I sold property in February and put Rs.50 lakh into bonds in March and another Rs.50 lakh in June, both within six months. Can I claim section 54EC on the whole Rs.1 crore?
Yes, for transfers before the 2014 amendment. The Madras High Court held that section 54EC(1) fixes a six month window for investment, while the first proviso caps investment at Rs.50 lakh in any financial year. Read together, an assessee who invests Rs.50 lakh in each of two financial years, both within six months of the transfer, gets the exemption on the full Rs.1 crore. The Court declined to read the ceiling into the sub-section itself. Parliament closed the gap by a second proviso inserted by the Finance (No. 2) Act, 2014 with effect from 1 April 2015, so the answer is different from assessment year 2015-16 onwards.
Decided by the High Court (High Court of Judicature at Madras - Justice R. Sudhakar and Justice G.M. Akbar Ali (judgment delivered by R. Sudhakar, J)) on 2014-09-15, reported as T.C.(A) Nos. 419 and 533 of 2014 (Madras High Court). It bears on section 54EC, section 54EC(1), section 255(4) of the Income Tax Act 1961, in Capital Gains and Capital Gains Exemptions matters.
This is the leading High Court authority on the split-year section 54EC claim, and it remains relevant for two reasons. It is the case to cite for any transfer in a year before assessment year 2015-16 that is still under appeal or reassessment. And its method is worth borrowing: the ceiling was in the proviso, expressed by reference to the financial year, and the Court refused to relocate it into the operative sub-section, observing that it would have been a different matter had the restriction been written into section 54EC(1) itself. The Court also used the Notes on Clauses and the Memorandum to the Finance (No. 2) Bill, 2014, which candidly admit the wording had created an ambiguity, as confirming that the earlier text bore the assessee's reading. For transfers on or after 1 April 2014, the second proviso settles the matter against the assessee.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Two Revenue appeals raising the same point were heard together. Taking the facts in T.C.(A) No. 533 of 2014, the assessee sold a property at Palavakkam for Rs.3,46,50,000 under an agreement of sale dated 18 February 2008, so the six month window ran to 17 August 2008. He invested Rs.50,00,000 in Rural Electrification Corporation bonds on 27 February 2008, falling in financial year 2007-08, and a further Rs.50,00,000 in National Highways Authority of India bonds on 30 June 2008, falling in financial year 2008-09. Both investments were within six months of the transfer. The Assessing Officer allowed only Rs.50,00,000, holding that the proviso to section 54EC(1) caps the exemption at that figure, and disallowed the balance. The Commissioner (Appeals) confirmed. The Tribunal allowed the assessee's appeal, holding that the proviso operates financial year-wise rather than transaction-wise. The Revenue appealed under section 260A, raising two questions: whether the deduction of Rs.1 crore was available on investments of Rs.50 lakh in two different financial years, and whether the Tribunal should have referred the matter to a Special Bench under section 255(4) in view of conflicting Bench decisions.
Both appeals were dismissed and the questions answered against the Revenue. Section 54EC(1) prescribes the time limit for investment - six months from the date of transfer - and the first proviso caps the investment made in the long-term specified asset during any financial year at Rs.50 lakh. On that language, where the six month period straddles two financial years and Rs.50 lakh is invested in each, the exemption cannot be denied on the whole Rs.1 crore. The Court said it would have made a difference had the restriction to Rs.50 lakh been written into section 54EC(1) itself rather than into the proviso, and it declined to read anything more into the first proviso as it stood. It found no infirmity in the Tribunal's orders and therefore did not need to disturb them on the Special Bench question either.
The Court separated the two limbs of the provision. The operative sub-section imposes a temporal condition: the investment must be made within six months of the transfer. The first proviso imposes a quantitative condition expressed by reference to a period that is not the same period: investment made on or after 1 April 2007 in the long-term specified asset by an assessee during any financial year must not exceed fifty lakh rupees. Because the two periods are differently defined, a six month window that begins after September in a financial year necessarily allows two separate financial year ceilings to be used. The Court then took the legislature's own account of the position. The Finance (No. 2) Act, 2014 inserted a second proviso, with effect from 1 April 2015, limiting the investment out of the gains from one or more original assets, during the financial year of transfer and the subsequent financial year, to fifty lakh rupees. The Memorandum explaining the Bill states in terms that the wording of the existing proviso had created an ambiguity, that gains arising after September were being invested so as to split the investment across two years within the six months, and that this resulted in a claim for one crore against an intended limit of fifty lakh. The Court read the express prospective operation of that amendment, from assessment year 2015-16, as showing that Parliament had chosen to correct the position for the future and to avoid litigation over earlier years, and refused to achieve the same result by construction for years before it.
the time limit for investment is six months from the date of transfer and even if such investment falls under two financial years, the benefit claimed by the assessee cannot be denied.
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Handle my notice → Ask a CA on WhatsAppYes, for transfers before the 2014 amendment. The Madras High Court held that section 54EC(1) fixes a six month window for investment, while the first proviso caps investment at Rs.50 lakh in any financial year. Read together, an assessee who invests Rs.50 lakh in each of two financial years, both within six months of the transfer, gets the exemption on the full Rs.1 crore. The Court declined to read the ceiling into the sub-section itself. Parliament closed the gap by a second proviso inserted by the Finance (No. 2) Act, 2014 with effect from 1 April 2015, so the answer is different from assessment year 2015-16 onwards. This was decided by the High Court (High Court of Judicature at Madras - Justice R. Sudhakar and Justice G.M. Akbar Ali (judgment delivered by R. Sudhakar, J)) and bears on section 54EC, section 54EC(1), section 255(4) of the Income Tax Act 1961. It is reported as T.C.(A) Nos. 419 and 533 of 2014 (Madras High Court). This is the leading High Court authority on the split-year section 54EC claim, and it remains relevant for two reasons. It is the case to cite for any transfer in a year before assessment year 2015-16 that is still under appeal or reassessment. And its method is worth borrowing: the ceiling was in the proviso, expressed by reference to the financial year, and the Court refused to relocate it into the operative sub-section, observing that it would have been a different matter had the restriction been written into section 54EC(1) itself. The Court also used the Notes on Clauses and the Memorandum to the Finance (No. 2) Bill, 2014, which candidly admit the wording had created an ambiguity, as confirming that the earlier text bore the assessee's reading. For transfers on or after 1 April 2014, the second proviso settles the matter against the assessee. If it applies to you, the first step is this: Check the year of transfer before advising: the split across two financial years works only for transfers falling before the second proviso applied from assessment year 2015-16.
Two Revenue appeals raising the same point were heard together. Taking the facts in T.C.(A) No. 533 of 2014, the assessee sold a property at Palavakkam for Rs.3,46,50,000 under an agreement of sale dated 18 February 2008, so the six month window ran to 17 August 2008. He invested Rs.50,00,000 in Rural Electrification Corporation bonds on 27 February 2008, falling in financial year 2007-08, and a further Rs.50,00,000 in National Highways Authority of India bonds on 30 June 2008, falling in financial year 2008-09. Both investments were within six months of the transfer. The Assessing Officer allowed only Rs.50,00,000, holding that the proviso to section 54EC(1) caps the exemption at that figure, and disallowed the balance. The Commissioner (Appeals) confirmed. The Tribunal allowed the assessee's appeal, holding that the proviso operates financial year-wise rather than transaction-wise. The Revenue appealed under section 260A, raising two questions: whether the deduction of Rs.1 crore was available on investments of Rs.50 lakh in two different financial years, and whether the Tribunal should have referred the matter to a Special Bench under section 255(4) in view of conflicting Bench decisions. The matter was decided on 2014-09-15 by the High Court (High Court of Judicature at Madras - Justice R. Sudhakar and Justice G.M. Akbar Ali (judgment delivered by R. Sudhakar, J)). On those facts the High Court held as follows. Both appeals were dismissed and the questions answered against the Revenue. Section 54EC(1) prescribes the time limit for investment - six months from the date of transfer - and the first proviso caps the investment made in the long-term specified asset during any financial year at Rs.50 lakh. On that language, where the six month period straddles two financial years and Rs.50 lakh is invested in each, the exemption cannot be denied on the whole Rs.1 crore. The Court said it would have made a difference had the restriction to Rs.50 lakh been written into section 54EC(1) itself rather than into the proviso, and it declined to read anything more into the first proviso as it stood. It found no infirmity in the Tribunal's orders and therefore did not need to disturb them on the Special Bench question either.
The Court separated the two limbs of the provision. The operative sub-section imposes a temporal condition: the investment must be made within six months of the transfer. The first proviso imposes a quantitative condition expressed by reference to a period that is not the same period: investment made on or after 1 April 2007 in the long-term specified asset by an assessee during any financial year must not exceed fifty lakh rupees. Because the two periods are differently defined, a six month window that begins after September in a financial year necessarily allows two separate financial year ceilings to be used. The Court then took the legislature's own account of the position. The Finance (No. 2) Act, 2014 inserted a second proviso, with effect from 1 April 2015, limiting the investment out of the gains from one or more original assets, during the financial year of transfer and the subsequent financial year, to fifty lakh rupees. The Memorandum explaining the Bill states in terms that the wording of the existing proviso had created an ambiguity, that gains arising after September were being invested so as to split the investment across two years within the six months, and that this resulted in a claim for one crore against an intended limit of fifty lakh. The Court read the express prospective operation of that amendment, from assessment year 2015-16, as showing that Parliament had chosen to correct the position for the future and to avoid litigation over earlier years, and refused to achieve the same result by construction for years before it. In the words reproduced by the source cited on this page: "the time limit for investment is six months from the date of transfer and even if such investment falls under two financial years, the benefit claimed by the assessee cannot be denied."
It was decided by the High Court on 2014-09-15 and is reported as T.C.(A) Nos. 419 and 533 of 2014 (Madras High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 54EC, section 54EC(1), section 255(4), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Both appeals were dismissed and the questions answered against the Revenue. Section 54EC(1) prescribes the time limit for investment - six months from the date of transfer - and the first proviso caps the investment made in the long-term specified asset during any financial year at Rs.50 lakh. On that language, where the six month period straddles two financial years and Rs.50 lakh is invested in each, the exemption cannot be denied on the whole Rs.1 crore. The Court said it would have made a difference had the restriction to Rs.50 lakh been written into section 54EC(1) itself rather than into the proviso, and it declined to read anything more into the first proviso as it stood. It found no infirmity in the Tribunal's orders and therefore did not need to disturb them on the Special Bench question either. It arises in Capital Gains and Capital Gains Exemptions matters, on section 54EC, section 54EC(1), section 255(4) of the Income Tax Act 1961, and was decided by High Court of Judicature at Madras - Justice R. Sudhakar and Justice G.M. Akbar Ali (judgment delivered by R. Sudhakar, J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where the point is still live for an earlier year, show that both investments fell within six months of the date of transfer - that is the condition in the sub-section, and it must be satisfied for each tranche. Cite the Memorandum to the Finance (No. 2) Bill, 2014, which admits the earlier proviso created the ambiguity, as support for the reading of the unamended text. For current transfers, plan on a single ceiling across the year of transfer and the following year, and look elsewhere for relief on the balance.
Superseded by amendment. The construction is sound for the years before the change, and I read the judgment in full including the operative dismissal. But the judgment itself records the second proviso to section 54EC(1), inserted by the Finance (No. 2) Act, 2014 with effect from 1 April 2015, which caps investment across the year of transfer and the following year at fifty lakh rupees and so removes the benefit for assessment year 2015-16 onwards. I could not check whether the Revenue took this judgment to the Supreme Court. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line listed section 45; the judgment does not decide anything under section 45 - it construes section 54EC(1) and its first proviso. Section 255(4) is added from the judgment, though the Court did not need to answer that question separately. The judgment records that there were conflicting Tribunal Bench decisions on the point but does not identify them. The source page carried no reporter citations, so the case numbers are given instead. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Both appeals were dismissed and the questions answered against the Revenue. Section 54EC(1) prescribes the time limit for investment - six months from the date of transfer - and the first proviso caps the investment made in the long-term specified asset during any financial year at Rs.50 lakh. On that language, where the six month period straddles two financial years and Rs.50 lakh is invested in each, the exemption cannot be denied on the whole Rs.1 crore. The Court said it would have made a difference had the restriction to Rs.50 lakh been written into section 54EC(1) itself rather than into the proviso, and it declined to read anything more into the first proviso as it stood. It found no infirmity in the Tribunal's orders and therefore did not need to disturb them on the Special Bench question either.
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