2015 (10) TMI 2705 - AT - Income Tax

Receipt of funds crucial for tax exemption under Section 54EC. Investment within 6 months required. Tribunal dismisses Revenue's appeal.

The tribunal emphasized that the exemption under Section 54EC of the Income Tax Act hinges on the actual receipt of funds by the assessee for investment ... Allowing exemption u/s 54EC - Capital gain not to be charged on investment in certain bonds - assessee did not made any investment within six months from the date of transfer and further did not fulfill the conditions prescribed in the agreement, therefore, exemption was wrongly allowed to the assessee - Held that:- The intent and purpose of section 54EC is the date, when the assessee actually collects/receives the sale consideration and thereafter makes investment within six months and that is the date of transfer, thus, the spirit of the legislation is very much clear. If the date of the agreement is taken and the assessee does not receive any consideration, then, where is the question of investment? The investment can only be made when any amount is actually received by the assessee. In fact, date of receipt by the assessee/investor and date of deposit for obtaining the prescribed bonds are important dates. Suppose, the required bonds are not available with a particular bank/institution and are issued at a later stage, the date of deposit of the amount in the bank or the institution, as the case may be, are the relevant dates for getting the benefit of exemption u/s 54EC. For the purpose of section 54EC, the date of investment is to be regarded as the dates of investment/ the payment received by the authorized bank, thus, we find no infirmity in the conclusion drawn by the Commissioner of Income Tax (Appeals) - Decided against revenue. Issues Involved:Allowing exemption u/s 54EC of the Income Tax Act, 1961.Analysis:The appellate tribunal, in this case, dealt with the issue of allowing exemption under section 54EC of the Income Tax Act, 1961. The Revenue challenged the order of the First Appellate Authority, contending that the assessee did not fulfill the conditions prescribed in the agreement for investment within six months from the date of transfer. The crux of the argument revolved around whether the benefit should be counted from the date of agreement or the date when the assessee actually received the amount. The tribunal analyzed Section 54EC, which specifies conditions for not charging capital gains on investment in certain bonds. It emphasized that the date of receipt or accruing of funds is crucial for making the investment, as clarified by the explanation in the Act. The tribunal highlighted the importance of the actual receipt of funds by the assessee for investment within the specified period, rather than from the date of the agreement. It referenced a relevant decision from the jurisdictional High Court to support the interpretation that the law does not compel an individual to perform the impossible act of investing funds not yet received. The tribunal concluded that the spirit of the legislation is clear - the investment must be made within six months of actual receipt of funds to avail of the exemption under Section 54EC. Therefore, the tribunal dismissed the Revenue's appeal, upholding the decision of the Commissioner of Income Tax (Appeals).In summary, the tribunal's detailed analysis focused on interpreting the provisions of Section 54EC of the Income Tax Act, emphasizing the significance of the actual receipt of funds by the assessee for investment within the stipulated period. The decision underscored the legislative intent behind the provision and clarified that the exemption is contingent on the timely investment of funds received by the assessee. The tribunal's ruling highlighted the practical application of the law and the necessity for aligning investment timelines with actual fund receipts to qualify for tax exemptions on capital gains.