Capital gain: Exemption u/s 54EC: A. Y. 2006- 07: Section 54EC bonds not available in the last period of limitation: Investment in bonds as soon as available: Assessee entitled to exemption.

The assessee sold factory building on 22/03/2006 and earned long term capital gain of Rs. 49.36 lakhs. The last date for investment in section 54EC bonds was 21/09/2006. The assessee invested the capital gain in section 54EC bonds of Rural Electrification Corporation (REC) bonds on 31/01/2007. The assessee claimed that from 04/08/2006 to 22/01/2007, the bonds were not available and the investment was made immediately on the bonds being available. The Assessing Officer disallowed the claim for exemption on the ground that the investment was beyond the period of limitation. The Tribunal allowed the assessee’s claim.

In appeal before the High Court, the Revenue argued that (i) even if the bonds were not available for part of the period, they were available for some time in the period after the transfer (01/07/2006 to 03/08/2006) and the assessee ought to have invested then & (ii) the section 54EC bonds issued by National Highway Authority (NHAI) were available and the assessee could have invested in them.

The Bombay High Court upheld the decision of the Tribunal and held as under:

“i) The Department’s contention that the assessee ought to have invested in the period that the section 54EC bonds were available (01/07/2006 to 03/08/2006) after the transfer is not well founded. The assessee was entitled to wait till the last date (21/09/2006) to invest in the bonds. As of that date the bonds were not available. The fact that they were available in an earlier period after the transfer makes no difference, because the assessee’s right to buy the bonds up to the last date cannot be prejudiced.

ii) Lex not cogit impossibila (law does not compel a man to do that which he cannot possibly perform) and i (law does not expect the party to do the impossible) are well known maxims in law and would squarely apply to the present case.

iii) The Department’s contention that the assessee ought to have purchased the alternative section 54EC NHAI bonds is also not well founded, because if section 54EC confers a choice of investing either in the REC bonds or the NHAI bonds, the Revenue cannot insist that the assessee ought to have invested in the NHAI bonds.”