ACIT vs. Kamlakar Moghe (Bombay High Court)

DATE: September 4, 2015 (Date of pronouncement)
DATE: September 11, 2015 (Date of publication)
AY: -
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S. 54EC: If REC Bonds are not available during the prescribed period, time for investment has to be extended. Fact that NHAI Bonds were available is irrelevant. Amount paid to sisters as per family arrangement for permitting transfer of property is decutible u/s 49(1)

(i) In view of the Will of late mother Smt. Moghe and thereafter Will of P.M. Moghe, three sisters had a right in property and without extinguishing it or without providing for its adjustment, the assessee could not have sold property. As such, the amount of Rs.45 lakh paid to three sisters is correctly found to be an expenditure incurred in connection with transfer of property. The arrangement worked out by three sisters and brothers as also three daughters of the deceased Shri P.M. Moghe, is bonafide one. The assessee and his three daughters were faced in a peculiar position. They resolved the situation and a family settlement was reduced into writing. It was agreed that at the time of sale, each sister shall be given Rs.15 lakh and each niece shall be given Rs. Five lakh. Accordingly, when the property was sold on 07.07.2006, this family settlement has been given effect to. It is, therefore, obvious that in the absence of such family settlement and payment, the sale of property on 07.07.2006 by the assessee could not have materialized. The sisters had a title in property and without their cooperation there could not have been any sale. As such, the amount of Rs.45 lakh paid to his sisters has been rightly accepted as expenditure in connection with transfer of property.

(ii) Insofar as investment under Section 54EC of the Act is concerned, the assessee had received sale consideration on 07.07.2006 and period of six months available for such investment, therefore, expired on 06.01.2007. From that date onwards till 24.01.2007, REC Bonds were not available. Vide Cheque issued on 24.01.2007 REC Bonds were purchased on 27.01.2007. The availability of the bonds only for a limited period during this period cannot prejudice the assessee’s right to exercise the same up to last date. The bonds were admittedly not available during the said period. The fact that the Bonds issued by the National Highway Authority of India were available and hence the assessee ought to have invested in those bonds within the stipulated period of six months is not acceptable. Section 54EC gives assessee an option to invest either in bonds of National Highway Authority of India or then in bonds of Rural Electrification Corporation Limited. The said provision does not stipulate that the investment has to be in any bond whichever is available. Both bonds carry different benefits and hence deliberately the Parliament has given option to the assessee to invest in any one out of two as per his choice. In a given case, the assessee may choose to invest in both. However, discretion is conferred upon the assessee, who is the best judge of his own needs and interests. He cannot be forced to invest in the bond whichever is available because period of six months is about to expire. This option or discretion given by the Parliament to the assessee needs to be honoured here. If said option was available when period of six months was to expire and could have been expressed by the assessee when said period was about to expire, the situation would have been otherwise. In present matter, the REC Bonds became available in VIA issue on 22.01.2007 and, therefore, investment made therein cannot be said to be after an undue or unreasonable delay. The investment has been made at the earliest possible opportunity (Commissioner of Income-tax, Central III vs. M/s. Cello Plast, Mumbai followed)

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