Capital gain exemption shall be limited to actual sale consideration and not stamp duty value

[2019] 104 taxmann.com 208 (Bombay)

Computation of capital gain and consequently computation of exemption under section 54EC, shall have to be worked out on basis of substituted deemed sale consideration of transfer of capital asset in terms of section 50C it could claim exemption only in relation to amount of investment made in specified bond and not qua entire capital gain computed as per section 50C

Section 54EC, read with section 48 and 50C, of the Income-tax Act, 1961 – Capital gains – Not to be charged on investment in certain bonds (Effect of section 50C) – Assessee sold a plot of land for sale consideration of Rs.25 lakhs and invested entire amount in bond as specified under section 54EC – In return of income, assessee had declared long-term capital gain on transfer of land at Rs. 21.19 lakhs and claimed full exemption of such capital gain under section 54EC – During course of scrutiny assessment, Assessing Officer determined long-term capital gain of assessee at Rs.49.47 lakhs for purpose of levying stamp duty and, accordingly, passed order of assessment and charged Rs. 24.47 lakhs (Rs. 49.47 lakhs – Rs. 25 lakhs) to tax as capital gain – Assessee contended that since entire sale consideration of Rs.25 lakhs was invested in specified bond, assessee must get full exemption from capital gain, irrespective of computation of deemed sale consideration under section 50C – Whether computation of capital gain and consequently computation of exemption under section 54EC, shall have to be worked out on basis of substituted deemed sale consideration of transfer of capital asset in terms of section 50C – Held, yes – Whether, therefore, assessee would be chargeable to capital gains to extent of enhanced and notional sale consideration under section 50C and it could claim exemption only in relation to amount of investment made in specified bond and not qua entire capital gain computed as per section 50C – Held, yes

Jagdish C. Dhabalia