Sections 54EA and 54EB l Exemption of Capital Gains on Transfer of Long-term Capital Assets in Case of Investment in Specified Securities, ETC.,
Circular No. 748 was issued by the Central Board of Direct Taxes on 19 December 1996. Its subject is Sections 54EA and 54EB l Exemption of Capital Gains on Transfer of Long-term Capital Assets in Case of Investment in Specified Securities, ETC.,.
This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.
Sets the conditions on which the Board will approve investment instruments for the new capital gains exemptions in sections 54EA and 54EB. Those sections, introduced by the Finance (No. 2) Act, 1996 with effect from 1 October 1996 and applying to transfers of long-term capital assets on or after that date, exempt capital gains where the net consideration, under section 54EA, or the capital gains, under section 54EB, are invested in approved instruments. Public companies and public financial institutions must apply to the Board for their instruments to be notified; mutual funds referred to in section 10(23D), including the Unit Trust of India, need not apply. Sixty per cent of the capital raised through the bonds or debentures, the investible capital, must go into infrastructure facilities as defined in section 80-IA(12), or into companies generating power or generating and distributing power, companies in basic telephone services, or exploration or extraction of oil and natural gas. At least twenty-five per cent of the investible capital must be so invested within one year of the Board's approval, and the balance within three years. The issuer must file a certificate from an accountant as defined in the Explanation to section 288(2) showing the amount invested each year from the date of approval. The Board may withdraw approval if the issuer fails to make the investments within those periods or fails to file the certificate.
The two new exemption sections required approved instruments, and the Board framed guidelines for approving them.
SECTIONS 54EA AND 54EB l EXEMPTION OF CAPITAL GAINS ON TRANSFER OF LONG-TERM CAPITAL ASSETS IN CASE OF INVESTMENT IN SPECIFIED SECURITIES, ETC.,
Guidelines for companies and mutual funds in respect of approved investments for purposes of sections 54EA and 54EB1. Sections 54EA and 54EB of the Income-tax Act, 1961 have been introduced by the Finance (No. 2) Act, 1996 with effect from 1-10-1996 will consequently apply in relation to transfer of long-term capital assets on or after this date. Capital gains tax will be exempted in cases where net consideration (section 54EA) or the capital gains (section 54EB) is invested in certain approved instruments. The approved instruments under both the aforesaid sections have been notified separately. The Board have framed the following guidelines for approving investment instruments for the purposes of the above sections :—
1. (a) Applications to be sent by public companies and public financial institutions to the CBDT for notifying investment instruments.
(b) Mutual Funds referred to in section 10(23D) of the Income-tax Act including Unit Trust of India, need not make applications for this purpose.
2. Sixty per cent of Capital (hereinafter called investible capital) raised through bonds or debentures to be invested in infrastructure facilities as defined in sub-section (12) of section 80-IA of the Income-tax Act, 1961, or in companies generating power or generating and distributing power or in companies engaged in basic telephone services or in the exploration/extraction of oil and natural gas.
3. 25 per cent or more of the investible capital shall be invested in the infrastructure facility specified in sub-section (12) of section 80-IA, etc., as mentioned in para (2) above, before the end of one year from the date of approval by the Board.
4. The balance of investible capital shall be invested within a period of three years from the date of approval by the Board.
5. Every public company or public financial institution shall submit a certificate from an Accountant, as defined in the Explanation to sub-section (2) of section 288, specifying the amount invested in each year, from the date of approval by the Board.
6. The Board shall have the power to withdraw the approval granted in the following circumstances, namely :—
(a) if such public company or public financial institution fails to make investments as per conditions mentioned in sub-item (3), or (4) above; or
(b) if such public company or public financial institutions fails to file the certificate referred to in sub-item (5) above.
Circular : No. 748, dated 19-12-1996.
In an assessment of an exemption claimed on such bonds, and in an issuer's compliance file when the Board calls for the accountant's certificate.
Source: the Income Tax Department’s own published text — its page for this instrument.