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ITAT holds that taxpayer can claim simultaneous LTCG exemption for investment in house & bonds!

A taxpayer derived long-term capital gains of Rs. 3.40 crores from sale of his ancestral property. Out of the same, he invested Rs. 2.60 crores in a new house for which he claimed exemption under Section 54F of the Income-tax Act. He also invested Rs. 50 lakhs in the specified REC bonds for which he claimed exemption under Section 54EC.

The Assessing Officer denied claim for exemption in respect of the aforesaid bonds investment of Rs. 50 lakhs under Section 54EC, on the ground that since the taxpayer had availed exemption via investment in house under Section 54F, the balance amount could have only been deposited under the Capital Gains Account Scheme for further investment in house and not for any investment in REC capital gains bonds.

The Commissioner (Appeals) allowed the taxpayer’s claim against which the Department preferred an appeal before the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT).

While dealing with the above situation in ‘ACIT vs. Deepak S. Bheda’ [2012] 23 159 (Mumbai), the Tribunal, in its very recent decision pronounced on June 15, 2012, has held that that this was not a case of availing double exemption on the same amount. The taxpayer had claimed exemption under Section 54F as well as under Section 54 EC for the respective amount of capital gain invested in the purchase of new house and REC bonds.

The ITAT noted that wherever any such restriction is deemed fit, the legislature has provided in the statute a sufficient check under chapter VI-A of the Income-tax Act. As far as the claim of exemption under Section 54F and under Section 54 EC, there is no such restriction in the statute that the taxpayer cannot claim the exemption under both sections, even if the conditions provided under the respective sections are complied with and the same does not result in availing double exemption on the same amount.

Analyzing the provisions of Section 54EC, the Tribunal observed that the expression ‘the whole or any part of capital gains in the long term specified assets’ makes it clear that the exemption under Section 54 EC is available even when part of the capital gain is invested in the specified long-term asset. The ITAT held that there was no dispute that the taxpayer had invested out of the total capital gain in REC bonds within the prescribed period of time as provided under the section. Therefore, once the conditions as prescribed under Section 54 EC have been complied with, then the deduction cannot be denied on the ground that the taxpayer has also availed the exemption under Section 54F against part of the capital gain.


       In the context of the need for judicious interpretation of taxing statutes by the officers of the Income-tax Department, the following observations of the Karnataka High Court in the case of ‘CIT vs. Ranka and Ranka [2012] 19 65 (Kar.)’ merit an important mention and interesting reading: “It is our experience that in most of the cases, the levy of tax is made by placing such interpretation on the provision of the Act, so as to defeat the very object of those provisions. The Parliament with the best of intention, as incentive to trade and industry, has extended several benefits under the Act. Without properly appreciating the context and the object with which these provisions are enacted, the Department has interpreted the same in a manner that prevents its benefit reaching the persons for whom it is intended. In most of the cases, the Tribunals have come to the rescue of such taxpayers, have interpreted these provisions in the proper perspective and have extended the benefit to the taxpayers.”

      In the above case, the High Court also came down heavily on the attitude of tax authorities, who display lack of accountability by mechanically filing appeals in the High Court even against judicious orders, in a spirit of compulsive litigation without any sense of responsibility. In this backdrop, the High Court observed that, “It is also our experience that most of the appeals which are filed by the Revenue are frivolous and vexatious. The majority of the appeals are filed with the sole object of leaving it to the Courts for ultimate decision. The approach is, ‘let the Court decide.’ The authorities who decide to prefer appeals are just not prepared to take responsibility. There is an attempt to save their skin, so that tomorrow they are not held responsible in any manner. It is this approach, which is to be eschewed and condemned, as stated in the National Litigation Policy.”


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