Commissioner of Income Tax vs Late N. Kasi Viswanathan

K. Raviraja Pandian, J.—This appeal is filed against the order of the Income Tax Appellate Tribunal dated May 28, 2007, in I.T.A. No.

667/Mds/05, by formulating the following question of law:

In the light of the Explanation to Section 54EA of the Income Tax Act, 1961, whether it is the net consideration received that is to be invested as

contemplated by the statute for the purpose of claiming exemption u/s 54EA of the Act or it would be sufficient if any other amount equivalent to

the same is invested even before the date of receipt of the compensation?

The assessee is an individual. The relevant assessment year is 2000-01. The assessee filed a return of income estimating a total income of Rs.

29,93,550. The return was processed u/s 143(1) of the Income Tax Act. In the return, it was found that the assessee had received enhanced

compensation in respect of the land compulsorily acquired from him by the Government. The amount of enhanced compensation received during

the assessment year 2000-01 was Rs. 1,49,37,591. In addition to the compensation amount, the assessee also received statutory interest under

the provisions of the Land Acquisition Act. The assessee claimed exemption u/s 54EA of the Income Tax Act. This claim of exemption was

rejected by the Assessing Officer on the ground that the compensation amount was received on July 21,1999, but the investment was made by the

assessee on June 1,1999, i.e., the investment was made prior to the receipt of the compensation. On appeal, the Commissioner of Income Tax

(Appeals) held the issue in favour of the assessee on the basis of the Delhi Tribunal order. Aggrieved by the same, the Department preferred an

appeal before the Income Tax Appellate Tribunal, which dismissed the same. Hence, the present appeal by the Revenue by formulating the

question of law above referred to.

Section 54EA read as under:

54EA. (1) Where the capital gain arises from the transfer of a long-term capital asset before the 1st day of April, 2000 (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 the net consideration in any of the, bonds, debentures, shares of a public company or units

of any mutual fund referred to in Clause (23D) of Section 10 specified by the Board in this behalf by notification in the Official Gazette (such assets

hereafter in this Section referred to as the specified securities), 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 specified securities is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not

be charged u/s 45;

(b) if the cost of the specified securities is less than the net consideration in respect 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 specified securities bears to the net consideration shall not be charged

u/s 45.

(2) Where the specified securities are transferred or converted (otherwise than by transfer) into money at any time within a period of three years

from the date of their acquisition, the amount of capital gain arising from the transfer of the original asset not charged u/s 45 on the basis of the cost

of such specified securities as pro vided in Clause (a) or Clause (b) of Sub-section (1) shall be deemed to be the income chargeable under the

head ''Capital gains'' relating to long-term capital assets of the previous year in which the specified securities are 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 net consideration in respect of

the original asset in any specified securities and such assessee takes any loan or advance on the security of such specified securities, he shall be

deemed to have converted (otherwise than by transfer) such specified securities into money on the date on which such loan or advance is taken.

(3) Where the cost of the specified securities has been taken into account for the purposes of Clause (a) or Clause (b) of Sub-section (1), a rebate

with reference to such cost shall not be allowed u/s 88.

Explanation.- For the purposes of this section,-

(a) ''cost'', in relation to any specified securities, means the amount invested in such specified securities out of the net consideration received or

accruing as a result of the transfer of the original asset;

(b) ''net consideration'', in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the

transfer of the capital asset as reduced by the expenditure incurred wholly and exclusively in connection with such transfer.

The finding recorded by the authorities below are as under:

The assessee has received the original compensation towards the capital asset, vide civil court order dated December 1, 1995. This order was a

subject-matter of appeal before the High Court. The High Court stayed this order on the condition of the Government depositing Rs. 2,98,75,181.

Out of this, the assessee was permitted to withdraw 25 per cent, of the amount by furnishing security. The assessee received the compensation on

July 21, 1999, which is a portion of the enhanced compensation awarded by the reference court. Since the assessee was having balance amount of

compensation originally received as per the Land Acquisition Officer''s award, and had made an investment in the specified security u/s 54EA.

Hence, the investment made by the assessee was in accordance with the statutory provision. On the above reasoning, the Tribunal has rejected the

appeal of the Revenue. The Revenue is before us in this appeal.

Heard learned Counsel for the Revenue, who reiterated the very same arguments advanced before the Tribunal and perused the materials

available on record. The finding of the Tribunal is a factual finding about the investments made from and out of the compensation received. The

provision does not prevent the assessee from making the investment out of the available compensation amount even before the enhanced

compensation is received. No other material is made available for us to take a different view that the one taken by the Tribunal. The appeal is

dismissed. No costs.