On Further Appeal By The Assessee, The Tribunal, Placingreliance On The Decision Of The Bombay High Court In Commissioner Ofincome Tax v. The State Of Tamil Nadu

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HON'BLE MR.JUSTICE R.SUDHAKARANDTHE HON'BLE MR.JUSTICE G.M.AKBAR ALI The Commissioner of Income TaxChennai – 600 034. Akbar Ali Dhala..Respondent Appeal under Section 260A of the Income Tax Act, 1961 against theorder of the Income Tax Appellate Tribunal Chennai 'B' Bench, dated25.6.2013 made in ITA No.1693/Mds/2012 for the assessment year 2007-2008 against the order of the Commissioner of Income Tax (Appeals)XII, Che-34 dt.5.6.12 and made in ITA No.545/2011-12 for theassessment year 2007-08 against the order of the AssistantCommissioner of Income Tax, Business Circle-XV, Chennai dt.31.12.2011 and made in GIR No./P.A.N.-ACFPAQ7514E for the Assessmentyear 2007-08. For Appellant :Mr.J.Narayanasamy Senior Standing Counsel The appeal has been filed by the Revenue challenging the order ofthe Income Tax Appellate Tribunal 'B' Bench, Chennai, dated 25.6.2013made in ITA No.1693/Mds/2012 for the assessment year 2007-2008, byraising the following substantial questions of law: “1. Whether on the facts and in the circumstances of thecase the Tribunal has jurisdiction and was right inholding that the assessee is entitled to capital gainsexemption under Section 54EC even though the assesseehad invested in REC bonds beyond the stipulated periodof six months, when the section does not provide forextension of the time limit for investment? 2. Whether on the facts and in the circumstances of thecase the Tribunal was right in holding that the assesseeis entitled to capital gains exemption under Section54EC on the ground that the bonds were not availabletill the last date for investment when the bonds wereavailable for the period of more than 5 months from thedate of sale of asset?” 2.1. The brief facts of the case are as under: Therespondent/assessee sold his property on 22.11.2006 and invested thesame in Rural Electrification Corporation Bonds (for brevity, “RECBonds”) on 2.7.2007, well beyond the period of six months stipulatedin Section 54EC of the Income Tax Act, 1961 (for brevity, “the Act”).Therefore, the Department took the plea that the assessee wasineligible for the capital gains exemption under Section 54EC of theAct. The stand of the assessee is that REC Bonds were notavailable between 1.4.2007 and 21.5.2007 (on which date the sixmonths period expires) and, therefore, he could not invest within sixmonths as stipulated in Section 54EC of the Act and that should notbe put against the assessee to disallow the capital gains exemptionunder Section 54EC of the Act. However, the Assessing Officerdeclined to grant capital gains exemption under Section 54EC of theAct. 2.2. The above said order of the Assessing Officer was, on appealby the assessee, confirmed by the Commissioner of Income Tax(Appeals). The Commissioner of Income Tax (Appeals) held that thebonds were available on the date of sale of the asset by theassessee, namely, 22.11.2006, till 31.3.2007, on which date theissuance of REC Bonds stood closed. It was observed that there wasfour months period available to the assessee to invest, during whichtime the assessee should have had the prudence to invest and havingfailed to do so, the assessee is not entitled to the benefit ofcapital gains exemption granted under Section 54EC of the Act. Therelevant portion of the order passed by the Commissioner of IncomeTax (Appeals) reads as under: 2.2. The above said order of the Assessing Officer was, on appealby the assessee, confirmed by the Commissioner of Income Tax(Appeals). The Commissioner of Income Tax (Appeals) held that thebonds were available on the date of sale of the asset by theassessee, namely, 22.11.2006, till 31.3.2007, on which date theissuance of REC Bonds stood closed. It was observed that there wasfour months period available to the assessee to invest, during whichtime the assessee should have had the prudence to invest and havingfailed to do so, the assessee is not entitled to the benefit ofcapital gains exemption granted under Section 54EC of the Act. Therelevant portion of the order passed by the Commissioner of IncomeTax (Appeals) reads as under: “Therefore, the assessee's claim non-availability of RECBonds in the market as on the last date to invest (i.e.21.5.2007) is not genuine and because of such non-availability of bonds on that particular date will notentitle the assessee to extend the time limits to investin the bonds till the next bonds are made available inmarket. Hence, the assessee's explanations have nomerits and the Assessing Officer, in my view, hasrightly disallowed the assessee's claim of deductionu/s.54EC of the Act on the investments made in REC Bondsafter the expiry of 6 months from the date of sale ofthe original asset. The disallowance made by AssessingOfficer is therefore, confirmed. The assessee fails in his appeals. In result, the assessee's appeal is dismissed.” 2.3. On further appeal by the assessee, the Tribunal, placingreliance on the decision of the Bombay High Court in Commissioner ofIncome Tax v. Cello Plast, (2012) 24 Taxmann.com 111 (Bom.), came tothe conclusion that since the bonds were not available during theperiod from 1.4.2007 to 1.7.2007, the assesee had no other optionexcept to invest in REC Bonds on 2.7.2007. The assessee's plea forgrant of capital gain exemption under Section 54EC of the Act wasaccepted and the appeal was allowed. Aggrieved by the said orderpassed by the Tribunal, the Revenue has filed this appeal. 3. The main plank of the argument of the learned Senior StandingCounsel appearing for the appellant is that the assessee could haveinvested in REC Bonds during the period from 22.11.2006 to 31.3.2007,during which period REC Bonds were available, and inasmuch as theassessee failed to invest in REC Bonds when the same were available,he cannot claim capital gains exemption under Section 54EC of the Act. 4. We have heard the learned Senior Standing Counsel appearingfor the appellant and perused the order passed by the Tribunal andthe authorities below. 5. Before adverting the merits of the case, it would be appositeto refer to Section 54EC of the Act, which reads as under:“Section 54EC. Capital gain not to be charged oninvestment in certain bonds.— (1) Where the capital gain arises from the transfer of along-term capital asset (the capital asset sotransferred being hereafter in this section referred toas the original asset) and the assessee has, at any timewithin a period of six months after the date of suchtransfer, invested the whole or any part of capitalgains in the long-term specified asset, the capital gainshall be dealt with in accordance with the followingprovisions of this section, that is to say,—(a) if the cost of the long-term specified asset is notless than the capital gain arising from the transfer ofthe original asset, the whole of such capital gain shallnot be charged under section 45 ; (b) if the cost of the long-term specified asset is lessthan the capital gain arising from the transfer of theoriginal asset, so much of the capital gain as bears tothe whole of the capital gain the same proportion as thecost of acquisition of the long-term specified assetbears to the whole of the capital gain, shall not becharged under section 45. (b) if the cost of the long-term specified asset is lessthan the capital gain arising from the transfer of theoriginal asset, so much of the capital gain as bears tothe whole of the capital gain the same proportion as thecost of acquisition of the long-term specified assetbears to the whole of the capital gain, shall not becharged under section 45. Provided that the investment made on or after the 1stday of April, 2007 in the long-term specified asset byan assessee during any financial year does not exceedfifty lakh rupees. (2) .................(3) ................. Explanation.- For the purposes of this section,- (a) ................. (b) “long-term specified asset” for making anyinvestment under this section during the periodcommencing from the 1st day of April, 2006 and endingwith the 31st day of March, 2007, means any bond,redeemable after three years and issued on or after the1st day of April, 2006, but on or before the 31st day ofMarch, 2007,— (i) by the National Highways Authority of Indiaconstituted under section 3 of the National HighwaysAuthority of India Act, 1988 (68 of 1988) ; or (ii) by the Rural Electrification Corporation Limited, acompany formed and registered under the Companies Act,1956 (1 of 1956), and notified by the Central Government in the OfficialGazette for the purposes of this section with suchconditions (including the condition for providing alimit on the amount of investment by an assessee in suchbond) as it thinks fit : Provided that where any bond has been notified beforethe 1st day of April, 2007, subject to the conditionsspecified in the notification, by the Central Governmentin the Official Gazette under the provisions of clause(b) as they stood immediately before their amendment bythe Finance Act, 2007, such bond shall be deemed to be abond notified under this clause; (ba) “long-term specified asset” for making anyinvestment under this section on or after the 1st day ofApril, 2007 means any bond, redeemable after three yearsand issued on or after the 1st day of April, 2007 by theNational Highways Authority of India constituted undersection 3 of the National Highways Authority Act, 1988 (68 of 1988) or by the Rural Electrification CorporationLimited, a company formed and registered under theCompanies Act, 1956 (1 of 1956).” 6. Section 54EC of the Act contemplates that where capital gainarises from the transfer of a long term capital asset and theassessee has, at any time within a period of six months after thedate of such transfer, invested the whole or any part of capitalgains in the long-term specified asset, the capital gain shall bedealt with in accordance with the provisions of the said Section.The purport of this section is to grant a benefit to the assessee,who had invested the capital gain that arises from the transfer oflong-term capital asset, within a period six months after the date ofsuch transfer, in the long-term specified asset. 7. There is no hard and fast rule that the assessee should investon a particular date within the six months period specified in thesaid provision. This is more so taking into consideration the factthat the assessee is entitled to invest in any such long termspecified asset specified in Explanation (b) to Section 54EC(3) thatwould be most beneficial to him. It is also possible that theassessee can wait till the last date to see whether any bond that isprofitable to him is issued. 7. There is no hard and fast rule that the assessee should investon a particular date within the six months period specified in thesaid provision. This is more so taking into consideration the factthat the assessee is entitled to invest in any such long termspecified asset specified in Explanation (b) to Section 54EC(3) thatwould be most beneficial to him. It is also possible that theassessee can wait till the last date to see whether any bond that isprofitable to him is issued. 8. In the present case, for more than 51 days REC Bonds were notavailable in the market and that fact is not in dispute. A readingof Section 54EC of the Act and the fact that REC Bonds were notavailable for a period of 51 days would go to show that prejudice iscaused to the assessee, as he will not be able to exercise the rightany time during the entire period of six months. In effect, when thebonds were not available from 1.4.2007 to 1.7.2007, it creates anartificial cut-off period contrary to Section 54EC of the Act. Thestatutory benefit granted under Section 54EC of the Act is sought tobe curtailed on the ground that the said option should have beenexercised in a period earlier to six months, even though such rightis available to the assessee for a period of six months as a whole.The assessee will be entitled to exercise his option during theentire period. The assessee can make his choice based on what isavailable or wait for a better option. However, he cannot beexpected to visualize unforeseen eventualities and do the impossible.In the present case, assessee chose to wait but by the meantime, theoption ran out and hence had to wait till the next opportunity. 9. The above said view is fortified by a decision of the BombayHigh Court in Commissioner of Income Tax v. Cello Plast, (2012) 24Taxmann.com 111 (Bom.), wherein a similar issue was considered and itwas held as under: “17. The submissions are not well founded. The RECbonds could not be purchased as they were not availablethroughout the period of six months commencing from thedate of the sale of the factory by the respondents andeven thereafter till the extended date of 31.12.2006under the CBDT Circular. That the bonds were availablefor a limited time during this period between 1.7.2006to 3.8.2008, makes no difference. The respondents hadtime till 21.9.2006, to invest in these bonds to availthe benefit under section 54EC. Section 54EC entitles aperson to avail of the right conferred thereby at anytime during the period of six months from the date ofsale of the asset. The respondents cannot be deprivedof this right conferred by the Act for no fault oftheirs. Thus, the availability of the bonds only for alimited time during this period cannot prejudice theassessee's right to exercise the same upto the lastdate. The bonds were admittedly not available exceptduring the said period. 18. Lex not cogit impossibila (law does not compel aman to do that which he cannot possibly perform) andimpossibilum nulla oblignto est (law does not expect aparty to do the impossible) are well known maxims in lawand would squarely apply to the present case. Thestatute viz. Section 54EC of the Act provides forexemption from tax to long term capital gain providedthe same is invested in bonds of Rural ElectrificationCorporation Limited or National Highway Authority ofIndia. However, as the bonds were not available, it wasimpossible for the respondent-assessee to invest in themwithin six months of the sale of their factory building.Therefore, in the circumstance one would have tointerpret Section 54EC of the Act ensure that it doesnot lead to injustice. The Apex Court in the matter of Directorate of Enforcement v. Deepak Mahajan (1994) 3SCC 440 observed as follows: Directorate of Enforcement v. Deepak Mahajan (1994) 3SCC 440 observed as follows: 'Though the function of the Courts is only toexpound the law and not to legislate, nonethelessthe legislature cannot be asked to sit to resolvethe difficulties in the implementation of itsintention and the spirit of the law. In suchcircumstances, it is the duty of the Court tomould or creatively interpret the legislation byliberally interpreting the statute.' Therefore, in the present facts, the six months providedfor investing in bonds may be reasonably extended inview of the non availability of bonds till 22.1.2007. 19. The contention of the appellant revenue that RuralElectrification bonds were available upto 3.8.2006 andthe respondent assessee should have purchased the bondsbefore 3.8.2006 is not sustainable as the time given bythe statue to invest in bods under Section 54EC of theAct is six months from the date of sale and, therefore,the respondent was entitled in law to wait till21.9.2006 to invest in the bonds.” Though the learned Senior Standing Counsel appearing for theappellant states that the facts in the above said decision areslightly different from facts of the present case, the said plea doesnot hold water in view of the reasoning given by us interpretingSection 54EC of the Act. 7. For the foregoing reasons, on the above stated facts, nosubstantial question of law arises for our consideration and we findno reason to interfere with the order of the Tribunal. sasiTo: 1.The Assistant Registrar,Income Tax Appellate TribunalChennai Bench "B", Chennai. 2.The Secretary, Central Board of Direct Taxes, New Delhi. 3.The Commissioner of Income Tax (Appeals-XII)Chennai – 600 034. 4. The Commissioner of Income Tax-X Chennai. 5. The Assistant Commissioner of Income Tax Business Circle - XV Chennai. +1cc to Mr.J. Narayanaswamy ,Advocate SR.No.30827 SV(CO)ka 08/08 T.C.(A).No.49 of 2014 14.7.2014