Section 54EC – 50 Lakhs spread over two F.Y and date of payment to be considered not the date of allotment.

On 14th December Bangalore ITAT held u/s 54EC – 50 Lakhs can be spread over two F.Y and date of payment to be considered not the date of allotment.

 

14thy December 2012

 

The assessee, in the relevant period sold property on 14.12.2007 invested a sum of Rs.50 lakhs on 3.3.2008 in bonds issued by Rural Electrification Corporation (REC Ltd) and a further sum of Rs.50 lakhs by cheque dt.4.6.2008, which got encashed on 9.6.2008, in bonds of National Highways Authority of India (NHAI).    Thus in all he has invested an amount of Rs.l Crore out of sale consideration in bonds issued by REC Ltd and NHAI. The AO relying upon the proviso to section 54EC restricted the claim of exemption  to  Rs.50   lakhs  holding  the  same  to  be  the  maximum  amount  of  exemption permissible under section 54EC of the Act.

 

On appeal CIT(A) while disposing off the appeal appeared to agreed in principle with the assessee that as per the proviso to section 54EC of the Act the limit of Rs.50 lakhs pertains to the investment that can be made in a single financial year and that the section does not prevent an assessee from availing exemption of Rs.l Crore in the event the assessee were to invest a sum of Rs.50 lakhs in a particular financial year and a further sum of Rs.50 lakhs in the immediately succeeding financial year, subject to the basic condition of section 54EC of the Act that both investments are made within a period of six months from the date of sale of the property. The learned CIT(A) however restricted the claim of deduction to Rs.50 lakhs by holding that the second investment of Rs.50 lakhs in NHAI Bonds falls outside the period of six months from the date of sale i.e. 14.12.2007, since the Bonds were allotted by NHAI only on 30.6.2008. The learned CIT(Appeals) in his order goes on to observe that inspite of the fact that the assessee had tendered the payment and the NHAI has also encashed the same before the expiry of six months from the date of sale, the assessee is not entitled to exemption under section 54EC due to the fact that NHAI have allotted the Bonds on 30.6.2008 which is after the period of six months from the date of sale of the said property on 14.12.2007.

 

Whether the proviso to section 54EC of the Act restricts the exemption to Rs.50 lakhs or does it merely restrict the investment that can be made in a single financial year to Rs.50 lakhs ? and also whether the date of allotment of Bonds is what is to be considered for reckoning the six months period ?

 

ITAT following the case reported in (2012) 6 TaxCorp (A.T.) 28058 (AHMEDABAD) and Circular no.3/2008 held that If the Legislature wanted to restrict the exemption itself to Rs.50 lakhs it could have simply dispensed with using the words "in a financial year." and hold that the assessee is entitled to total deduction under section 54EC of the Act spread over a period of two financial years @ Rs.50 lakhs each on investments made in specified instruments within a period of six months from the date of sale of the property.

ITAT bench on "date of allotment of Bonds"  hold that "what is to be reckoned here is the date of payment and not the date of allotment as the same is not in the control of the assessee".

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