Exemption Under Section 54EC of Income Tax Act, 1961- Amendment, Articles, News Notifications, Judgments and Detailed Analysis at one place
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Assessee contended that it is entitled to the benefit of exemption under section 54EC of the Act even while computing book profit chargeable to tax under section 115JB of the Act. The Bench, while passing the order, followed the decision of the Hon’ble Kerala High Court to hold that the assessee is not entitled to deduction under section 54EC of the Act while computing the book profit under section 115JB of the Act.
As per the definition of ‘person’ u/s 2(31), a minor is an assessable entity even though his income is clubbed u/s 64(1A) of the Act in the hands of his parents. A minor is a person distinct from his parents and is also an individual. There is no bar in separately allotting bonds upto Rs. 50,00,000 to each such person. There is no mentioned limit on the deduction allowable to an assessee under section 54EC.(The limit of Rs.50 lakhs is ceiling on investment that may be made by an assessee and not a ceiling on deduction that may be allowed to an assessee). Thus, AO was not right in disallowing deductions in respect of bonds invested by minor children of the assessee by applying the Rs.50 lakhs limit.
TAX BENEFITS UNDER SECTION 54 EC OF THE INCOME TAX ACT 1961 Section 54 EC relating to exemption on long term capital gains if invested in Bonds was inserted by the Finance Act 2000 effective for the assessment year 2001-2002 and subsequent years from 1st April, 2001. The section as effective for the assessment year 2008-09 and subsequent years from 1st April, 2007 reads as follows:
The existing restriction in exemption u/s. 54EC is clearly an attempt to prevent home owners from fully enjoying the benefits. The treatment of long-term capital gains (LTCG) has been a contentious issue in recent years. Section 54EC of the Income-tax Act, 1961, exempts from taxation capital gains arising from transfer of a long term capital asset, provided the assessee invests the whole or part of the capital gains in long term specified assets for three years.
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.
