M/S Raj Kumar Jain & Sons (Huf) v. The Commissioner Of Income Tax, Central Revenue Building Jaipurroad, Ajmer

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 157 / 2012 M/s Raj Kumar Jain & Sons (HUF) Through Its Karta Shri Raj Kumar Jain S/o Shri Tikam Chand Jain, Aged About 65 Years, Resident of 47, Anand Nagar, Ajmer. ----Appellant Versus The Commissioner of Income Tax, Central Revenue Building JaipurRoad, Ajmer ----Respondent _____________________________________________________ For Appellant(s) : Mr. Mahendra Gargeiya For Respondent(s) : Ms. Parinitoo Jain _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment / Order 20/09/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby Tribunal has allowedthe appeal of the department reversing the view taken by theCIT(A) and confirmed the order of AO. 2.This Court while admitting the appeal on 02.01.2014, framed following substantial question of law:- “(i)Whether on facts and in the circumstances of thecase and in law, the findings recorded by ld. ITATwhile denying the exemption claimed u/S.54EC ofthe Act, are perverse and contrary to the facts onrecord and also contrary to the correctinterpretation of law ?” Counsel for the appellant taken us to Section 54EC of the Income Tax Act which reads as under:- “Capital gain not to be charged on investment incertain bonds. 54EC. (1) Where the capital gain arises from thetransfer of a long-term capital asset (the capitalasset so transferred being hereafter in this sectionreferred to as the original asset) and the assesseehas, at any time within a period of six months afterthe date of such transfer, invested the whole or anypart of capital gains in the long-term specifiedasset, the capital gain shall be dealt with inaccordance with the following provisions of thissection, that is to say,— (a) if the cost of the long-term specified asset isnot less than the capital gain arising from thetransfer of the original asset, the whole of suchcapital gain shall not be charged under section 45; (b) if the cost of the long-term specified asset isless than the capital gain arising from the transferof the original asset, so much of the capital gain asbears to the whole of the capital gain the sameproportion as the cost of acquisition of the long-term specified asset bears to the whole of thecapital gain, shall not be charged under section 45 :Provided that the investment made on or after the1st day of April, 2007 in the long-term specifiedasset by an assessee during any financial year doesnot exceed fifty lakh rupees : Provided further that the investment made by anassessee in the long-term specified asset, fromcapital gains arising from transfer of one or moreoriginal assets, during the financial year in whichthe original asset or assets are transferred and inthe subsequent financial year does not exceed fiftylakh rupees. (2) Where the long-term specified asset istransferred or converted (otherwise than bytransfer) into money at any time within a period ofthree years from the date of its acquisition, theamount of capital gains arising from the transfer ofthe original asset not charged under section 45 onthe basis of the cost of such long-term specifiedasset as provided in clause (a) or, as the case maybe, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head "Capitalgains" relating to long-term capital asset of theprevious year in which the long-term specified assetis transferred or converted (otherwise than bytransfer) into money. (2) Where the long-term specified asset istransferred or converted (otherwise than bytransfer) into money at any time within a period ofthree years from the date of its acquisition, theamount of capital gains arising from the transfer ofthe original asset not charged under section 45 onthe basis of the cost of such long-term specifiedasset as provided in clause (a) or, as the case maybe, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head "Capitalgains" relating to long-term capital asset of theprevious year in which the long-term specified assetis transferred or converted (otherwise than bytransfer) into money. Explanation.—In a case where the original asset istransferred and the assessee invests the whole orany part of the capital gain received or accrued as aresult of transfer of the original asset in any long-term specified asset and such assessee takes anyloan or advance on the security of such specifiedasset, he shall be deemed to have converted(otherwise than by transfer) such specified assetinto money on the date on which such loan oradvance is taken. (3) Where the cost of the long-term specified assethas been taken into account for the purposes ofclause (a) or clause (b) of sub-section (1),— (a) a deduction from the amount of income-taxwith reference to such cost shall not be allowedunder section 88 for any assessment year endingbefore the 1st day of April, 2006; (b) a deduction from the income with reference tosuch cost shall not be allowed under section 80C forany assessment year beginning on or after the 1stday of April, 2006. Explanation.—For the purposes of this section,— (a) "cost", in relation to any long-term specifiedasset, means the amount invested in such specifiedasset out of capital gains received or accruing as aresult of the transfer of the original asset; (b) "long-term specified asset" for making anyinvestment under this section during the periodcommencing from the 1st day of April, 2006 andending with the 31st day of March, 2007, meansany bond, redeemable after three years and issuedon or after the 1st day of April, 2006, but on orbefore the 31st day of March, 2007,— (i) by the National Highways Authority of Indiaconstituted under section 3 of the NationalHighways Authority of India Act, 1988 (68 of 1988);or (ii) by the Rural Electrification Corporation Limited, a company formed and registered under theCompanies Act, 1956 (1 of 1956), and notified by the Central Government in theOfficial Gazette for the purposes of this section withsuch conditions (including the condition forproviding a limit on the amount of investment by anassessee in such bond) as it thinks fit: Provided that where any bond has been notifiedbefore the 1st day of April, 2007, subject to theconditions specified in the notification, by theCentral Government in the Official Gazette underthe provisions of clause (b) as they stoodimmediately before their amendment by the FinanceAct, 2007, such bond shall be deemed to be a bondnotified under this clause; (ba) "long-term specified asset" for making anyinvestment under this section on or after the 1stday of April, 2007 means any bond, redeemableafter three years and issued on or after the 1st dayof April, 2007 by the National Highways Authority ofIndia constituted under section 3 of the NationalHighways Authority of India Act, 1988 (68 of 1988)or by the Rural Electrification Corporation Limited, acompany formed and registered under theCompanies Act, 1956 (1 of 1956)[71][72][; or anyother bond notified by the Central Government inthis behalf].” 4.He contended that it was brought w.e.f. 01.04.2007 and cannot have retrospective effect. 5.He has relied upon the decisions mainly on Madras Highcourt decision reported in (2015) 370 ITR 0579. Madras High Court in paras 5, 6 and 7 has observed as under:- 4.He contended that it was brought w.e.f. 01.04.2007 and cannot have retrospective effect. 5.He has relied upon the decisions mainly on Madras Highcourt decision reported in (2015) 370 ITR 0579. Madras High Court in paras 5, 6 and 7 has observed as under:- “5. The key issue that arises for consideration iswhether the first proviso to section 54EC(1) ofthe Act would restrict the benefit of investmentof capital gains in bonds to that financial yearduring which the property was sold or it appliesto any financial year during the six monthsperiod. 6. For better understanding of the issue, it would beapposite to refer to section 54EC(1) of the Act,which reads as under: "54EC. Capital gain not to be charged oninvestment in certain bonds.- (1) Where the capital gain arises from the transferof a long-term capital asset (the capital asset sotransferred being hereafter in this section referredto as the original asset) and the assessee has, atany time within a period of six months after thedate of such transfer, invested the whole or any partof capital gains in the long-term specified asset, thecapital gain shall be dealt with in accordance withthe following provisions of this section, that is tosay,-- (a) if the cost of the long-term specified assetis not less than the capital gain arising from thetransfer of the original asset, the whole of suchcapital gain shall not be charged under section 45;(b) if the cost of the long-term specified assetis less than the capital gain arising from the transferof the original asset, so much of the capital gain asbears to the whole of the capital gain the sameproportion as the cost of acquisition of the long-term specified asset bears to the whole of thecapital gain, shall not be charged under section 45: Provided that the investment made on or after the1st day of April, 2007 in the long-term specifiedasset by an assessee during any financial year doesnot exceed fifty lakh rupees." 7. On a plain reading of the above said provision,we are of the view that section 54EC(1) of the Actrestricts the time limit for the period of investmentafter the property has been sold to six months.There is no cap on the investment to be made inbonds. The first proviso to section 54EC(1) of theAct specifies the quantum of investment and itstates that the investment so made on or after April1, 2007, in the long-term specified asset by anassessee during any financial year does not exceedfifty lakhs rupees. In other words, as per themandate of section 54EC(1) of the Act, the time limit for investment is six months and the benefitthat flows from the first proviso is that if theassessee makes the investment of Rs. 50,00,000 inany financial year, it would have the benefit ofsection 54EC(1) of the Act.” 6.Learned counsel contended that he is entitled for thebenefit of the investment which has been made in the subsequentdate. In view of the fact that word used is ‘whole’ and the twoinvestments which have been made are within six months and thewhole capital gain is invested in two different financial years. 7.Counsel for the respondent contended that theintention of the Section 54EC is to give benefit only qua onetransaction and proviso which has been inserted in the same year.Therefore, proviso will not effect in any manner and the viewfollowed by the Tribunal is just and proper. 8.We have heard learned counsel for the parties. 9.Taking into account the object of Section 54EC is togive benefit to the assessee to invest in the Government bond andwhere proviso came for the first time on 01.4.2007 providingbenefit of 50 lacs each of the transaction of the property the viewtaken by the Tribunal is just and proper. 7.Counsel for the respondent contended that theintention of the Section 54EC is to give benefit only qua onetransaction and proviso which has been inserted in the same year.Therefore, proviso will not effect in any manner and the viewfollowed by the Tribunal is just and proper. 8.We have heard learned counsel for the parties. 9.Taking into account the object of Section 54EC is togive benefit to the assessee to invest in the Government bond andwhere proviso came for the first time on 01.4.2007 providingbenefit of 50 lacs each of the transaction of the property the viewtaken by the Tribunal is just and proper. 10. We are not in agreement with the view taken by theMadras High Court. The benefit is qua one transaction. It cannothave for different financial years. The purpose is to haveinvestment for benefit of long term capital and once there isinterpretation put forward by the basic connotation of law, in thatview of the matter, we are affirming the view of the Tribunal. 11.The issue is answered in favour of the department and against the assessee. 12.The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Chouhan/177