2012 (6) TMI 711 - AT - Income Tax

Tribunal Upholds Disallowance of Section 54EC Exemption for Pre-Sale Investments

The Tribunal upheld the disallowance of exemption claimed under Section 54EC for investing in REC Bonds, as the investment was made before the property ... Disallowance of exemption claimed u/s 545EC on investment made in REC Bonds - investment was made 8.5 months prior to date of transfer of the property subjected to capital gains - Held that:- Section 54EC clearly states that the investment in specified bonds is to be made 'within a period 6 months after the date of such transfer'. Had the legislature wanted to give liberty to the assessee to invest before or after the date of transfer, they would have explicitly said so, as has been provided in section 54 & 54F. Section 54EC clearly states that the investment in specified bond is to be made 'within a period of six months after the date of such transfer ……..' whereas in Section 54 and 54F which are adjacent to the Section 54EC, no such provision has been made - Since such specific words are not used in section 54EC, the intention of the legislature is clear and cannot be substituted with our own , the deduction u/s. 54EC for Rs. 50,000/- denied by the AO is correct and is upheld - against assessee. Issues:1. Disallowance of exemption claimed under Section 54EC for investment in REC Bonds.2. Interpretation of provisions of Section 54EC regarding the timeline for investment.Analysis:1. The appeal concerns the disallowance of exemption claimed under Section 54EC for investing in REC Bonds. The Assessing Officer disallowed the claim as the investment was made 2 and 1/2 months before the date of property sale, contrary to the requirement of investing within six months post-transfer. The CIT(A)-II, Baroda upheld the AO's decision, citing Section 54EC's clear language requiring post-transfer investment for exemption eligibility.2. The appellant argued that Sections 54 and 54EC share similar objectives, and exemptions under Section 54 allow pre-sale investments, implying a similar interpretation for Section 54EC. However, the Tribunal noted the distinct language of Section 54EC mandating post-transfer investments within six months. The appellant's reliance on various case laws related to Section 54 was deemed irrelevant as Section 54EC's specific wording governs the investment timeline.3. The Tribunal emphasized that Section 54EC's unambiguous language dictates the investment timeline post-transfer, contrasting with Sections 54 and 54F. The legislative intent is clear in not allowing exemptions for investments made before the transfer of long-term assets. No direct case law supporting pre-transfer investments for Section 54EC exemptions was presented, leading to the dismissal of the appeal.4. The revenue's opposition to the appellant's arguments was upheld, affirming the lower authorities' decisions. The Tribunal concluded that the CIT(A) correctly confirmed the disallowance of the exemption claim, as the legislative intent behind Section 54EC necessitates post-transfer investments for eligibility, distinguishing it from Sections 54 and 54F.5. Ultimately, the Tribunal found no grounds to interfere with the CIT(A)'s decision, leading to the dismissal of the appellant's appeal. The judgment underscores the importance of adhering to the specific provisions of Section 54EC regarding the timeline for investment to claim exemptions accurately.