TaxTMI 
TaxTMI 
2024 (11) TMI 896
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....o. (GF) House No. 2/13-A, Jangpura-A, Delhi-110014. He claims that he was advised to invest the sale proceeds in bonds ["PFC bonds"] issued by the Respondent - Power Finance Corporation in order to avail the benefit of capital gains tax exemption under Section 54EC of Income Tax Act, 1961 [Act]. He was led to believe that if he used the capital gains from the sale of his residential property to purchase another property, he would not qualify for the capital gains tax exemption under Section 54 (1) of the Income Tax Act. 2. Following this advice, the Petitioner invested an amount of INR 48 lakhs (capital gains) in PFC bonds, despite being aware that the interest rate on these bonds was lower than what he could have earned through standard i....
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....d to him, nor had he derived any kind of benefit from the investment thus far. He sought refund of the principal amount invested, at his own responsibility and risk, fully aware that he may not get the exemption from capital gains tax as anticipated. He further undertook not to claim any such exemption on account of the investments made in the PFC bonds. The Petitioner contended that no loss was being caused to the Respondent by cancellation of the bonds since the refund of the money was being done at initial stage. 6. On 16th July, 2024, the Respondent replied to the Petitioner's request, stating that there was no procedure in place to allow redemption of the investment before maturity of the bonds. The Respondent emphasized that, under t....
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....esponsibility/ consequence for the investor not getting capital gains exemption under the Income Tax Act despite investment in the PFC bonds, the Respondent corporation ought to have acceded to the Petitioner's request. 9. On the other hand, Mr. Apoorv Kurup, CGSC for the Respondent contends that the bonds in question are part of a new series of bonds launched by the Respondent on a private placement basis, known as "54EC Capital Gain Tax Exemption Bonds - Series VIII". The statute and the terms governing the bonds do not permit any premature cancellation of the bonds. The lock-in period of 5 years was expressly specified in the bond document issued to the Petitioner and therefore, the invested amount cannot be refunded to him prior to the....
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....t. 12. Thus, the subject bonds issued by the Respondent fall within the category of 'long-term specified assets', in terms of notification dated 8th June, 2017 issued by the Ministry of Finance, and as defined in Section 54EC of the Act to mean "any bond, redeemable after five years and issued on or after the 1st day of April, 2018". The long term specified assets/bonds can be redeemed only after 5 years from the date of the issuance due to the lock-in period under Section 54EC of the Act as amended by Section 21 of the Finance Act, 2018. Furthermore, this information with regard to the lock-in period is mentioned in Clause 13 of the information memorandum issued by the Respondent regarding the subject bonds. The said clause stipulates as ....
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....ability and to meet the object of the Issue. This lock-in period is not a mere formality but a substantive requirement, integral to the legislative intent behind Section 54EC. Moreover, the terms and conditions governing the bonds, stipulated by the Respondent clearly restrict any withdrawal, redemption, or transfer of these bonds before the completion of the mandated 5-year period. This restriction applies regardless of whether the Petitioner has claimed the capital gains exemption or not, and regardless of any willingness on the Petitioner's part to forgo interest, as these bonds are essentially bound by legislative and contractual rigidity. Permitting any deviation from the stipulated lock-in period would compromise the object and purpo....