2017 (9) TMI 1099 - AT - Income Tax

Interpretation of Section 54EC: Total investment within stipulated period qualifies for exemption

The appeal was filed against the order of the CIT(A)-12, Mumbai, concerning the interpretation of Section 54EC for AY 2011-12. The appellant contested the ... Exemption u/s. 54EC - investment in tax exemption bonds of ₹ 50 lakhs in one financial year and further ₹ 50 lakhs invested in next financial year, but within the stipulated period of six months from the date of sale of the asset - Held that:- A similar issue has been considered in CIT vs Coramandel Industries Ltd (2014 (12) TMI 852 - MADRAS HIGH COURT) wherein observed that it is clear from the First Proviso to section 54EC(1) that the time limit for investment is six months from the date of transfer and even if such investment falls under two financial years, the benefit claimed by the assessee cannot be denied. It would have made a difference if the restriction on the investment in bonds to ₹ 50 lakhs is incorporated in section 54EC(1) of the Act itself. The ambiguity has been removed by the legislature wef 01-04- 2015 in relation to AY 2015-16 and subsequent years. In yet another case, the Hon’ble Madras High Court has taken a similar view and observed that before amendment to provisions of section 54EC(1) by the Second Proviso wef AY 2015-16 and subsequent years, the law is clear in respect of investment in 54EC and hence even if the assessee invests more than the prescribed amount in one financial year or two financial year, if such investment is within a period of six months from the date of sale as provided in section 54EC(1), then, the assessee is eligible for exemption u/s 54EC. In this view of the matter the assessee is eligible for investment in tax exemption bond u/s 54EC for the entire amount if such investment is made within six months from the date of sale. Therefore, we direct the AO to allow exemption u/s 54EC to the total investment made by the assessee. - Decided in favour of assessee. Issues:1. Interpretation of Section 54EC regarding the limit of investment for tax exemption bonds.2. Determination of eligibility for exemption under Section 54EC based on investment amount.Issue 1: Interpretation of Section 54EC regarding the limit of investment for tax exemption bonds:The appeal was filed against the order of the CIT(A)-12, Mumbai, concerning the interpretation of Section 54EC for AY 2011-12. The appellant contested the CIT(A)'s decision to restrict the exemption under Section 54EC to Rs. 50 lakhs, arguing that the limit of investment should not be restricted to a particular transaction but should apply to a financial year. The appellant further claimed that all conditions under Section 54EC were met for an exemption of Rs. 1 crore. The dispute arose when the AO disallowed the exemption claimed under Section 54EC for investments in tax exemption bonds exceeding Rs. 50 lakhs. The appellant relied on the decision of ITAT, Mumbai, and the Madras High Court to support their argument that there is no restriction on the investment amount under Section 54EC.Issue 2: Determination of eligibility for exemption under Section 54EC based on investment amount:The arguments presented by both parties revolved around the interpretation of Section 54EC, specifically regarding the investment limit for tax exemption bonds. The Ld.AR for the assessee contended that there is no restriction on the investment amount under Section 54EC and that the appellant should be eligible for exemption for the entire investment made within six months from the date of sale. The Ld.DR, on the other hand, maintained that the investment limit is fixed at Rs. 50 lakhs under Section 54EC and that any investment exceeding this limit should not be considered for exemption. The Tribunal analyzed the provisions of Section 54EC and referred to previous judgments to determine the eligibility criteria for exemption. Relying on decisions by ITAT, Mumbai, and the Madras High Court, the Tribunal concluded that the appellant is entitled to exemption for the total investment made within the stipulated period. Consequently, the AO was directed to allow exemption under Section 54EC for the entire investment amount made by the assessee.This detailed analysis of the legal judgment highlights the issues surrounding the interpretation and application of Section 54EC in determining the eligibility for tax exemption based on the investment amount in tax exemption bonds.