2011 (11) TMI 381 - AT - Income Tax

Tribunal allows deduction for bond investment within six months of share transfer date

The Tribunal determined that the actual date of transfer of shares was 28th February 2005, based on the Board of Directors' approval and registration ... Capital gains – proportionate exemption denied u/s 54EC - investment beyond specified period - equity shares sold of two private limited companies on 28.02.05 – out of the entire sale consideration invested in specified bonds, 45 lacs invested on 30.08.2005 – Revenue contending that sale took place on 24.02.05 and thereby the investment made on 30.08.2005 is beyond the prescribed period of six month – Held that:- Once the board of directors approve the transfer, then only the process of transfer of shares can be said to be completed in case of a private limited company. The Annual Return filed before the ROC disclosed that the date of registration of transfer was 28th February 2005, confirmed by purchaser. Board resolution approving transfer of shares was passed on 25th February 2005. Just because stamping was done on 24th February 2005 of blank forms, it cannot be concluded that there is transfer on 24th February 2005. Thus, investment made on 30th August 2005, was within a period of six months as contemplated under the Act.Further, we are of the opinion that six months period should be reckoned from the end of the month in which the transfer takes place – Decided in favor of assessee. Issues Involved:1. Determination of the actual date of transfer of shares.2. Eligibility for deduction under section 54EC of the Income Tax Act, 1961.3. Interpretation of the term 'month' under section 54EC of the Act.Issue-wise Detailed Analysis:1. Determination of the actual date of transfer of shares:The primary contention revolves around the actual date of transfer of shares. The assessee argued that the shares were transferred on 28th February 2005, as reflected in the records submitted to the Registrar of Companies and confirmed by the purchaser. The Assessing Officer, however, considered the date of stamping of the share transfer form (24th February 2005) as the date of transfer. The Tribunal concluded that in the case of a private limited company, the transfer of shares is only complete once approved by the Board of Directors. The Board resolution was passed on 25th February 2005, and the date of registration of transfer was 28th February 2005. Therefore, the Tribunal held that the actual date of transfer was 28th February 2005.2. Eligibility for deduction under section 54EC of the Income Tax Act, 1961:The assessee invested the sale consideration from the transfer of shares in specified bonds to claim deduction under section 54EC. The Assessing Officer denied the deduction for Rs. 45,00,000 invested in REC bonds on 30th August 2005, contending it was beyond the six-month period from the date of transfer (24th February 2005). The Tribunal, after determining the actual date of transfer as 28th February 2005, concluded that the investment on 30th August 2005 was within the six-month period as required by section 54EC.3. Interpretation of the term 'month' under section 54EC of the Act:The Tribunal discussed the interpretation of the term 'month' as used in section 54EC. It referred to section 3(35) of the General Clauses Act, 1897, which defines 'month' as a month reckoned according to the British calendar. The Tribunal also cited case laws, including CIT v. Brijlal Lohia & Mahabir Prosad Khemka and CIT v. Kadri Mills (Coimbatore) Ltd., which supported the interpretation that 'month' should be considered as per the British calendar. Therefore, the six-month period should be reckoned from the end of the month in which the transfer took place. Consequently, the Tribunal held that the investment made on 30th August 2005 was within the prescribed six-month period from the date of transfer (28th February 2005).Conclusion:The Tribunal allowed the appeal of the assessee, concluding that the date of transfer of shares was 28th February 2005, and the investment made on 30th August 2005 was within the six-month period as per section 54EC of the Income Tax Act, 1961. The Tribunal's interpretation of the term 'month' under section 54EC, in line with the General Clauses Act, 1897, played a crucial role in this decision.