This exemption is available to an individual, HUF, company or any other person who invests the long term capital gain, within 6 months of the transfer of the capital asset, in any of the specified bond (issued on or after April 1, 2006) redeemable after 3 years:
- National Highway Authority of India (NHAI), or
- Rural Electrification Corporation Ltd. (REC)
There is a limit of Rs. 50 lakh on the investments on or after April 1, 2007.
The face value of a bond is generally Rs. 10,000 and the rate of return correctly averages about 5.5 to 5.75 per cent. This return is taxable income.
Capital Gain shall be exempt to the extent it is invested in the long term specified assets (subject to a maximum limit of Rs. 50 lakhs) within a period of six months from the date of such transfer.
S. 54EC can be summarized as under:
| Section | Asset | AsSessee | Holding Period of Original Assets | Whether Reinvestment Necessary-Time Limit | Other Conditions/ Incidents | Quantum |
| 54EC | Any Long Term Capital Asset(LTCA) | Any Assessee | Shares, Listed Securities, Units of UTI/Mutual Fund covered u/s. 10(23D) :1 year Others : 3 years | Yes — Whole or any part of capital gain in bonds redeemable after 3 years and issued on or after 1-4-2006 by NHAI or REC and notified by the Govt. – within 6 months from the date of transfer. | The amount of gain or the cost of new asset whichever is lower subject to Rs. 50,00,000 per assessee during any financial year for investments made on or after 1-4-2007. Also investment in bonds notified before 1-4-2007 would be subject to conditions laid down in notification including limiting condi- tions (i.e., Rs. 50 lakhs per assessee) |
Related Cases:
S. 14A, 54EC, 115JB of IT Act, 1961—Book profit—S. 115JB of the Act, has an overriding effect upon the provision of the Act. Under sub-s. (2) of S. 115JB the assessee-company shall prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part-II and III of Schedule VI of the companies Act, 1956. The method of determining of “Book Profit” u/s 115JB is a self contained code as so provided in the Explanation thereto. No deductions, rebates or allowances other than what is stated in the Explanation are available for computation of book profit. The net profit as shown in the profit and loss account would include such items also which are separately shown or disclosed in the notes to the accounts as per the requirement of the Companies Act or Parts II and III of Schedule VI to the companies Act. In the absence of any provision for exclusion of capital gains in the computation of book profit under the above provision, S. 54EC has no application in the computation of book profit u/s 115JB of the Act—Growth Avence Securities P. Ltd vs. DCIT [2010] 1 ITR (Trib) 807 (ITAT-Delhi)
S. 54 EC & 147 of Income tax Act, 1961—Reassessment—Exemption u/s 54 EC—The third grand for re-opening the assessment relates to the exemption claimed u/s 54EC. For the purposes of the provisions of S. 54EC, the date of the investment by the assessee must be regarded as the date on which payment was made and received by the National Housing Bank. This was within a period of six months from the date of the transfer of the asset. Consequently, the provisions of S. 54EC were complied with by the assessee. There is absolutely rio basis in the ground for reopening the assessment. Hindustan Unilever Ltd. vs. DCIT & Ors [2010] 14 ITCD 73 (Bom)
S. 2(13), 28(i), 45 & 54EC of IT Act, 1961—Capital gain—The words business defined u/s 2(13) which covered adventure in the nature of trade is on sale of agriculture land and sold after converting the land into plots for a better price that alone is the activity therefore, such activities cannot within the purview of adventure in the nature of trade in business. After purchasing a peace of agriculture land, the assessee carried on agricultural activities while holding the land more than 40 year and thereafter it obtained permission for development residential sites. Such activity cannot be held adventure in the nature of trade. Since the sale proceeds were invested in bonds approved u/s 54EC, the assessee is entitled to exemption—ITO vs. D. N. Krishnappa (2009) 126 TTJ 140 (ITAT-Bang)
S. 2(42A), 2(47)(v), 2(47)(vi), 45 & 54EC of IT Act, 1961—Capital gain—u/s 2(47)(v) any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred in S. 53A of the Transfer of Property Act would come within the ambit of S. 2(47)(v). In order to attract S. 53A, the following conditions need to be fulfilled as there should be a contract for consideration; it should be in writing; it should be signed by the transferor, it should be pertained to transfer of immovable property; the transferee should have taken possession of the property; lastly, the transferee should be ready and willing to perform his part of the contract. Assessee-co-owner of a property purchased in the year 1990 along with other co-owners entered into a development agreement on 31st Oct., 2000 with a developer. Under the said agreement, all co-owners get 32.5 per cent of total constructed area form the developer and balance 67.5 per cent was retained by developer. Assessee sold his share during financial year 2004-05 and claimed exemption u/s 54C against the capital gain claiming it to be long-term capital gain. Said development agreement resulted in confirming of the rights of ownership of the developers share of the land up to the developer on the date on which it entered and same would constitute a transfer in relation to developers share in that capital, i.e., 67.5 per cent of land, accordingly the assessees claim seeking exemption u/s 54EC is allowable—ITO vs. Vikash Behal (2010) 131 TTJ 229 (ITAT-Kol)
S. 2(47), 54EC & 263 of IT Act, 1961—Revision—As per provisions of S. 2(47), the word “transfer” has a much wider meaning as contemplated in the IT Act, 1961 itself. cl. (v) of S. 2(47) is explicitly clear that by possession or retention in part performance of contract as referred to in S. 53A of the Transfer of Property Act, 1882, transfer can take place. There is no bar on such transfer. Therefore if by way of a part performance of a contract as contemplated in S. 53A of Transfer of Property Act (i.e. agreement to sale) the assessee has received advance payments and deposited the same in specified bonds, he cannot be charged of defrauding the law when there is no bar to take possession by an agreement and transfer can be treated to have taken place on the basis of an agreement and advance payment. Assessing Officer allowed exemption u/s 54EC of the IT Act on the basis of said investment. Hence, the CIT is not justified in invoking the jurisdiction u/s 263 of the Act to disallow the exemption u/s 54EC of the Act—Bhikulal Chandak (HUF) vs. ITO (2009) 126 TTJ 545 (ITAT-Nag.)
S. 50C(1), (3), 54EC of IT Act, 1961—Capital gain—As per S. 50C(1), the valuation as fixed by the stamp valuation authority is taken as a bench mark, as per sub-s. (2) of S. 50C, the bench mark can be reviewed by reference to the valuation officer if the assessee claims that such value exceeds the fair market value—ITO vs. Ms. Kumudini Venugopal (2010) 5 ITR (Trib) 145 (ITAT-Chennai)
S. 50, 54EC, 143, 147 of IT Act, 1961—Reassessment—The initiation and dropping of proceedings u/s 154 cannot be equated with passing of an assessment order. The Assessing Officer reopened the assessment on the ground that the assessee had shown the long-term capital gains on the depreciable assets after applying cost inflation index method and after claiming exemption u/s 54EC of the Act instead of showing the short-term capital gains, according to the provisions of S. 50 of the Act. Hence reasons for reopening the assessment can be a tangible material for reopening assessment—Raj Woolen Industries vs. ACIT (2011) 7 ITR (Trib) 339 (ITAT-Delhi)
S. 54EC of Income tax Act, 1961—Capital gain—At what stage exercise of set off of brought forward long term capital losses is to be carried out before granting deduction u/s 54EC or after granting deduction u/s 54EC. While disposing the appeal in favor of assessee the Bench Mumbai of ITAT held that:—”A plain reading of these provisions would show that while S. 54EC comes into play in the process of computing capital gains which are assessable under the head “capital gains” S. 74(1) (b) comes into play only when the income assessable to tax under the head capital gains is computed. The stage at which set off of carried forward long term capital loss is to be given is subsequent to the stage at which income under the head capital gains is computed and deduction u/s 54EC is to be given in the course of the latter. In this view of the matter, the question of setting off brought forward long term capital loss arises only after the income under the head capital gains is computed and that the processing in computing the income under the head capital gains must also taken into account S. 54EC as well. There was thus no infirmity in the stand of the Assessing Officer while allowing the claim of the assessee. There was no error in the assessment order to that extent. Therefore, we are of the considered view that the learned Commissioner erred in assuming the order u/s 263 because these errors can only be assumed when the order of the AO is erroneous and prejudicial to the interest of the revenue whereas in the present case, the order was not erroneous at all. We, therefore, uphold the grievance of the assessee and quash the impugned revision order.” [2011] 19 ITCD 23 (ITAT-MUMBAI)
S. 2(42A), 54F & 54EC of IT Act, 1961—Capital gain—Capital gains arising in 2006 on sale of property bequeathed to assessee by her late husband in 1989 through a will duly amended by codicil conveying full ownership right to assessee are long-term capital gains, notwithstanding the fact that relinquishment by her sons and daughters was made in April, 2006—DCIT vs. Smt. Raj. Rajpal (2011) 141 TTJ (UO) 44 (ITAT-Delhi)
S. 54EC of the IT Act, 1961—Capital gain—There is no requirement in S. 54EC that the investment should be in the name of the assessee and there is only requirement that sale proceeds of capital assets must be invested in certain specified bonds—ITO vs. Smt. Saraswati Ramanathan
S. 54EC of the IT Act, 1961—Capital Gain—Whether conditions occurring in the Notification No. 380 of 2006 F.No. 142/9/2006—TPL dt. 22.12.2006 along with the words “subject to the following conditions, namely” issued by the CBDT are Ultra Vires S. 54EC of the IT Act, 1961 and arbitrary and violative of articles 14 and 265 of the constitution of India and consequently unenforceable. Held that by amendment in S. 54EC by the Finance Act, 2007, the Central Government limited the investment made on or after 1.4.2007 in the specified long term asset by the assessee during the end of the financial year to Rs. 50 lakhs. In view of the subsequent amendment, the prayer in the writ petition become infructuous—Areva T&D India Ltd. vs. ACIT (Mad)
S. 45, r/w S. 54EC and 28(i) of IT Act, 1961—Capital gain—The assessment year in question is 2001-02, being the period anterior to the insertion of the ‘right to carry on any business’ in S. 55(2)(a), thus, the later amendment, enhancing the scope of this section by causing additional liability to tax on the assessee, cannot be construed as retrospective and it would apply only from the assessment year 2003-04, the computation of capital gain u/s 48 would fail for the reason that there is no cost of acquisition of the business transferred by the assessee and, therefore, the assessee cannot be charged for compete fee or the consideration for the transfer of marketing rights of the business chargeable to tax under the head ‘capital gain’—BASF India Ltd. vs. Addl. CIT (2009) 119 ITD 337 (ITAT-Mum)
S. 045, 054EC, of the IT ACT, 1961—Capital Gain—Chanchal Kumar Sircar vs. Income-tax Officer. [2012] 16 ITR (Trib) 91 (ITAT-KOLKATA)
S. 54EC of Income Tax Act, 1961—Capital Gain—The appellant and his brother namely Rustom Ginwala had sold a house property on 22/10/2007 for Rs. 6.21 Crore. In the said property the appellant and his brother had 50% share. The appellant had made investment of ‘ 50 Lacs,on 3 1/12/2007 in REC Bonds and ‘ 50 Lacs on 26/5/2008 in NHAI Bonds and claimed exemption of ‘ 100 lacs u/s 54EC of the Act. The investment in REC Bonds was within time limit of 6 months prescribed in S. 54EC of the Act while investment in NHAI has been made only on 26/5/2008 (allotment date 31/5/2008) as the subscription of neither of the scheme opened during 1/4/2008 to 26/5/2008. The appellant had made very same day the subscription of first scheme got opened. AO disallowed the investment made in NHAI Bond being beyond a period of six month. ITAT, Ahmedabad held that:—”It is clear from this proviso that where assessee transfers his capital asset after 30th September of the financial year he gets an opportunity to make an investment of Rs. 50 lakhs each in two different financial years and is able to claim exemption upto Rs. 1 Crore u/s 54EC of the Act. Since the language of the proviso is clear and unambiguous, we have no hesitation in holding that the assessee is entitled to get exemption upto Rs. 1 Crore in this case. Now, coming to the second aspect of the matter, whether investment of Rs. 50 lakhs made in NHAI Bonds on 26-05-2008 can be considered to be made within six months period as per the proviso to S. 54EC, we find that the assessee was to make investment in such Bonds between 01-04-2008 to 21-04-2008. There is no dispute about the fact that subscription of eligible Bonds was closed during this period till 26-05-2008 and on the 1st day of the reopening of the subscription, the assessee made this investment. Under the circumstances, we are of the considered opinion that the assessee was prevented by sufficient cause which was beyond his control in making investment in these Bonds within the time prescribed. We further find that various judicial authorities have taken a view that exemption should be granted in such cases where there is a delay in making investment due to non-availability of the bonds and have held that it is a reasonable cause and the exemption should be granted.” [2012] 22 ITCD 47 (ITAT-AHMEDABAD)
Reference:
As Per Section 54EC, of the Income Tax Act, 1961-
Capital gain not to be charged on investment in certain bonds.
54EC(1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—
(a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;
(b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45 :
[Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees.]
(2) Where the long-term specified asset is transferred or converted (otherwise than by transfer) into money at any time within a period of three years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head “Capital gains” relating to long-term capital asset of the previous year in which the long-term specified asset is transferred or converted (otherwise than by transfer) into money.
Explanation.—In a case where the original asset is transferred and the assessee invests the whole or any part of the capital gain received or accrued as a result of transfer of the original asset in any long-term specified asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted (otherwise than by transfer) such specified asset into money on the date on which such loan or advance is taken.
(3) Where the cost of the long-term specified asset has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1),—
(a) a deduction from the amount of income-tax with reference to such cost shall not be allowed under section 88 for any assessment year ending before the 1st day of April, 2006;
(b) a deduction from the income with reference to such cost shall not be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006.]
Explanation.—For the purposes of this section,—
(a) “cost”, in relation to any long-term specified asset, means the amount invested in such specified asset out of capital gains received or accruing as a result of the transfer of the original asset;
(b) “long-term specified asset” for making any investment under this section during the period commencing from the 1st day of April, 2006 and ending with the 31st day of March, 2007, means any bond, redeemable after three years and issued on or after the 1st day of April, 2006, but on or before the 31st day of March, 2007,—
(i) by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 (68 of 1988); or
(ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956),
and notifiedby the Central Government in the Official Gazette for the purposes of this section with such conditions (including the condition for providing a limit on the amount of investment by an assessee in such bond) as it thinks fit:
[Provided that where any bond has been notified before the 1st day of April, 2007, subject to the conditions specified in the notification, by the Central Government in the Official Gazette under the provisions of clause (b) as they stood immediately before their amendment by the Finance Act, 2007, such bond shall be deemed to be a bond notified under this clause;]
(ba) “long-term specified asset” for making any investment under this section on or after the 1st day of April, 2007 means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 (68 of 1988) or by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956).