By TIOL News Service

BANGALORE, NOV 03, 2017: THE ISSUE BEFORE THE COURT IS - Whether CBDT has discretion u/s 119 to condone delay in making investment in the form of infrastructure bond, for granting exemption from tax liability. YES is the verdict.

Facts of the case:

The Assessee, a doctor, was traveling from India to USA, where she normally resided. The Assessee had filed her return for the relevant AY. The Assessee sold a site which was at Bangalore. Out of the sale consideration, the Assessee had purchased a flat in Bangalore and invested in capital gain exemption bonds u/s 54EC however, the Assessee could not put money in such deposits within the stipulated time period as she went to USA for some personal work. The return was assessed and subsequently assessment order was passed by the AO. On appeal, the Chief CIT refused to condone the delay of about six months in making the eligible investment in the Infrastructure bonds in terms of Section 54EC to claim exemption from Capital Gain Tax in respect of immovable property sold by her during the AY. The exemption was available to her u/s 54EC subject to the condition of making such eligible investment of the sale proceeds in the infrastructure bonds within a period of six months from the transaction of sale of immovable property. Further to seek the condonation of delay u/s 119(2)(b), the Assessee moved to CBDT. However, the CBDT refused to condone the said delay and rejected the Assessee's application.

High Court held that,

++ the Assessee made an eligible investment in the infrastructure bonds of National Highway Authority of India, albeit with the delay of about six months. The substantial condition for availing the exemption u/s 54EC, thus stood satisfied. The question before the CBDT was not about the merit of the claim of exemption itself, but the question was of the exercise of its discretion in condoning the said delay of six months u/s 119(2)(b). The so called reasons assigned by the CBDT in the order, on the face of it, do not appear to be whimsical or arbitrary reasons and it is true that such investment could be made by Assessee very well before the cut off date also when she was physically present in India or even when she had gone back to USA on 20th February 2013. Nonetheless, the delay of six months in the circumstances in which it occurred, especially, in view of the fact that the investment condition was undisputably met by the Assessee could have been condoned taking a judicious and holistic view of the facts;

++ the wide powers of the CBDT or other higher authorities of the Department to whom such powers can be delegated u/s 119, need not always take only a pro Revenue approach in such matters. Their approach in such cases should be equitious, balancing and judicious which should reflect the application of mind to the facts of the case and before denying the genuine claim of the Assessee on the grounds of mere delay in making such claim, something more than the user of innocuous terms as employed in the present case, should be forthcoming. Technically, strictly and literally speaking, the Board might be justified in denying the exemption from capital gains tax by rejecting such condonation application, but an Assessee, who substantially satisfies the condition for availing such exemption should not be denied the same, merely on the bar of limitation, especially, when the legislature has conferred wide discretionary powers to condone such delay on the highest executive authority of the CBDT under the Act;

++ the present case is one of such nature, where the Court finds that the substantial conditions for claiming the exemption from capital gain tax stood satisfied and the prescribed investment was made by the Assessee in the Bonds of the National Highways Authority, for the minimum lock-in period of three years also is an undisputed fact, and therefore, the delay in making such investment of six months deserved to be condoned, in view of the fact that, the Assessee, a Doctor by profession was traveling from India to USA a long distance country where she normally resided and came to India not only to meet her family members, but to sell the immoveable property belonging to her and sought to avail the genuine exemption from such tax liability upon making the investment in the prescribed investment in the form of bonds of infrastructure which she did make in the National Highways Authority. The order passed by the CBDT is set aside and the Assessee is held entitled to the exemption from Capital Gain Tax u/s 54EC and the Respondent authority or the authorities below CBDT are directed to give effect to such exemption to the Assessee and pass necessary consequential orders in this regard.

(See 2017-TIOL-2295-HC-KAR-IT)