Capital gains

This query is : Resolved

Haresh (Querist)
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12 February 2013 In case of Individual

Sale From Residential House 2,50,00,000
Index Cost 40,00,000
Net Capital Gain 2,10,00,000

If an Individual Invest in sec 54EC amounting to Rs. 50,00,000 in capital bonds before march.

And Rs. 50,00,000 under sec 54ec incapital bonds after March.

Does an individual eligible for deduction of Rs. 1,00,00,000 or 50,00,000 under sec 54EC?

CA. Nage Gowda

CA. Nage Gowda (Expert)
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12 February 2013 1. Deduction under section 54EC of the Income tax Act, is available in respect of capital gain arises from the transfer of a long-term capital asset.

2. Such deduction shall be available if at any time within a period of six months after the date of such transfer, assessee invests whole or any part of such capital gains.

3. Such investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees.

4. Form the aforesaid we may observe that, investments made shall not exceed 50 lakh rupees in a financial year.

5. As the investments made in two different financial years the assessee shall be eligible for 1 crore deduction if said investments are made during 2 financial years, not exceeding 50 laks in a single financial year.

6. Reliance may be placed in the Case of Aspi Ginwala, Shree Ram Engg. & Mfg. Industries v. ACIT /[2012] 146 TTJ 385 (AHD.), where it was held as follows:

......... 7. We have heard both the parties and perused the records and find that the assessee and his brother Shri Rustom Ginwala sold a property on 22-10-2007 for Rs. 6.21 Crores. The assessee and his brother had 50% share in this property. The assessee made investment of Rs. 50 lakhs on 31-12-2008 in REC Bonds and Rs. 50 lakhs on 26-05-2008 in NHAI Bonds and claimed exemption of Rs. 1 Crore u/s 54EC of the Act. The investment in REC Bonds was allowed by the AO as it was within the time limit of six months prescribed in section 54EC of the Act, while the investment in NHAI Bonds which was made only on 26-05-2008 was not allowed as according to the lower authorities the assessee is only entitled for exemption u/s 54EC upto Rs. 50 lakhs only. The assessee's case, however, is that as per the proviso to section 54EC, investment made on or after 1st April, 2007 in the Long Term Specified Asset by an assessee during any financial year should not exceed Rs. 50 lakhs. The assessee's case is that since the property was sold on 22-10-2007 he could have invested in eligible investment within six months i.e. on or before 21-04-2008 in order to avail exemption u/s 54EC of the Act. There is no dispute about Rs. 50 lakhs invested on 31-12-2007 in REC Bonds. The dispute is only about further investment of Rs. 50 lakhs in NHAI Bonds made on 26-05-2008. Since six months in this case involves two financial years, the assessee's case is that if he had deposited another Rs. 50 lakhs from 1st April, 2008 to 21-04-2008, he was entitled for exemption u/s 54EC of the Act. As during this period from 01-04-2008 to 26-05-2008 subscription in eligible investment was closed, the investment made by the assessee on 26-05-2008 i.e. 1st day of the reopening of the subscription of eligible investment in NHAI Bonds should be treated in time. There is also no dispute about the fact that subscription to the eligible investment was closed during the period 01-04-2008 to 26-05-2008. The dispute which remains to be decided by us in this case is whether as per the provisions of section 54EC the assessee is entitled for exemption of Rs. 1 Crore as six months period for investment in eligible investment involves two financial years. If the answer to this question is "yes", whether investment made by the assessee on 26-05-2008 beyond six months period is eligible for exemption in view of the fact that no subscription for eligible investment was available to the assessee from 1st April, 2008 to 26-05-2008.