By TIOL News Service

MUMBAI, SEPT 17, 2015: THE issue before the bench is - Whether the fact that the availability of the REC bonds was only for a limited period of time can prejudice the assessee's right to exercise the same up to last date, in case the bonds were admittedly not available during the said period. NO is the answer.

Facts of the case

The mother of assessee viz. Mrs. Kamlabai Moghe executed a Will on 17.12.1978 and she expired on 18.05.1988. By that Will she divided her residential bungalow in two parts. Ground floor, garage, garden and out house of her residential bungalow were given to her son – assessee while first floor with staircase of the residential bungalow was given to her other son Shri P.M. Moghe. Shri P.M. Moghe expired on 20.03.1996. He made a Will and bequeathed his share i.e. first floor premises mentioned supra excluding undivided share of land in the name of his sisters viz. Mrs. Wadekar, Mrs. Sinha and Mrs. Kale. The assessee then purchased construction of first floor for Rs.90,000/-. This sale price did not include value of undivided share of land on which bungalow was built. As per Clause No. 7 of said Will of Kamlabai Moghe, assessee did not receive property absolutely. Kamlabai Moghe had provided a share for her daughters i.e. sisters of assessee if assessee or his brother does not have a son alive at the relevant time. This clause was not in dispute. In that event she gave life interest to her two daughter in laws and it was thereafter to go to her daughters. Assessee had only one daughter while his brother P.M. Moghe had one son and three daughters. The said son of P.M. Moghe expired in the year 1985 i.e. before death of Kamlabai Moghe. The assessee, therefore, received property with clause providing overriding title in favour of his three sisters. In this situation, assessee decided to pay Rs.15 lakh each to his three sisters so that in future they should not claim any right in the property. He also paid an amount of Rs. Five lakh each to his three niece i.e. daughters of late brother P.M. Moghe. Thus, he paid an amount of Rs.60 lakh and a family settlement was accordingly reduced into writing. The assessee, after sale of said property claimed an amount of Rs.60 lakh u/s 49 and deducted it while working out Capital Gains. The assessee also invested an amount of Rs. 22 lakh in REC Bonds and sought its deduction u/s 54-EC. AO had not accepted these claims and the assessee, therefore, approached CIT in appeal. CIT partly allowed his appeal and claim towards amount of Rs. Five lakh each i.e. total Rs.15 lakh paid to three nieces was not accepted. Similarly, addition of Rs. 20 lakh made u/s 49 by AO was was sustained. However, the claim of the assessee for deducting amount of Rs.15 lakh each paid to three sisters u/s 48(i) and an amount of Rs.22 lakh towards REC Bonds in terms of Section 54EC was accepted. On further appeal, Tribunal dismissed both the appeals.

Held that,

++ the assessee has transferred the premises on 07.07.2006 and, therefore, was duty bound to invest within six months i.e. by 06.01.2007. Thus, statutorily, he had time of six months to make investment and the fact that he did not make this investment at any time during this period when bonds were available is, therefore, not relevant. The law gives assessee right to choose. Here, the assessee wanted to invest in REC Bonds and has in fact invested in those bonds on 24/27.01.2007. His specific stand that bonds were not available during this period, is not found to be incorrect or false by any of the authorities. A show cause notice dated 03.12.2009 was issued to the assessee in connection with this investment and to it assessee replied on 15.12.2009 stating that the issue No. VI of said Bonds was on top from 01.07.2006 to 02.08.2006. Issue No. VIA opened on 22.01.2007 and the assessee who was waiting for making investment in REC Bonds only, invested Rs.22 lakh on opening date i.e. on 22.01.2007. It is claimed that the assessee was thus prevented by reasonable cause from making investment within six months. Though the issue has been looked into by AO, he has not found the statement that the issue No. VIA opened on 22.01.2007 incorrect. The Division Bench of HC at Bombay, while deciding Incometax Appeal No. 3731 of 2010 has considered almost identical facts. Those facts are given in paragraph 9 of said judgment. The period of six months in said matter expired on 21.09.2006. Bonds were purchased by the assessee on 31.01.2007. As this investment was beyond the period of six months, the Assessing Officer disallowed it on 26.09.2008. CIT(A) by the order dated 05.02.2009 maintained this order. The ITAT on 19.06.2010 allowed the assessee's appeal. This order of ITAT was questioned before the High Court. In paragraph 17, this Court has observed "Thus, the availability of the bonds only for a limited period during this period cannot prejudice the assessee's right to exercise the same up to last date. The bonds were admittedly not available during the said period." More reasons are given in paragraph 21 by the Division Bench;

++ assessee's counsel has however argued that the Bonds issued by the National Highway Authority of India were available and hence the assessee ought to have invested in those bonds within the stipulated period of six months. We find this contention difficult to accept. Section 54-EC gives assessee an option to invest either in bonds of National Highway Authority of India or then in bonds of Rural Electrification Corporation Limited. The said provision does not stipulate that the investment has to be in any bond whichever is available. Both bonds carry different benefits and hence deliberately the Parliament has given option to the assessee to invest in any one out of two as per his choice. In a given case, the assessee may choose to invest in both. However, discretion is conferred upon the assessee, who is the best judge of his own needs and interests. He cannot be forced to invest in the bond whichever is available because period of six months is about to expire. This option or discretion given by the Parliament to the assessee needs to be honoured here. If said option was available when period of six months was to expire and could have been expressed by the assessee when said period was about to expire, the situation would have been otherwise. In present matter, the REC Bonds became available in VIA issue on 22.01.2007 and, therefore, investment made therein cannot be said to be after an undue or unreasonable delay. The investment has been made at the earliest possible opportunity. We, therefore, do not find that Question No. 2 sought to be raised also arises in the present mater as a substantial question of law. In the light of this discussion, we find no merit in this appeal. It is accordingly dismissed.

(See 2015-TIOL-2154-HC-MUM-IT)