Investment u/s 54EC

[MANISH KHANNA]

Suppose capital gains of Rs 1.50 crores  arises on 01 Jan 2012. If  an individual invests Rs 50 lacs by 31Mrach 2012 and 50 lacs on 2 April 2102, will the entire 1.00 crores be eligible u/s54 EC 

[Mritunjay Kumar]

Yes, the assessee is very much eligible for deduction of entire amount of Rs.1.00 crore.

Section 54EC reads as:

"54EC. (1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset..............................

[Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees.]

Further, you may refer to the case Aspi Ginwala Versus Assistant Commissioner of Income-tax, Circle-5, Baroda reported in [2012 (4) TMI 195 - ITAT AHMEDABAD]

[Mritunjay Kumar]

As both the requirements of section 54EC are satisfied. Therefore, deduction of full amount of 1.00 crore allowed.

[MANISH KHANNA]

Will the ITAT judgment stand the test of equality as enshrined in the Constitution because it creates anomalous situation in so far as the benefit of higher deduction is not  available to a tax payer  who sells the property let us say on the 1st of May of a financial year. How far will the rule of literal construction be of assistance has to be seen.

 

AI Summary

Investment limit under section 54EC: reinvestment within six months may secure capital gains deduction despite per year cap.
Deduction is allowable for long term capital gains reinvested in a qualifying long term specified asset within six months of transfer; a per financial year ceiling applies to investments made on or after 1 April 2007, but where reinvestments across dates within the six month window satisfy the statutory conditions the tribunal allowed the aggregate amount as deductible, with a noted equality concern arising from the ceiling's differing effect depending on the transfer date within a financial year.