4 Section 54EC – Exemption of Capital gain – Time of six months from date of transfer for investment – Transfer effected only on transfer of physical possession of property and not on date of execution of development agreement – Investment made by assessee falling within time specified u/s. 54EC

(2018) 401 ITR 96 (Bom)
CIT vs. Dr. Arvind S. Phake
A.Y. 2008-09, Date of Order: 20th Nov., 2017

The assessee entered into a
registered development agreement dated 23/09/2017 in respect of certain
property. The total consideration agreed was Rs. 5,32,00,000/. Physical
possession was given on 01/03/2008. For the A. Y. 2008-09, a return was filed
by the assessee declaring his income on account of long term capital gain on
sale of the immovable property. The assessee claimed exemption u/s. 54EC of the
Income-tax Act, 1961 in respect of investment of Rs. 50,00,000/- in bonds of
the NHAI made on 28/03/2008 and Rs. 50,00,000/- in bonds of RECL on 22/08/2008.
The Assessing Officer held that the investment of the bonds of NHAI was within
the period specified u/s. 54EC of the Act and the investment of Rs. 50,00,000/-
in the bonds of RECL was beyond the period provided in section 54EC in as much
as the investment made on 22/08/2008 was not within six months from the date of
transfer of assets.

The Tribunal found that on
the date of execution of the development agreement, i.e., on 13/09/2007, full
consideration was admittedly not paid, and therefore the transfer was not
effected on 13/09/2017. Therefore, taking the date of transfer as 01/03/2008 on
which date physical possession of the property was delivered, the investment made
on 22/08/2008 was well within the time specified under section 54EC of the Act.
The Tribunal, accordingly allowed the assessee’s claim.

On appeal by the Revenue,
the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) The Tribunal considered
various clauses in the development agreement. Sub clause (d) of clause (3) of
the agreement provided that after full payment of consideration, the
construction would be undertaken by the developer. Admittedly, on the date of
execution of the development agreement, the entire consideration was not
received by the assessee.

ii)    Physical possession of the property, the
subject matter of development agreement was parted with by the assessee on
01/03/2008. It was on that day that complete control over the property was
passed on to the developer.

iii)   After having perused the various clauses in
the agreement and the factual aspects, the Tribunal rightly took 01/03/2008 as
the date of transfer and the investment made on 22/08/2008 was well within the
time specified u/s. 54EC of the Act. Therefore, no substantial question of law
arose.”