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Though equity and taxation are often held as strangers,

Courts have ensured that they do not always remain so!

             Courts have been liberal in their judicial interpretations, while dealing with issues relating to exemption provisions, holding that “a beneficial section has to be construed liberally, having due regard to the object which it intends to serve.”

            In a recent matter that came up before the Punjab & Haryana High Court in the case of ‘CIT vs. Jagtar Singh Chawla’ [2013] 33 38, the taxpayer had sold his property on 20.06.2006 for a consideration of Rs. 2.24 crores. The said amount was not invested in the capital gains account scheme by the due date of filing the return under Section 139(1) (i.e., 31.07.2007) and was instead used to purchase a new residential house on 31.3.2008. The taxpayer claimed exemption under Section 54F which was denied by the Assessing Officer & Commissioner (Appeals) on the ground that under Section 54F(4), the amount of the consideration which is not appropriated for purchase of the new asset before the date of furnishing the return of income had to be deposited in the “capital gains account scheme” before the due date for filing the return of income under Section 139(1). 

          The High Court held that though Section 54F(4) provides that the amount not appropriated towards purchase of the new asset has to be deposited in the capital gains account scheme before the due date for filing the return under Section 139(1), sub-section (4) of Section 139 is in the nature of a proviso to Section 139(1). Section 139(4) provides that a person who has not furnished a return within the time allowed to him under Section 139(1) may furnish the return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. For Assessment Year 2007-08, the last date for filing the return under Section 139(4) is 31.3.2009. This extended time limit is available for making deposit in the capital gains account scheme. As the taxpayer had invested the consideration in purchase of a new house before that date, the exemption has to be allowed.

            Keeping in view the above ratio, a taxpayer can usefully rely on the same, where the investment has been made, though not before the due date for filing the return, but before the actual filing of the return.


           The Kolkatta Bench of the Income-tax Appellate Tribunal (ITAT), in the case of ‘Chanchal Kumar Sirkar vs. ITO [2012] 18 304 (Kol.)’,had occasion to deal with a situation where upon execution of the agreement for sale, the taxpayer handed over possession of the property, but received the sale consideration in instalments. The taxpayer invested the consideration received in the capital gain bonds and claimed exemption under Section 54EC, which was denied by the Assessing Officer on the ground that it was beyond 6 months from the date of transfer. The Tribunal held that in case of receipt of sale consideration in instalments, period of six months for claiming deduction under section 54EC has to be calculated from date of actual receipt of amount.

          The ITAT observed that in this type of case, the period of six months for making deposit under section 54EC should be reckoned from the dates of actual receipt of the consideration. If the period is reckoned from the date of agreement and receipt of part payment at the first instance, then it would lead to an impossible situation by asking the taxpayer to invest money in specified asset before actual receipt of the same.

          The above view is supported by the decision of Andhra Pradesh High Court in the case of ‘S. Gopal Reddy v. CIT [1990] 181 ITR 378,’ wherein in a similar situation of delayed receipt of compensation amount on acquisition of property, the High Court observed that if the investment in specified asset was made within a period of six months from the date of receipt of compensation, as against the date of acquisition of the property denoting transfer thereof, the same should be considered to be sufficient compliance for the purpose of claiming exemption under section 54E.

          The High Court observed, “That a taxing statute or any other statute has to be construed reasonably and every effort should always be made to ascertain the intention of Parliament from the words employed and, as far as possible, an interpretation which leads to absurdity should be avoided. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction would be preferred to the literal construction.” The Court also observed that, “under the provisions of section 54E, what is to be invested in specified assets is ‘the consideration or any part thereof’ and unless the consideration is received, or accrues, there is no question of investing it.” 


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