Sec 54EC benefits cannot be denied for not making investment within stipulated period when assessee did not get full payment at time of contract for sale: HC

THE issue is - Whether Sec 54EC benefits can be denied for not making investment within stipulated period when assessee did not get full payment at time of contract for sale. YES is the verdict.

Facts of the case

The assessee, an individual, filed returns for the relevant AY, declaring income on account of Long Term Capital Gain (LTCG) from sale of immovable property. The assessee also declared income from business and profession, being a medical practitioner and from other sources. The assessee then claimed exemption u/s 54EC while computing the LTCG, on account of investment in National Highway Authority of India (NHAI) Bonds. The assessee also claimed deduction u/s 54 of the Act on account of investment in new residential property. Such deduction amount also included an amount spent by the assessee on reconstruction of a building, which was to be retained by the assessee. On assessment, the AO held that the investment in bonds was not made within the period specified u/s 54E and so denied the exemption claim. The AO observed that the investment had not been made within 6 months from the date of transfer of assets. Subsequently, the Tribunal held that on the date of execution of the development agreement, the full consideration had not been paid. Thereby, the Tribunal adopted a different date as being the date of transfer of assets, based on which it reasoned that the assessee had made the investment within the specified time period for claiming exemption u/s 54E. Hence the Revenue's appeal.

On hearing the matter, the High Court held that,

++ what binds this Court is that the judgment of the Division Bench in Chaturbhuj Dwarkadas Kapadia v/s. Commissioner of Income Tax, wherein it was held that the date of contract is relevant provided the terms of the contract indicate passing off or transferring of complete control over the property in favour of the developer. The Division Bench laid down the test for determining the date which should be taken into account for determining the relevant AY in which the liability accrues. In the present case, the Appellate Tribunal has taken into consideration various clauses in the development agreement. Subclause (d) of clause (3) of the agreement provides that after full payment of consideration, the construction shall be undertaken by the developer. Admittedly, on the date of execution of the development agreement, the entire consideration was not received by the assessee. The physical possession of the property subject matter of development agreement was parted with by the assessee on 1st March, 2008. It was held that on that day, complete control over the property was passed on to the developer. After having perused the various clauses in the agreement and the aforesaid factual aspects, the Tribunal has taken 1st March, 2008 as the date of transfer. This finding is fully consistent with the law laid down by the Division Bench in the case of Chaturbhuj Dwarkadas Kapadia. Therefore, no fault can be found with the judgment of the Tribunal when it was held that the investment made in the sum of Rs. 50,00,000/- by the assessee on 22nd August. 2008 was within the period specified u/s 54EC of the said Act.