Pune ITAT in Mahesh Nemichandra Ganeshwade vs ITO taking a liberal view on section 54EC has held that investment u/s 54EC can be made within 6 months from the date of receipt of consideration if the same could not be made within 6 months from the date of transfer of the capital asset.
ITAT relying upon the circular No. 791 dated 02.6.2000 of CBDT wherein CBDT has held in the context of capital gains arising u/s 45(2), that though the transfer arises in the year of conversion of a capital asset into stock-in-trade, the period of 6 months for investment u/s 54E has to be reckoned from the date of sale of the stock-in-trade, allowed the exemption u/s 54EC in such case.
Facts: The assessee entered into a development agreement on 12.7.2005 in which the consideration was fixed at Rs 2.50 crores. A correction deed was entered into on 2.7.2007 in which the sale consideration was increased to Rs. 4.90 crores. The assessee invested Rs. 50 lakhs in s. 54EC bonds on 3.8.2007 and 27.10.2007. The AO held that the date of transfer was 12.7.2005 and as the s. 54EC investments had been made beyond a period of 6 months from the date of transfer, the exemption was not available. The assessee claimed that as it was impossible for him to invest within 6 months from the date of transfer, the period of 6 months had to be reckoned from the date of receipt of consideration. HELD by the Tribunal:
Held: Though s. 54EC requires the investment to be made within 6 months of the date of transfer, a technical interpretation cannot be adopted but it has to be interpreted having regard to the purpose and spirit of the section. In Circular No 791 dated 2.6.2000 the CBDT held in the context of capital gains arising u/s 45(2), that though the transfer arises in the year of conversion of a capital asset into stock-in-trade, the period of 6 months for investment u/s 54E has to be reckoned from the date of sale of the stock-in-trade. The CBDT appreciated the impossibility of the assessee being able to invest the amount in specified assets within six months from the date of transfer. This interpretation of the CBDT supports the assessee’s claim that where the consideration is received much after the date of transfer and it is not possible to invest the same within 6 months of the date of transfer, the period of 6 months must be reckoned from the date of receipt of consideration.
Circular No. 791 dt. 2.6.2000 is as follows:
Full Judgement can be downloaded herebelow:
Mahesh Nemichandra Ganeshwade vs ITO
ITAT relying upon the circular No. 791 dated 02.6.2000 of CBDT wherein CBDT has held in the context of capital gains arising u/s 45(2), that though the transfer arises in the year of conversion of a capital asset into stock-in-trade, the period of 6 months for investment u/s 54E has to be reckoned from the date of sale of the stock-in-trade, allowed the exemption u/s 54EC in such case.
Facts: The assessee entered into a development agreement on 12.7.2005 in which the consideration was fixed at Rs 2.50 crores. A correction deed was entered into on 2.7.2007 in which the sale consideration was increased to Rs. 4.90 crores. The assessee invested Rs. 50 lakhs in s. 54EC bonds on 3.8.2007 and 27.10.2007. The AO held that the date of transfer was 12.7.2005 and as the s. 54EC investments had been made beyond a period of 6 months from the date of transfer, the exemption was not available. The assessee claimed that as it was impossible for him to invest within 6 months from the date of transfer, the period of 6 months had to be reckoned from the date of receipt of consideration. HELD by the Tribunal:
Held: Though s. 54EC requires the investment to be made within 6 months of the date of transfer, a technical interpretation cannot be adopted but it has to be interpreted having regard to the purpose and spirit of the section. In Circular No 791 dated 2.6.2000 the CBDT held in the context of capital gains arising u/s 45(2), that though the transfer arises in the year of conversion of a capital asset into stock-in-trade, the period of 6 months for investment u/s 54E has to be reckoned from the date of sale of the stock-in-trade. The CBDT appreciated the impossibility of the assessee being able to invest the amount in specified assets within six months from the date of transfer. This interpretation of the CBDT supports the assessee’s claim that where the consideration is received much after the date of transfer and it is not possible to invest the same within 6 months of the date of transfer, the period of 6 months must be reckoned from the date of receipt of consideration.
Circular No. 791 dt. 2.6.2000 is as follows:
Circular No | : | 791 |
| Date of Issue | : | 2.6.2000 |
| Section(s) Referred | : | 45(2) |
| Statute | : | Income-Tax Act |
Subject : Tax exemption on the sale of capital assets converted into stock-in-trade-Clarification regarding section 45(2) read with section 54E, 54EA, 54EB & 54EC of the Income-tax Act,1961
Section 2(47) of the Income-tax Act provides that any conversion of capital assets into stock-in-trade shall be regarded as a transfer. This transfer arises in the year in which such conversion takes place and, accordingly, capital gain would normally arise in that very year. However, section 45(2) of the Act postpones the assessment of such capital gains to the year in which the stock-in-trade is actually sold or otherwise transferred by the assessee.
2. In order to qualify for deduction under section 54E of the Act, the investment in specified assets was required to be made within six months from the date of transfer. A question had arisen as to whether the date of transfer, as referred to in section 54E of the Act, is the date of conversion of the capital asset into stock-in-trade or the date on which the stock-in-trade is sold or otherwise transferred by the assessee.
3. The Board had earlier issued a circular no.560 dated 18-5-90, in consultation with Ministry of Law, clarifying that for purposes of section 54E of the Act, the date of transfer in such cases is the date on which the capital asset is converted by the assessee into stock-in-trade and not the date on which such stock-in-trade is sold or otherwise transferred by the assessee. Section 54E became inoperative for transfers made on or after 1.4.1992
4. Section 54EA, 54EB and 54EC also provide deduction from long term capital gain if the sale proceeds/long term capital gain is invested in specified assets within a period of 6 months from the date of transfer. It is not possible for an assessee to make the required investment under the aforesaid sections at the point of conversion of capital asset into stock-in-trade because the right to collect sales consideration in such cases arises only at the point of sale or transfer otherwise of stock-in-trade. The Board has considered the matter afresh in consultation with the Ministry of Law and has decided that the period of 6 months for making investments in specified assets for the purpose of sections 54EA, 54EB and 54EC should be taken from the date such stock-in-trade is sold or otherwise transferred, in terms of section 45(2) of the Act.
5. This may be brought to the knowledge of all officers of your region.
Sd/-
Kamlesh C. Varshney
Under Secretary to the Govt. of India
Kamlesh C. Varshney
Under Secretary to the Govt. of India
[F. No. 225/98/2000-ITA-II, dt. 02-06-2000 from CBDT, New Delhi]
Full Judgement can be downloaded herebelow:
Mahesh Nemichandra Ganeshwade vs ITO
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