Section 54EC — Exemption from payment of capital gains tax provided the amount is invested within six months from the date of transfer — Whether the investment made within six months from the date of the receipt of consideration is eligible — On the facts held yes.

Section 54EC — exemption from payment of capital gains tax provided the amount is invested within six months from the date of transfer — Whether the investment made within six months from the date of the receipt of consideration is eligible — on the facts held yes.

The assessee jointly owned with three others land at Pune. The
assessee entered into a joint venture development agreement with a
builder on 12-7- 2005, in which the consideration was fixed at Rs.2.50
crore. This document was registered later by way of confirmation deed
dated 23-1-2007. Thereafter, a correction deed was entered into on
2-7-2007 in which the sale consideration was increased to Rs.4.90 crore.
Out of the total sale consideration at Rs.4.90 crore, the assessee’s
share was 1/4th i.e., Rs.1.22 crore. On these facts, the Assessing
Officer inferred that the date of joint venture agreement, i.e.,
12-7-2005 was the date of transfer for the capital asset. Further the
claim for relief u/s.54EC on account of investments of Rs.12.5 lac and
Rs.37.5 lac made on 3-8-2007 and 27-10-2007 was denied. The assessee
objected to taxation of the capital gain in A.Y. 2006-07, and contended
that it should be considered in the A.Y. 2007-08 since the joint venture
agreement was registered on 23-1-2007 and only after which it was acted
upon and implemented. On appeal the CIT(A) confirmed the order of the
AO. Before the Tribunal the Revenue supported the orders of the
authorities below by pointing out that the Bombay High Court in the case
of Chaturbhuj Dwarkadas Kapadia v. CIT, (260 ITR 491) (Bom.) has noted
that after insertion of clauses (v) and (vi) in section 2(47) of the
Act, the expression ‘transfer’ includes any transaction which allowed
possession to be taken/retained in part performance of a contract of the
nature referred to in section 53A of the Transfer of Property Act,
1882. Therefore, it contended that in the case of the assessee, as he
had granted possession with an irrevocable permission for development of
the land in favour of the builder, the date of development agreement
was the date of transfer for the purpose of ascertaining the year of
taxability of capital gains.

Held:

The Tribunal noted that under the
agreement dated 12-7-2005 the builder was given the possession of the
property for development. This according to it, fulfils the requirements
of section 2(47)(v) as understood and explained by the Mumbai High
Court in the case of Chaturbhuj Dwarkadas Kapadia. Accordingly, it held
that the ‘transfer’ in terms of section 2(47)(v), had taken place during
A.Y. 2006-07. As regards the issue relating to granting of exemption
u/s.54EC of the Act in respect of the investment Rs.12.5 lakh and
Rs.37.5 lakh made on 3-8-2007 and 27-10-2007, respectively, in eligible
bonds, the Tribunal noted that the assessee had received the aforestated
consideration on subsequent dates, namely, 12-2-2007, 14-5-2007,
19-6-2007 and 3-7-2007. The Tribunal referred to the CBDT Circular No.
791 issued in the context of the provisions of sections 54EA, 54EB and
54EC. Under the said provisions the assessee is similarly granted
exemption from capital gains tax arising from the conversion of capital
assets into stock-in-trade provided the assessee makes investment in the
specified bonds within six months of the date of conversion.

The CBDT
in consultation with the Ministry of Law decided that the period of six
months for making investment in specified assets for the purpose of
sections 54EA, 54EB and 54EC of the Act should be taken from the date
such stockin- trade is sold or otherwise transferred in terms of section
45(2) of the Act, though the taxability of capital gain was on the
basis of ‘transfer’ as understood in section 45(2) of the Act. According
to the Tribunal, the interpretation placed by the CBDT in the
above-referred Circular to the condition of making investment within six
months from the date of transfer in section 54EC would support the
claim of the assessee for exemption from capital gain with respect to
the impugned sum of Rs.50 lakh invested in specified assets on 3-8- 2007
and 27-10-2007.

Accordingly, the contention of the assessee on this
ground was accepted and exemption u/s.54EC as claimed by the assessee
was granted.