Shangar, Vadodara V. The Dy.CIT, Circle-1(2) Now Circle-1(1)(1), Vadodara

ITA 561/AHD/2023

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 4603 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-12-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 13-07-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Capital Gains
• Section: 54EC; 43

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . N o . 5 6 1/ A h d /2 0 23 ( A s se ss m e nt Y e a r : 20 14- 1 5 ) Sh an g ar , 2 0, V is h w a s C o l on y, A p n a B a z a r A l ka pu r i, B a r o d a- 3 9 00 07 V s .D e put y C o m m i s s io ner o f I n c o m e Ta x , C ir c l e- 1( 2) , P r e se nt J u r i s d ic tio n C ir c l e- 1( 1) ( 1) , B a r od a [ P A N N o . AA EF S9 5 55 N ] (Appellant) .. (Respondent) Appellant by : Ms. Urvashi Sodhan, Advocate Respondent by: Shri Ashok Kumar Suthar, Sr. D.R. D at e of H ea r i ng 14.12.2023 D at e of P r o no u n ce me nt 20.12.2023 O R D E R PER SIDDHARTHA NAUTIYAL, JM: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals) (in short “Ld. CIT(A)”), National Faceless Appeal Centre, (in short “NFAC”), Delhi in DIN & Order No. ITBA/NFAC/S/250/2023-24/1053710437(1) vide order dated 14.06.2023 passed for the Assessment Year 2014-15. 2. The assessee has raised the following grounds of appeal:- “1. The Ld. CIT (A) has erred in confirming the disallowance of deduction u/s. 54EC of the Act amounting to Rs. 50,00,000/- made by A.O. The addition so confirmed is incorrect and illegal both on and law, and be deleted. 2. The Ld. CIT(A) has erred in enhancing the Income of the appellant by disallowing the bonafide deduction claimed amounting to Rs. 50,00,000/- u/s. 54EC of the Income Tax Act, 1961 by treating it as short term capital gain. Ld. CIT(A) failed to appreciate that although provisions of Section 50 of the Act applies to ITA No. 561/Ahd/2023 Shangar vs. DCIT Asst. Year –2014-15 - 2 - depreciable assets but it is Long Term Capital Gain which is entitled for exemption under Section 54EC of the Act. Therefore appellant ought to have entitled the benefit of Section 54EC of the Act. The same be held now and disallowance be deleted. 3. The order passed by the Ld. CIT(A) is bad in law and contrary to the provisions of law and facts. It is submitted that the same be held so now. 4. Your appellant craves leave to add, alter and/or to amend all or any of the grounds before the final hearing of appeal” 3. The brief facts of the case are that the assessee had submitted its return of income for A.Y. 2014-15 on 30.11.2014 declaring total income at Rs. 29,15,800/-. The assessee is engaged in the business of trading of fabrics and carpets. During the course of assessment, it was observed that the assessee had sold office premises for a consideration of Rs. 1,30,00,000/- on 16.12.2013. The assessee claimed deduction under Section 54EC of the Act at Rs. 1,00,00,000/- on account of investment in REC Bonds. The assessee submitted that as per applicable provisions as they existed at the relevant time, the assessee was eligible to claim deduction to a maximum of Rs. 1,00,00,000/- if he invested the sale proceeds in REC Bonds under Section 54EC of the Act. The assessee submitted that according to the then applicable provisions of Section 54EC, capital gains if invested within a period of six months shall not be chargeable to tax, provided the investment during any Financial Year shall not exceed Rs. 50 lakhs. However, the Assessing Officer did not accept the contentions put forth by the assessee and observed that the assessee is claiming that it had made investments of Rs. 1 crore in REC Bonds of two Financial Years, but within six months from the date of transfer of the immovable property, and hence she is eligible for under Section 54EC for a sum of Rs. 1 crore. The Assessing Officer was of the view that an amendment was brought w.e.f. 01.04.2015, which is a clarificatory in nature and which states that deduction under Section 54EC of the Act would not be allowed beyond the ITA No. 561/Ahd/2023 Shangar vs. DCIT Asst. Year –2014-15 - 3 - maximum limit of Rs. 50 lakhs. As per the certificates submitted by the assessee, the assessee made investments in REC Bonds on 31.03.2014 (50 lakhs) and on 30.06.2014 (50 lakhs). The depreciable assets being office premises was sold by the assessee on 16.12.2013 and therefore, the assessee is aeligible only for benefit of investments made in REC Bonds amounting to Rs. 50 lakhs on 31.03.2014, which has been made within the prescribed time limit of six months from the date of transfer i.e. 16.12.2013. But the investment made in REC Bonds on 30.06.2014 of Rs. 50 lakhs is not within the prescribed time limit of six months from the date of transfer i.e. from 16.12.2013. Further, the Assessing Officer held that the legislature intends to allow maximum deduction of Rs. 50 lakhs under Section 54EC of the Act. This ambiguity has been clarified vide amendment brought w.e.f. 01.04.2014, which is only clarificatory in nature and would apply to the impugned assessment year as well. Accordingly, the Assessing Officer made an addition of Rs. 50 lakhs on account of excess claim of deduction under Section 54EC of the Act. 4. In appeal, Ld. CIT(A) further enhanced the income of the assessee by holding that the assessee is not eligible for deduction even for the sum of Rs. 50 lakhs which were invested in REC Bonds on 31.03.2014, for the reason that to be eligible for deduction under Section 54EC of the Act, the capital asset must be a long term capital asset. However, since the assessee sold a depreciable asset, being office premises, therefore, in view of Section 50 of the Act, profit arising on sale of depreciable asset would be a short term capital asset. The Ld. CIT(A) held that in the case of Sakthi Metal Depot vs. CIT 130 taxman.com 238, the High Court held that profit arising on sale of depreciable asset would be assessed as short term capital gains, even if the asset has been held for more than 36 months. This is because Section 50 of the Act, which ITA No. 561/Ahd/2023 Shangar vs. DCIT Asst. Year –2014-15 - 4 - deals with the computation of capital gains provides that the profit arising on sale of depreciable asset shall be deemed to be short term capital gain, irrespective of the period for which the asset has been held. In the present case, the Ld. CIT(A) observed that the capital asset which was transferred was a depreciable asset, being office premises. Therefore, in view of the Section 50 of the Act, the asset being sold would be “deemed” to be a “short term capital asset”. Therefore, the profit arising on sale of the asset would be assessed as short term capital gain, even though the assessee has held the asset for more than six months. As a result, the tax payer / the assessee would not be eligible to exemption from capital gains tax under Section 54Ec of the Act. Accordingly, the CIT(A) disallowed the claim of deduction under Section 54EC of the Act with respect to investments made in REC Bonds amounting to Rs. 50 lakhs on 31.03.2014. 5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A). Before us, the Counsel for the assessee submitted that first the Gujarat High Court in the case of CIT vs. Aditya Medisales Ltd. 38 taxmann.com 244 (Gujarat), has held that where the capital gains arose out of the long term asset was invested in specified asset, exemption under Section 54EC could not be denied on account of the fact that deeming fiction of short term capital gain was created under Section 50 of the Act. Secondly, the Counsel for the assessee submitted that the Madras High Court in the case of CIT vs. C. Jaichander 53 taxmann.com 466 (Madras), has held that where the assessee invested a sum of Rs. 50 lakhs each in two different Financial Years, within a period of six months from date of transfer of capital asset, he was eligible for deduction under Section 54EC of the Act. Thirdly, the Counsel for the assessee submitted that in terms of General Clauses Act, 1897 ITA No. 561/Ahd/2023 Shangar vs. DCIT Asst. Year –2014-15 - 5 - period of six months as mentioned in Section 54EC has to be recorded as six British Calendar months. For this proposition, the Counsel for the assessee reliance on the case of Alkaben B. Patel vs. ITO 43 taxmann.com 333 (Ahmedabad – Trib.) (SB). Accordingly, it was submitted that with respect to all the above issues, in the case of the assessee, benefit of Section 54EC of the Act cannot be denied, looking into instant facts. 6. In response, Ld. D.R. placed reliance on the observations made by the Assessing Officer and Ld. CIT(A) in their respective orders. The Ld. D.R. submitted that the amendment dated 01.04.2015 has made the position very clear and it has been specifically provided that the maximum limit of investment is Rs. 50 lakhs only under Section 54EC of the Act. Further, it is also an accepted fact that the asset sought to be transferred was a depreciable asset and hence in view of the deeming provision of Section 50 of the Act, the asset which was transferred was a short term capital asset and hence the benefit of Section 54EC of the Act was not available to the assessee on sale of such asset. Accordingly, it was submitted that the assessee is not eligible for claim of benefit of deduction under Section 54EC of the Act, looking into the instant facts. 7. We have heard the rival contentions and perused the material on record. On the issue whether exemption under Section 54EC can be denied on account of the fact that deeming fiction of short term capital gain was created under Section 50 of the Act, the Gujarat High Court in the case of Aditya Medisales Ltd. 38 taxmann.com 244 (Gujarat) has held that exemption under Section 54EC of the Act could not be denied on account of the fact that deeming fiction of short term capital gain was created under Section 50 of the Act. In this case the assessee company sold automatic electric monitoring system. The ITA No. 561/Ahd/2023 Shangar vs. DCIT Asst. Year –2014-15 - 6 - company invested gain amount in Rural Electrification Bonds and claimed exemption under Section 54EC of the Act. The Assessing Officer found that short term capital gain was offered by assessee under Section 50 of the Act and disallowed exemption under Section 54EC claimed by the assessee on the ground that same was not available on a short term capital gains. The High Court held that since capital gains arose out of long term capital asset and same was invested in specified assets, exemption under Section 54EC could not be denied on account of the fact that deeming fiction of short term capital gain was created. The aforesaid decision has also been followed by Ahmedabad Tribunal in the case of DCIT M/s. Liva Healthcare Ltd. in ITA No. 62/Ahd/2016. The ITAT made the following observations in this regard:- “19. Before us, ld. A.R. Mukesh M. Patel cited an order of Jurisdictional High Court in the matter of CIT vs. Aditya Medisales [2013] 38 taxmann.com 244 (Guj.). “Section 54EC, read with section 50, of the Income-tax Act, 1961 - Capital gains - Not to be charged on investment in certain bonds [Section 54EC v. Section 50] - Assessee-company sold automatic electric monitoring system - It invested gain amount in rural electrification bonds and claimed exemption under section 54EC - Assessing Officer found that short term capital gain was offered by assessee under section 50 and disallowed exemption under section 54EC claimed by assessee on ground that same was not available on shortterm capital gain - Whether since capital gain arose out of long term capital asset and same was invested in specified assets, exemption under section 54EC could not be denied on account of fact that deeming fiction of short-term capital gain was created under section 50 - Held, yes [Para 7] [In favour of assessee]” 20. In this case, assessee transferred an asset held by it for more than 36 months i.e. a long term capital asset and invested an amount of Rs. 50 lakhs in bonds issued by NHAI which is long term specified asset as per clause (b) sub clause (i) of the explanation to section 54EC. 21. In the above said case, in similar circumstances, Hon’ble Gujarat High court granted relief in favour of the assessee. Therefore, in such circumstances, we do not want to interfere in the order passed by the ld. CIT(A). In our considered opinion, ld. CIT(A) has passed detailed and reasoned order and same does not require any kind of interference at our end. Therefore, same is dismissed. ITA No. 561/Ahd/2023 Shangar vs. DCIT Asst. Year –2014-15 - 7 - 22. In the result, appeal filed by the Revenue is dismissed.” 8. On the second issue whether benefit under Section 54EC of the Act is available in case the assessee invested a sum of Rs. 50 lakhs in two Financial Years, the High Court of Madras in the case of CIT vs. C. Jaichander 53 taxmann.com 466 (Madras) held that where assessee invested a sum of Rs. 50 lakhs each in two different Financial Years, within a period of six months from date of transfer of capital asset, he was eligible for deduction under Section 54EC of the Act. The facts in this cases were that the assessee sold a property vide sale agreement dated 18.02.2008 and invested a sum of Rs. 1 crores out of sale proceeds in certain bonds in two Financial Years 2007-08 and 2008-09. The Assessing Officer held that assessee could take benefit of investment in said Bonds to a maximum of Rs. 50 lakhs only under Section 54EC(1) and accordingly, held that the other sum of Rs. 50 lakhs invested over and above ceiling prescribed did not qualify for exemption. However, the Madras High Court held that from a reading of Section 54EC(1) and first proviso, it was clear that time limit for investment was six months from the date of transfer and even if such investment felt under two Financial Years, benefit claimed by the assessee could not be denied and there was no cap on investment in Bonds. Accordingly, the Madras High Court held that the assessee was eligible for deduction under Section 54EC of the Act in respect of said investments. A similar view was also taken by the ITAT Ahmedabad in the case of ITO vs. Subhra Anant Raje in ITA No. 2091/Ahd/2015 . The ITAT made the following observations:- “5. We have heard learned Departmental Representative. Case file perused. It has come on record that the CIT(A) has followed the above co-ordinate bench order in concluding that assessee’s reinvestment of capital gains to the tune of Rs.50lacs each spread over in two financial years falling within 6 months is very much allowable as deduction claim u/s.54 EC of the Act. Hon’ble Madras high court’s ITA No. 561/Ahd/2023 Shangar vs. DCIT Asst. Year –2014-15 - 8 - judgment in CIT vs. C. Jaichander & other connected case Tax Case Appeals 419 & 533 of 2014 decided on 15.09.2014 also adopts a similar reasoning that there is no bar as propagated at Revenue’s behest in allowing such a deduction claim. Their lordships further take into account amendment in Section 54EC (1) by insertion of second proviso w.e.f. 01.04.2015 alongwith relevant explanatory memorandum to conclude that the amendment effect restricting the deduction amount to Rs.50lacs only in any case would apply w.e.f. 01.04.2015 in relation to assessment year 2015- 16. We reiterate that we are in assessment year 2011-12 only. The Revenue fails to dispute all these developments on judicial side. We therefore find no reason to interfere with the learned CIT(A)’s order accepting assessee’s deduction claim u/s.54EC of the Act. 6. This Revenue’s appeal is accordingly dismissed.” 9. Further, the ITAT Ahmedabad in the case of DCIT vs. M/s. Saintfoin Enterprises LLP in ITA No. 2076/Ahd/2016 has held that the amendment brought in the statute is w.e.f. 01.04.2015 and is not applicable retrospectively for prior years. The ITAT made the following observations while passing the order:- “6. Drawing support from various judicial decisions, the ld. CIT(A) directed the A.O. to allow the claim of deduction in respect of investment in bonds to the tune of Rs. 50 lacs. 7. Aggrieved by this, the revenue is before us. The ld. D.R. could not bring any factual or legal error in the findings of the ld. CIT(A). The Co-ordinate Bench in the case of Aspin Ginwala and Shree Ram Engg. & Mfg. Industries 52 SOT 16, 20 taxmann.com 75 on identical facts has held as under:- The appellant sold properly on 22.10.2007 and computed long-term capital gains. The section 54EC investment was required to he made within 6 months i.e. on or before 21.04.2008. The appellant invested Rs. 50 lakhs in REC bonds on 31.12.2007 (F.Y. 2007- 08. within the 6 M time limit) and Rs.50 lakhs in NHA1 bonds on 26.5.2008 (F.Y. 2008-09. beyond the 6 M time limit) and claimed a deduction of Rs. 1 crore. The appellant claimed that no eligible scheme was available for subscription from 1.4.2008 to 28.5.2008 and that he applied in the NHAI bonds as soon as it opened and that he was prevented by sufficient cause from investing within the lime period of 6 months. The Assessing Officer & CIT(A) rejected the claim for exemption of Rs. 50 lakhs in respect of the NHAI bonds on the ground that (i) it exceeded the monetary limit of Rs. 50 lakhs prescribed in section 54EC ad (ii) it was made beyond the time limit of 6 months. On appeal to the Tribunal, held allowing the appeal: (i) The Proviso to section 54EC provides that the investment made in a long term specified asset by an appellant "during any ITA No. 561/Ahd/2023 Shangar vs. DCIT Asst. Year –2014-15 - 9 - financial year" should not exceed Rs. 50 lakhs. It is clear that if the appellant transfers his capital asset after 30th September of the financial Year he gets an opportunity to make an investment of Rs. 50 lakhs each in two different financial years and is able to claim exemption upto Rs, 1 crore under section 54EC. The language of the proviso is clear and unambiguous and so the appellant is entitled to get exemption upto Rs. 1 crore in this case;(ii) Though the time limit of 6 months for making the investment under section 54EC expired on2l.4.2008. no bonds were available for subscription between 1.4.2008 lo 28.5.2008. The investment was made as soon as the subscription opened on 26.5.2008. The appellant was accordingly prevented by sufficient cause which was beyond his control in making investment in these Bands within the time Prescribed. Exemption should be granted in cases where there is a delay in making investment due to non-availability of the bonds. " 8. Since the amendment brought in the statute is with effect from 01.04.2015and is applicable on and from assessment year 2015-16, the same is not applicable on the facts of the year under consideration. We, therefore do not find any reason to interfere with the findings of the ld. CIT(A). 9. Appeal filed by the Revenue is accordingly dismissed.” 10. Accordingly, in view of the above judicial precedents the position becomes clear that for the impugned A.Y. 2014-15, as it stood at the relevant time, if the assessee made investment in REC Bonds for Rs. 50 lakhs each, the assessee would be eligible for deduction under Section 54EC of the Act, provided both the investments were made within a period of six months as prescribed under 54EC of the Act. In the present case, the assessee had sold the asset under consideration on 16.12.2013, whereas the second investment in REC Bond was made on 30.06.2014. In the case of Alkaben B. Patel vs. ITO 43 taxmann.com 333 (Ahmedabad – Trib.) (SB), the ITAT Ahmedabad Tribunal Special Bench held that in terms of General Clauses Act, 1897 the period of six months mentioned in Section 54EC has to be recorded as six British Calendar months. The issue for consideration before ITAT Special Bench was that whether for the purpose of Section 54EC, the period of investments should be calculated as six months after the “date of transfer” or to be reckoned as 180 days from “date of transfer”. The ITAT held that the term ITA No. 561/Ahd/2023 Shangar vs. DCIT Asst. Year –2014-15 - 10 - “month” is not defined in the Act and therefore, as per the definition of the term “month” as per General Clauses Act, 1897 shall mean of month recognized according to the British Calendar. The relevant extracts of the ruling are reproduced for ready reference:- “5. We have heard both the sides at length. The legal issue involved is within a narrow compass, as also revolves around few succinct facts. A sale was executed and registered on 10th of June, 2008. As per the Revenue Department, the assessee was required u/s.54EC to invest in NHAI bond on or before 10th of December, 2008,i.e. within six months, however, the said investment was stated to be made by the assessee on 17th of December, 2008. At this juncture it may not be out of place to mention that there was a claim of the assessee that the said cheque was tendered on 8th of December, 2008, hence the said investment was otherwise made before the expiry of limitation as prescribed. Be that as it was, this controversy of exact date of investment, shall be addressed after addressing the main controversy that whether the said investment of the assessee which was allegedly made on 17th of December, 2008 was within the phraseology, "at any time within a period of six months after the date of such transfer" as prescribed in Section 54EC. For ready reference, the relevant portion of the section is reproduced below: "54EC. Capital gain not to be charged on investment in certain bonds.— (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, the capital gain shall be dealt with in accordance with the following provisions of this section." 7.1 In the present case there is no dispute about the investment which had actually been made by the assessee. The said investment had been made in the month of December, 2008. However, alleged to be few days late from the date of transfer in the month of June, 2008. It is not the case of the Revenue that the appellant had altogether fudged the dates. Once the purpose of the introduction of the section was served by making the investment in the specified assets then that purpose has to be kept in mind while granting incentive. 7.2 We hereby hold that the investment in question qualifies for the deduction U/s 54EC. Resultantly assessee's grounds are hereby allowed. The question referred is answered in favour of the assessee.” 11. Again, the ITAT Mumbai in the case of Niamat Mahroof Virji vs. ITO 77 taxmann.com 174 (Mumbai – Trib.), the ITAT held that in terms of General Clauses Act 1897, period of six months mentioned in Section 54EC ITA No. 561/Ahd/2023 Shangar vs. DCIT Asst. Year –2014-15 - 11 - has to be recorded as six British Calendar months. Accordingly, it was held that where assessee sold his ancestral property on 13.10.2010, investment of capital gain made in REC Bonds on 30.04.2009 was eligible for deduction under Section 54EC of the Act. 12. Accordingly, in light of the aforesaid discussion and the judicial precedents on the subject, we are of the considered view that investment of Rs. 50 lakhs in REC Bonds on 30.06.2014 falls within the period of six months as stipulated under Section 54EC of the Act and is hence eligible for deduction under Section 54EC of the Act. 13. In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 20/12/2023 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 20/12/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/ Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 18.12.2023 2. Date on which the typed draft is placed before the Dictating Member 19.12.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S 19.12.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .12.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 20.12.2023 7. Date on which the file goes to the Bench Clerk 20.12.2023 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Despatch of the Order..........................................