Income tax - Whether even if assessee invests in tax-free bonds in two parts of Rs 50 lakhs each in two consecutive financial years, Sec 54EC exemption is available - YES, rules ITAT

 THE issue before the Bench is - Whether even if assessee invests in tax-free bonds in two parts of Rs 50 lakhs each in two consecutive financial years, Sec 54EC exemption is available. And YES is the Tribunal's answer.

Facts of the case

Assessee sold a house property on 22/10/2007 and made investment of Rs 50 Lacs, on 31/12/2007 in REC Bonds and Rs. 50 Lacs on 26/5/2008 in NHAI Bonds and claimed exemption of Rs. 100 lacs u/s 54EC. The investment in REC Bonds was within time limit of 6 months prescribed in Section 54EC while investment in NHAI had been made only on 26/5/2008 as the subscription of neither of the scheme opened during 1/4/2008 to 26/5/2008 and assessee made very same day the subscription of first scheme got opened.

AO disallowed the exemption of Rs. 50.00 Lacs for investment made in NHAI Bonds on 26/31-5-2008, on the plea that the exemption for such investment was not available as the investment had been made is beyond 6 months' time limit

prescribed in Section 54EC.

Assessee contended that the investment there was no delay in making investment on his part. Since no eligible scheme notified in the said section was available for subscription between 1/4/2008 to 28/5/2008 he was prevented by sufficient cause in not complying with the time limit prescribed in section 54EC. It was a case of real hardship to the tax payer. One side the act provides for exemption if investment is made in the specified assets within a specified period, however on the other side the specified assets were not available for subscription within that specified period. C.B.D.T. in past in similar circumstances had taken a broad view and had directed that the period of investment needs to be extended as per press note F.NO.142/09/2006 dated 30 June, 2006 extending the time limit.

CIT (A) observed that as per the proviso to section 50EC the intention of the legislature was that benefit under section 54EC be restricted to Rs. 50 lacs for an assessee per (assessment) year. As provisions of the Act have to be interpreted literally there is no option before the department but to provide deduction of Rs. 1 crore to some of the assessees while those transferring capital assets before 30th September are deprived of this benefit. CIT (A) disallowed the claim of the assessee stating that it cannot be the intention of the legislature to favour the assessees transferring asset after the 30th September because it will not only be discriminatory, it will be illogical also. The appellant, by depositing Rs.50 lakh in the specified assets in the next financial year was trying to claim a deduction of Rs.1 crore, a benefit which was not intended by the legislature. Since, assessee had not been able to invest in the specified assets within six months as provided in section 54 EC, she was not entitled to any relaxation in the time period of six months because she had already deposited Rs.50 lakh in the specified assets.

After hearing both the parties, the ITAT held that,

++ for claiming exemption u/s 54EC, upto 50 lacs has to be invested in the purchase of specified bonds. The assessee approached the concerned authorities. However the bonds were not available. There was an impossible task for the assessee to comply with the conditions of the sec 54EC. The assessee ultimately purchased FDs of Rs.50 lacs with a view to buy specified bonds whenever they are available and letter was issued to the bank while purchasing FDs of Rs.50 lacs that the bonds were not available in the market and therefore, FD for an initial period of 90 days which might be extended further or might be redeemed prior to expiry date for investing the same in bonds qualified u/s 54EC of the act. Thus, there was reasonable cause in not purchasing these specified bonds within the specified time allowed as they were not available in the market, as soon as the bonds were available in the market, the assessee immediately purchased the same. Therefore, under these circumstances, the assessee is entitled for the exemption u/s 54EC.

++ 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. Since the language of the proviso is clear and unambiguous, the assessee is entitled to get exemption upto Rs.1 Crore in this case. Thus, the benefits which are available to the assessee cannot be denied. The assessee is entitled for exemption of Rs.1 crore as six months’ period for investment in eligible investments involved is two financial years.