By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi, Chartered Accountants
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Section 54EC — Exemption from capital gains tax if investment is made within six months from the date of transfer of a capital assets in the specified assets — Date of investment — Is it the date when cheque was delivered or encashed or the date of allotment of the bonds — Held the relevant date is the date when the cheque was delivered — Whether NABARD bonds were the specified assets — Held, Yes.
Facts:
The assessee sold a property on 9-8-2005 and earned long-term capital gain of Rs.19.16 lac. He invested Rs.20 lac in NABARD bonds and claimed exemption u/s.54EC. The lower authorities rejected the assessee’s claim on the following two grounds:
The investment was not made within the prescribed period of 6 months from the date of sale; and
NABARD bonds were not the long-term specified assets prescribed under the provisions. The assessee claimed that the application for the bonds and cheque were sent to NABARD by courier on 7-2-2006 which was received by NABARD on 9-2-2006. The bonds were allotted to him by NABARD on 15-2-2006. According to him the date of investment should be considered as the date when the cheque was sent to NABARD. According to the Revenue, the assessee was not able to prove that NABARD had received the application and encashed the cheque before 9-2-2006. As per the bank statement produced by the assessee, the cheque was encashed on 13-2-2006.
As regards whether or not NABARD bonds were long-term specified assets prescribed under the provisions, it was contended by the Revenue that by the Finance Act, 2006, the provisions of section 54EC were amended and NABARD bonds were no longer eligible for exemption.
Held:
The Supreme Court in the case of CIT v. Ogale Glass Works Ltd., (25 ITR 529) had held that payment by cheque realised subsequently relates back to the date of the receipt of the cheque and as per the law, the date of payment is the date of delivery of the cheque. Applying the said principle, the Tribunal held that since the assessee had delivered the cheque to NABARD by 9-2-2006, the date of payment would be the date of delivery of the cheque. The date when the cheque was encashed by NABARD cannot be said to be the date of investment.
As regards whether or not NABARD bonds were long-term specified assets prescribed under the provisions — the Tribunal noted that by the Finance Act, 2006, the clause (b) below Explanation to section 54EC(3) was substituted w.e.f. 1-4-2006, whereby the NABARD bonds were made in-eligible for exemption u/s.54EC. However, the Tribunal pointed out that till 31-3-2006, the said bonds were one of the eligible specified assets. Accordingly, it held that since the assessee had made investment on 9-2-2006, the contention of the Revenue that the law as on the 1st day of the assessment year should be applied cannot be accepted. For the purpose, it also relied on the decision of the Gujarat High Court in the case of CIT v. Nirmal Textiles, (224 ITR 378). It further observed that if the Revenue’s contention was accepted, then the assessee could never claim deduction u/s.54EC, because the period of 6 months would expire well before the 1st day of assessment year.
