Six months investment period given under section 54EC should be treated as six British Calendar Months

Facts

• Assessee earned long-term capital gains from sale of his ancestral property on 3-10-2008. 
• He invested amount of capital gains in REC bonds and claimed deduction under section 54EC. 
• Assessing Officer (AO) held that since the investment in the specified securities as stipulated under section 54EC was not made on or before 12-4-2009, i.e., within six months from the date of transfer of the property, the assessee was not entitled to claim deduction under section 54EC. 
• Commissioner (Appeals) upheld the order of AO. Aggrieved-assessee filed the instant appeal before Tribunal.

The Tribunal held in favour of assessee as under:

• Section 54EC clearly stipulates that the investment has to be made in specified long term assets within a period of six months after the date of transfer of the original asset. 
• The word "month" is not defined under the Act, thus it has to be reckoned according to British Calendar in terms of section 3(35) of the General Clauses Act, 1897.Hence, six months period should be reckoned from end of month in which transfer took place. 
• REC bonds were subscribed by the assessee on 24-4-2009 and were allotted to the assessee by REC on 30-4-2009 which is within six months after the date of transfer of asset as per British Calendar month. 
• Since assessee fulfilled the conditions laid down under section 54EC, he was eligible for deduction under section 54EC.

[2017] 77 taxmann.com 174 (Mumbai - Tribunal)

Even investment in name of partners would provide section 54EC relief to partnership firm

CHAKRABARTY MEDICAL CENTRE V. TRO [2015] 56 taxmann.com 76 (Pune - Tribunal)

Facts:

• Partners of assessee-firm introduced land and building as their capital contribution to firm.
• The firm carried out its operation from such land and building after its formation. Subsequently, firm sold said land and building and earned capital gain.
• Sale consideration of property was credited directly to bank account of partners of firm and bonds specified under Section 54EC were also purchased in names of those partners.

The issues that arose before the Tribunal were as under:-

• Whether capital asset introduced by partners could be said to be the property of the firm and, thus, capital gain arising on sale of such building was taxable in hands of firm?
• Whether a firm could claim exemption under section 54EC where specified bonds were purchased in name of partners?

On the first issue the Tribunal held that:

By relying upon the judgment of Allahabad High court in the case of K. D. Pandey v. CWT [1977] 108 ITR 214, it was held that where partners of firm introduced land and building as their capital contribution to firm, said land and building would become property of firm and, therefore, capital gain arising on sale of said property was taxable in hands of firm.

On the second issue the Tribunal held that:

• Partnership is not a legal entity in strict sense and in all the movable and immovable assets which are held by the partnership, there is an interest of every partner, though not specifically defined in terms of their shares.
• It was not disputed that the sale consideration was directly credited to the Bank accounts of the partners and firm was immediately dissolved subsequently. Therefore, whatever amount was invested by the partners in specified bonds in their individual names was, in fact, from the funds of the firm.
• Hence, benefit of section 54EC could not be denied to the assessee-firm,even though the bonds were purchased in the name of partners.

Even investment in name of partners would provide section 54EC relief to partnership firm

CHAKRABARTY MEDICAL CENTRE V. TRO - (2015) 56 taxmann.com 76 (Pune - Tribunal)

Facts:

• Partners of assessee-firm introduced land and building as their capital contribution to firm.
• The firm carried out its operation from such land and building after its formation. Subsequently, firm sold said land and building and earned capital gain. 
• Sale consideration of property was credited directly to bank account of partners of firm and bonds specified under Section 54EC were also purchased in names of those partners.

The issues that arose before the Tribunal were as under:-

• Whether capital asset introduced by partners could be said to be the property of the firm and, thus, capital gain arising on sale of such building was taxable in hands of firm?
• Whether a firm could claim exemption under section 54EC where specified bonds were purchased in name of partners?

On the first issue the Tribunal held that:
 

By relying upon the judgment of Allahabad High court in the case of K. D. Pandey v. CWT (1977) 108 ITR 214, it was held that where partners of firm introduced land and building as their capital contribution to firm, said land and building would become property of firm and, therefore, capital gain arising on sale of said property was taxable in hands of firm.

On the second issue the Tribunal held that:

• Partnership is not a legal entity in strict sense and in all the movable and immovable assets which are held by the partnership, there is an interest of every partner, though not specifically defined in terms of their shares.
• It was not disputed that the sale consideration was directly credited to the Bank accounts of the partners and firm was immediately dissolved subsequently. Therefore, whatever amount was invested by the partners in specified bonds in their individual names was, in fact, from the funds of the firm. 
• Hence, benefit of section 54EC could not be denied to the assessee-firm,even though the bonds were purchased in the name of partners.