By TIOL News Service

CHENNAI, NOV 05, 2014: THE issues before the Bench are - Whether under the existing Section 54EC(1) and the first proviso, investment made within the time limit of six months from the date of transfer should be computed financial year wise and not transaction wise; Whether even if such investment falls under two financial years, the benefit claimed by the assessee cannot be denied, although it crosses the limit of Rs 50 lakhs and Whether by virtue of Finance Act, 2014 w.e.f April 1, 2015 all investments u/s 54EC shall be limited to a total of Rs 50 lakhs including the financial year in which the original asset or assets are transferred and for all subsequent financial years. And the verdict goes in favour of the assessee.

Facts of the case

The assessee sold a property at Palavakkam for a sale consideration of Rs.3,46,50,000/- vide agreement of sale entered into with the Ceebros Property Developments. The assesssee invested Rs.1,00,00,000/- out of the sale proceeds in certain bonds in two financial years, namely, Rs.50,00,000/- in Rural Electrification Corporation Bonds and Rs.50,00,000/- in National Highways HAI Bond. The AO held that the assessee can take the benefit of investment in specified bonds to a maximum of Rs.50,00,000/- only under Section 54EC(1) of the Act and accordingly, held that the other sum Rs.50,00,000/- invested over and above the ceiling prescribed does not qualify for exemption in terms of the Act. On appeal, the CIT(A) confirmed the assessment order. On further appeal, the Tribunal held that the assessee had invested the sales consideration within the time limit of 6 months as given in section 54EC(1) for availing the exemption and further the exemption granted under provisio to Section 54EC(1) should be construed not transaction-wise, but financial year-wise. It further held that if an assessee is able to invest a sum of Rs.50,00,000/- each in two different financial years, within a period of six months from the date of transfer of the capital asset, it cannot be said to be inadmissible. It was held that since assessee here had placed Rs.50 lakhs in two different financial years but within six months period from the date of transfer of capital asset, assessee was definitely eligible to claim exemption upto Rs.1 Crore. Subsequently, another co-ordinate bench of the Tribunal, by placing reliance on the above said order dated 31.1.2013, allowed the appeal filed by the assessee in I.T.A.No.456/Mds/2013, by order dated 1.11.2013. Hence, this appeal by the assessee.

Having heard the parties, the High Court held that,

++ the key issue that arises for consideration is whether the first proviso to Section 54EC(1) of the Act would restrict the benefit of investment of capital gains in bonds to that financial year during which the property was sold or it applies to any financial year during the six months period. On a plain reading of the above said provision, we are of the view that Section 54EC(1) of the Act restricts the time limit for the period of investment after the property has been sold to six months. There is no cap on the investment to be made in bonds. The first proviso to Section 54EC(1) of the Act specifies the quantum of investment and it states that the investment so made on or after 1.4.2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees. In other words, as per the mandate of Section 54EC(1) of the Act, the time limit for investment is six months and the benefit that flows from the first proviso is that if the assessee makes the investment of Rs.50,00,000/- in any financial year, it would have the benefit of Section 54EC(1) of the Act. The legislature noticing the ambiguity in the above said provision, by Finance (No.2) Act, 2014, with effect from 1.4.2015, inserted after the existing proviso to sub-section (1) of Section 54EC of the Act, a second proviso, which reads as under:

"Provided further that the investment made by an assessee in the long-term specified asset, from capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees."

++ the legislature has chosen to remove the ambiguity in the proviso to Section 54EC(1) of the Act by inserting a second proviso with effect from 1.4.2015. The memorandum explaining the provisions in the Finance (No.2) Bill, 2014 also states that the same will be applicable from 1.4.2015 in relation to assessment year 2015-16 and the subsequent years. The intention of the legislature probably appears to be that this amendment should be for the assessment year 2015-2016 to avoid unwanted litigations of the previous years. Even otherwise, we do not wish to read anything more into the first proviso to Section 54EC(1) of the Act, as it stood in relation to the assessees. In any event, from a reading of Section 54EC(1) and the first proviso, it is clear that the time limit for investment is six months from the date of transfer and even if such investment falls under two financial years, the benefit claimed by the assessee cannot be denied. It would have made a difference, if the restriction on the investment in bonds to Rs.50,00,000/- is incorporated in Section 54EC(1) of the Act itself. However, the ambiguity has been removed by the legislature with effect from 1.4.2015 in relation to the assessment year 2015-16 and the subsequent years;

++ for the foregoing reasons, we find no infirmity in the orders passed by the Tribunal warranting interference by this Court. The substantial questions of law are answered against the Revenue and these appeals are dismissed.

(See 2014-TIOL-1904-HC-MAD-IT)