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Deduction u/s 54EC & Computation of six months period
Date of transfer of property to compute the six-months period for the purpose of claiming deduction under section 54EC could not be taken from the date when the purchase agreement was registered because the transfer would complete after additional stamp duty to complete the process of registration was paid by assessee.
Assessee had sold his residential property and claimed deduction under section 54EC. AO denied the deduction alleging that the investment in Rural Electrification Corporation Ltd (RECL) was made beyond the prescribed period of six months from the date of transfer of residential house, i.e., the date when possession was surrendered by assessee pursuant to registration of purchase agreement. Contention of assessee was that the transfer was completed when additional stamp duty was paid by assessee and consequently, investment in RECL was made within the six-month window, in terms of section 54EC.
Even though the purchase agreement was registered on an earlier date but the additional stamp duty to complete the process of registration of the purchase agreement was paid later on. Therefore, period of six months was to be counted from the date when additional stamp duty was paid and accordingly, the purchase of REC Bond was well within six-months period from the date of transfer.
Decision: In assessee’s favour.
Referred: K.M. Sugar Mills Ltd. v. CIT (2015) 278 CTR (SC) 100 : 2015 TaxPub(DT) 1481 (SC), Jyotindra H. Shodhan v. ITO (2015) 278 CTR (Guj) 98 : 2015 TaxPub(DT) 0815 (Guj-HC) and CIT v. Ruby Trading Co. (P) Ltd. (2003) 259 ITR 54 (Raj) : 2003 TaxPub(DT) 0315 (Raj-HC).
IN THE ITAT, MUMBAI BENCH
MAHAVIR SINGH, J.M. & N.K. PRADHAN, A.M.
Anil Kumar Dulichand Jain v. ACIT
ITA No. 4922/MUM/2016
16 May, 2018
Assessee by: N.O. Mehta, AR
Revenue by: Virender Singh, DR
N.K. Pradhan, A.M.
This is an appeal filed by the assessee. The relevant assessment year is 2012-13. The appeal is directed against the order of the Commissioner (Appeals)-28, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed under section 143(3) of the Income Tax Act 1961, (the ‘Act’).
- The ground of appeal filed by the assessee reads as under :–
The Commissioner (Appeals)-28 erred in confirming disallowance of Investment of Rs. 50 Lacs in REC Bonds claimed as deduction under section 54EC from LT Gain by your appellant, Shri Anil Kumar Dulichand though the delay between actual (Registered) transfer and effective deemed transfer was only 46 days.
- Briefly stated, the facts of the case are that the appellant/assessee filed his return of income for the assessment year (A.Y.) 2012-13 on 20-3-2014 declaring total income at Rs. 26,81,810. During the financial year (F.Y.) 2011-12, the assessee had sold a residential property for a consideration of Rs. 2,05,00,000. In the original computation of income, the assessee had claimed deduction under section 54EC by investing in Rural Electrification Corporation Ltd. (REC) Bonds and under section 54 of the Act.
3.1 The assessee invested the sale proceeds in REC Bonds worth Rs. 50,00,000. The allotment date as appearing on the REC Bond is 31-3-2012. The assessing officer (AO) observed following from clause III of the sale agreement dated 29-3-2012 :–
“The vendor confirms that in pursuance of the present agreement, he has already surrendered possession of the said premises to the purchasers with effect from 5th day of August, 2011 (5-8-2011) and that the purchasers are in occupation of the said premises since then in their own rights.”
The assessing officer thus came to a finding that the assessee (vendor) in this case, has already surrendered the rights over the capital asset on 5-8-2011. In order to claim deduction under section 54EC, the assessee was required to invest the said amount within six months of transfer of capital asset, i.e., by 5-2-2011. However, the assessee had invested in REC Bond on 31-3-2011 which beyond six months.
In response to a query raised by the assessing officer, the assessee submitted that when only agreement to sale and possession is done, it is not actual transfer. It is known as deemed transfer. The assessee further submitted that in the case of CIT v. Rubi Trading Co. Pvt. Ltd. (2003) 259 ITR 54 (Raj) : 2003 TaxPub(DT) 0315 (Raj-HC), it has been held that section 54EC would have application only where there is an actual transfer and not in a case where there is only a deemed transfer. In this case as submitted by the assessee, there is actual transfer on 22-3-2012 and therefore, purchase of REC Bond on 31-3-2012 is much within the six months period.
However, the assessing officer was not convinced with the above explanation of the assessee and held that as per the agreement, the assessee had already surrendered the capital asset on 5-8-2011. The assessee made investment in REC Bond on 31-3-2012 which is beyond the period of six months. Therefore, the assessing officer disallowed the claim of deduction of Rs. 50,00,000 made by the assessee under section 54EC of the Act.
- Aggrieved by the order of the assessing officer, the assessee filed an appeal before the learned Commissioner (Appeals). The learned Commissioner (Appeals) held that the case of the assessee is squarely covered by the inclusive definition of transfer in section 2(47)(v) which speaks of any transaction allowing possession of any property in part performance of a contract. The agreement to sale is a contract which has been part performed by both the parties, i.e., by the appellant allowing possession to the purchaser and receipt of part consideration. The learned Commissioner (Appeals) observed that the asset had been transferred on 5-8-2011 and therefore, the assessing officer is correct in holding that the window of investment in REC Bonds closed on 5-2-2012. For the purpose of investment in new residential house under section 54 or 54F, what is important is the substance of the transaction (in this case asset transferred on 5-8-2011) and not the date of registration of the purchase deed (in this case 29-3-2012). Also section 54EC mandates that the period of six months be counted from the date of transfer of the capital asset. Therefore, the learned Commissioner (Appeals) confirmed the disallowance of Rs. 50,00,000 made by the assessing officer under section 54EC.
- Before us, the learned counsel of the assessee submits that the deemed transfer as per agreement dated 5-8-2011 does not constitute the transfer as per section 53A of the Transfer of Property Act, 1882 with reasonable certainty, and hence, the appellant was constrained by the purchaser to get register the same agreement by paying additional stamp duty of Rs. 1,41,070 on 22-3-2012 and hence the true and correct transfer was completed on 22-3-2012.
The learned counsel further submits that the Commissioner (Appeals) erred in considering transfer by reading section 2(47)(v) which is known in the legal word as an effective deemed transfer, whereas under provisions of section 53A of the Transfer of Property Act, 1982, the actual transfer is the registered stamped agreement, transfer lodged with the government authorities. Since various defined transfer under the Transfer of Property Act are not substitute to each other, but are complimentary, it is stated that the appellant ought to get benefits of investment under section 54EC.
Though under the Income Tax Act, section 2(47)(i) and 2(47)(ii) are introduced by the Taxation Law (Amendment) Act, 1984, whereas section 2(47)(v) is introduced by the Finance Act, 1987, since all these sub-sections of section 2(47) are not mutually exclusive, the learned Commissioner (Appeals) should have given benefits of doubts to the appellant who made investment in REC Bonds on 31-3-2012, i.e., within 9 days from actual transfer on 22-3-2012 relying on the decision in CIT v. Rubi Trading Co. Pvt. Ltd. (2003) 259 ITR 54 (Raj) : 2003 TaxPub(DT) 0315 (Raj-HC), Jotinder H. Shodhan v. ITO (2015) 278 CTR (Guj) 98 : 2015 TaxPub(DT) 0815 (Guj-HC) and K.M. Sugar Mills v. CIT (2015) 278 CTR (SC) 100 : 2015 TaxPub(DT) 1481 (SC).
The learned counsel submits that since section 54EC does not provide any definition of transfer, the appellant ought to be guided by generally and legally accepted meaning of the word actual registered transfer and hence, has made the investment in REC Bonds just within 15 days of actual transfer. It is submitted that the deemed transfer as per agreement dated 5-8-2011 does not constitute the transfer as per section 53A of the T.P. Act, 1882 with reasonable certainty and hence, the appellant was constrained by the purchaser to get registered the same agreement by paying additional stamp duty of Rs. 1,41,070 on 22-3-2012. Finally, it is stated that since section 54EC is enacted to give tax benefits to the assessee and since there is no delay in case of actual registered transfer and hardly any delay even from effective transfer taken by the learned Commissioner (Appeals) and looking at CBDT Circular No. 359, the appellant should be given tax benefits available for investment of Rs. 50,00,000 in the REC Bonds.
- On the other hand, the learned DR submits that the capital asset has been transferred on 5-8-2011 and therefore, the learned Commissioner (Appeals) has correctly held that the window of investment in REC Bonds closed on 5-2-2012. It is evident that section 54EC mandates that the period of six months be counted from the date of transfer of the capital asset and transfer is defined in section 2(47) of the Act. Thus the learned DR supports the order passed by the learned Commissioner (Appeals).
- We have heard the rival submissions and perused the relevant materials on record. As per section 54EC of the Act, any Long Term Capital Gain (LTCG), arising to any assessee, from the transfer of any capital asset on or after 1-4-2000 shall be exempt to the extent such capital gain is invested within a period of six months after the date of such transfer in the long-term specified asset provided such specified asset is not transferred or converted into money within a period of three years from the date of its acquisition. The investment is restricted only upto Rs. 50,00,000. In the instant case, the purchase agreement was registered on 5-8-2011. Again an additional stamp duty of Rs. 1,41,070 was paid on 22-3-2012 and thus the registration was completed. The appellant purchased the REC Bond on 31-3-2012.
We refer here to page 25 of the Paper Book (P/B) filed by the assessee. As per it the assessee has paid Rs. 1,41,070 towards additional stamp duty on 22-3-2012 to complete the process of registration of the ‘Purchase Agreement’. The assessee filed its return of income for the impugned assessment year on 20-3-2014. The assessing officer completed the assessment under section 143(3) on 4-3-2015. Thus no one can say that the payment of additional stamp duty by the assessee is an afterthought.
To sum up by paying the additional stamp duty of Rs. 1,41,070 the appellant completed the process of registration of the ‘Purchase Agreement’ on 22-3-2012. The appellant purchased the REC Bond on 31-3-2012.
In view of the above facts, we set aside the order of the learned Commissioner (Appeals).
- In the result, the appeal is allowed.