nature of construction business and formation of joint venture for the said purpose, it could not be accepted that the land was purchased by the assessee for being used for agriculture purposes. According to him, since the assessee was venturing into real estate business, the land could not have been purchased for agriculture purposes and, therefore, he denied the claim made by the assessee under section 54B of the Act. 23. In appeal before the Commissioner of Income-tax (Appeals), assessee made detailed written submissions assailing the order of the Assessing Officer. The Commissioner of Income-tax (Appeals) held that the Assessing Officer’s inference was without any basis. According to him, the assessee had a background of having been involved in agricultural activities and merely because by way of the stated joint venture development agreement assessee and the three co-owners of the family entered into a real estate business did not de bar them to purchase land for being used for agriculture purposes. He accordingly directed the Assessing Officer to allow the claim of the assessee under section 54B of the Act subject to fulfillment of other conditions prescribed under the section. The findings of the Commissioner of Income-tax (Appeals), in this regard, are as follows:

“6.1. I have considered the submission of the appellant and material available on record. After careful perusal of the same, I am of the considered view that the AO’s inference is without any basis. The appellant has got a background of having been involved in agricultural activities. Merely because by way of this joint venture development agreement, the appellant and the three co-owners of the family have entered into a real estate business does not debar them to purchase land for bring used for agriculture purposes. The AO cannot predict that the land will not be used fo agriculture purposes and in itself this is not provided in the scheme of the Act. The AO has not brought any material on record which could have shown that after purchase the land was not being used for agriculture purposes. Therefore, the AO’s conclusion cannot be sustained in law. The AO is directed to allow the claim u/s 54B, in case the other conditions given in this section are satisfied. This ground of appeal is, therefore, treated to be allowed.”

Against this finding of the Commissioner of Income-tax (Appeals), Revenue is in appeal before us.

24. Before us, the learned Departmental Representative has submitted that the Assessing Officer observed that the assessee had ventured into a real estate business and, therefore, there was no possibility of the assessee undertaking agriculture on the new land purchased and thus, the claim under section 54B of the Act has been rightly denied.

25. On the other hand, the learned Counsel for the respondent-assessee has defended the action of the Commissioner of Income-tax (Appeals) by pointing out that there is no presumption that a person undertaking real estate business would not put its other lands for agricultural purposes and, in this case the claim has been denied on mere presumptions.

26. Having considered the rival submissions, in our view, the Commissioner of Income-tax (Appeals) made no mistake in allowing the claim under section 54B of the Act. The reasoning adopted by the Assessing Officer is misplaced and it is based on mere surmises. In this case the assessee purchased land for use for agricultural purposes and claimed exemption in terms of section 54B of the Act. The claim has been denied merely on the ground that the assessee would not put such land for agricultural purposes and such presumption has been made by the Assessing Officer for the reason that the assessee has otherwise entered into a real estate business. In fact, we find that there is no assertion by the Assessing Officer that the new land purchased for agricultural purposes is being actually put to use for any other purpose. It is only an apprehension on the part of the Assessing Officer that the assessee may not use it for agricultural purposes. In our considered opinion, the Commissioner of Income-tax (Appeals) has correctly disagreed with the Assessing Officer and held that in the absence of any material brought on record by the Assessing Officer to support his theory, the claim of deduction under section 54B of the Act is allowable. As a result thereof, we affirm the order of the Commissioner of Income-tax (Appeals) as above and the Revenue has to fail.

27. In the result, the appeals of the Revenue, (ITA Nos 727/PN/10 and 728/PN/1 0) are dismissed.

Decision pronounced in the open Court on 29th day of March, 2012.

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Posted Under

Category : Income Tax (25162)
Type : Featured (4133) Judiciary (9984)
Tags : ITAT Judgments (4454) section 54EC (77)

0 responses to “Section 54EC – Reckoning of Period From Date of Sale or Receipt of Payment?”

  1. vijay says:

    Silver Lining u/s 54 EC……
    Please do note that the Exemption u/s 54EC can be extended to 100 Lakhs. Because as per language of law it requires to make an investment within the period of 6 months form the transfer and the said investment can not exceeds the 50 Lakh during on Financial year.

    From the above one can take advantage exemption benefit of 100 Lakh by selling assets after the October month and make suitable investment in two diff. F.Y. i.e.50 – 50 lakh and take double advantage legitimately.
    -Vijay Sawant

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