The division bench of the Mumbai Income Tax Appellate Tribunal (ITAT), in Lemes E. D’ Souza v. ITO, held that benefit of Investing in NHAI/REC Bonds under section 54EC of the Income Tax cannot be denied to the assessee merely for the reason that the investment was made beyond 6 months from the date of transfer.
While allowing Tax relief to the assessee, the bench opined that Section 54EC, being a beneficial provision, deserves a liberal interpretation and hence, benefit of the said section is available to the assessee if the investment was made within six months from the date of receipt of last installment of sale consideration.
Assessee, an individual, had sold Transfer of Development Rights (TDR) for 1.45 crores. Assessee availed the benefit of s. 54F by purchasing a new property and the remaining amount was invested in NHAI/REC Bonds.
The Assessing Oficcer, while completing assessment, disallowed the claim of deduction towards investment in Bonds for the reason that the assessee ought to have made investment within six months from the date of transfer.
Impugning the above order, the assessee submitted that the payments towards the sale of TDR was received by him in installments and the investment in the said Bonds were made by him within 6 months from the receipt of last installment. It was therefore, submitted that he is eligible for getting deduction under section 54EC of the Income Tax Act.
Allowing deduction to the assessee, the bench observed that section 54EC of the Income Tax Act encourages making investments in REC/NHAI bonds out of long term capital gains on transfer of original asset earned by tax-payer and is to be construed reasonably to give full effect to the beneficial provisions and it cannot be interpreted in a manner to frustrate the intent of legislature. “The tax-payer cannot be asked to do impossible , as in cases if the consideration is not received by the tax-payer on sale / transfer of long term capital assets but is received subsequently as provided in an agreement to sale, the tax-payer cannot be expected to invest in REC/NHAI Bonds out of his own other sources or to make borrowings to invest in NHAI/REC Bonds to claim exemption u/s 54EC of 1961 Act, the objective of the beneficial provision of Section 54EC of 1961 Act is to encourage investments out of sale proceeds received or accruing to the tax-payer from sale of long term capital assets and the tax-payer cannot be asked to do impossible in cases where genuinely the sale considerations are not received at the time of transfer of long term capital asset in terms of agreement for sale/transfer of long term capital asset.”
The bench observed that the assessee in the present case is eligible for deduction since the investment was made within 6 months from date of receipt of last installment.
Read the full text of the order below.
