Exemption Under Section 54EC of Income Tax Act, 1961- Amendment, Articles, News Notifications, Judgments and Detailed Analysis at one place
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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. 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.
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.
The assessee has deposited the sale consideration within one month of receipt with NABARD for availing exemption u/s. 54EC of the Act. In such circumstances whether the assessee is eligible for claim of exemption or not ? In our view, in this type of case, the period of six months for making deposit u/s. 54EC of the Act should be reckoned from the dates of actual receipt of the consideration,
assessee is eligible for the exemption under Section 54EC. I further find that the Mumbai bench, ITAT has held in the case of JCIT v. Smt. Armeda K. Bhaya (2005), 95 ITD 313 (copy filed) that for the purpose of Section 54 of the Act, it is sufficient compliance with the section that the assessee purchased the new flat in the names of himself, his father and mother and that it was not the requirement of the section that the new flat should be in the assessee’s exclusive name. It was held that the main condition of the section was that the sale consideration should be invested in the new house. I respectfully follow the ratio of the above decision. I accordingly confirm his order and dismiss the appeal filed by the revenue with no order as to costs.
Tribunal held that it was an impossible task for the assessee to comply with the time period laid down u/s 54EC. The delay in purchase due to non-availability of the bonds was held to be a reasonable cause, and the assessee was held to be entitled to exemption u/s 54EC. The Tribunal also noted that in the case of Ram Agarwal 81 ITD 163, on similar facts, it had been held by the Tribunal that the assessee was entitled to claim deduction u/s 54EC. The Tribunal allowed the appeal of the assessee.
Deemed fiction created in Ss.(1) and Ss.(2) of S. 50 is restricted only to the mode of computation of capital gains contained in S. 48 and S. 49 and does not apply to other provisions. A fiction created by the legislature has to be confined to the purpose for which it is created. Further, S. 54E does not make any distinction between depreciable assets and non-depreciable assets. Exemption available u/s.54E cannot be denied by referring to the fiction created u/s.50. Benefit of S. 54E is available to the assessee irrespective of the fact that the computation of capital gains is done either u/s.48 and u/s.49 or u/s.50. Legal fiction created by the statute is to deem the capital gain as short-term capital gain and not to deem the asset as short-term capital asset. Therefore, it cannot be said that S. 50 converts long-term capital asset into a short-term capital asset. Accordingly, the Tribunal was justified in allowing exemption u/s.54E in respect of the capital gains arising on the transfer of a capital asset on which depreciation had been allowed.
Section 54E, read with section 50, of the Income-tax Act, 1961 – Capital gains – Not to be charged in certain cases – Assessment year 1991-92 – Whether section 50 nowhere says that depreciable asset shall be treated as short-term capital asset and section 54E has an application where long-term capital asset is transferred – Held, yes – Whether capital gain may have been received by assessee on depreciable asset, and if conditions necessary under section 54E are complied with by assessee, he will be entitled to benefit under section 54E – Held, yes
Revenue contending that sale took place on 24.02.05 and thereby the investment made u/s. 54EC on 30.08.2005 is beyond the prescribed period of six month. Once the board of directors approve the transfer, then only the process of transfer of shares can be said to be completed in case of a private limited company. The Annual Return filed before the ROC disclosed that the date of registration of transfer was 28th February 2005, confirmed by purchaser. Board resolution approving transfer of shares was passed on 25th February 2005.
Investment within 6 months is the investment for that financial year in which transfer has taken place. Hence, subsequent investment is to be considered as part of the investment of financial year in which transfer has taken place. We therefore, hold that the ld. CIT(A) was not justified in allowing deduction to the assessee to the extent of Rs. 1.00 crore u/s 54EC of the Act. We therefore, uphold the order of the AO.
ACIT Vs. SKF Bearings India Ltd. (ITAT Mumbai) – Sections 54EC and 74 refer to capital gain arising from the transfer of a long term capital asset and not with respect to a short term capital asset. Further, section 112(1 )(b)(i) and (ii) specifically refers to only long term capital gains. Hence, where section 50 by a legal fiction, deems the income earned from a depreciable asset as short term capital gain, applying the tax rate specified for long term capital gains in section 112(1) would not arise. On a plain reading of section 50, the excess shall be deemed to be the capital gains arising from the transfer of a short term capital asset. The beneficial rate of tax @ 20% would not be applicable to capital gains arising on transfer of depreciable asset even though the asset was held for more than thirty-six months
