Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether Benefit Of Section 54EC Is Available Financial Year Wise?

QUERY: I sold my residential house property for Rs. 1.2 crores in December, 2013 which I wanted to re-invest in NHAI bonds. I understand that the investment in NHAI bonds needs to be made within 6 months from the date of sale and the restriction for such investment is Rs. 50/- lakhs per financial year. Accordingly, I made a plan of invest Rs. 50/- lakhs in January, 2014 once and again in May, 2014 Rs. 50 lakhs whether I would get a exemption of Rs. 1/- crore from long term capital gain tax. However, my advisor informed me that there are some litigations involved in this point. Can you please clarify what exactly is the litigation involved and how it can be mitigated?If that is so why is this restriction of Rs. 50/- lakhs per financial year has been prescribed in the Act?
ANSWER: Yes, In ITO v. Ms. Rania Faleiro [142 ITD 769] the Panji Tribunal has held as un-der:

“The plain reading of section 54EC(1) as well as the proviso thereto clearly sug-gests that the limit of Rs. 50 lakhs as given under the proviso is as per person per financial year. There is no ambiguity in the interpretation, Had there been an intention of the legislature to restrict the exemption of Rs. 50 lakhs, the legislature would have provided the embargo in this regard. Restriction relates only to the investment made in any financial year by the assessee. Making of the investment is a condition for availing of the exemption, condition for availing of the exemption requires that the investment can be made within a period of 6 months. If 6 months fall within two different financial years, as has happened in the instant case, the Tribunal cannot add the embargo that the assessee cannot make the investment to avail of the exemption under section 54EC in the different financial years if he had already made the investment in the financial year in which the capital asset is transferred. The language of section 54EC is clear and unambiguous and it leads to the interpretation that the assessee can make the investment in two different financial years provided in a financial year the investment made did not exceed Rs. 50 lakhs.

From the Circular No. 3/2008, dated 12-3-2008 issued by the CBDT being an ex-planatory note on the provisions relating to direct taxes in the Finance Act, 2007, it is apparent that the Government only intended to restrict the investment in a particular financial year and accordingly has fixed the limit of Rs. 50 lakhs as permissible limit in a particular financial year. The Government did not intend to restrict the maximum amount of exemption permissible under section 54EC. Legislature has consciously used the words ‘in a financial year’ in the proviso to section 54EC. If the legislature wanted to restrict the exemption itself to Rs. 50 lakhs, it could have simply dispensed with using the words ‘in the financial year’.

Similar view has also been expressed by the Chennai Tribunal in Smt. Sriram Indubal v. ITO [32 Taxmann.com 118] and Coromandel Industries (P) Ltd. vs. ACIT [145 IDS 171]

However, the Jaipur Bench of Tribunal in CIT v. Raj Kumar Jain & Sons (HUF) [50 SOT 213] has taken a contrary view.

The Supreme Court in CIT v. Vegetable Products Ltd. [88 ITR 192] has taken a view that if there are two views possible, the view favourable to the assessee be taken.

Now as per second provisio to section 54EC(1), which is effective from assess-ment year 2015-16, there is a restriction of Rs. 50 lakhs, irrespective of the financial year.

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