Section 54EC time limit of 6 months can be extended if no bonds available of assessee choice


IT : Time limit of 6 months for investment u/s 54EC to be suitably extended if specified bonds of assessee's choice not available throughout the 6-month period
FACTS
• On 22/3/2006, respondent-assessee sold its factory building earning a long-term capital gain
• The assessee sought to avail of the exemption from payment of tax on long term capital gain under section 54EC of the said Act by purchasing bonds of the Rural Electrification Corporation Limited

• 22/3/2006 to 1/7/2006-REC bonds not available during this period
• 1/7/2006 to 3/8/2006 REC bonds became available during this period as stated in a letter dated 10/4/2008 from REC Ltd. filed with the AO by the respondents
• 30/6/2006-CBDT Circular extends time to invest on section 54EC bonds upto 31/12/2006
• 4/8/2006 to 22/1/2007-REC bonds not available during this period
• 21/9/2006-Last date for investment as per 6 months time limit
• 31/12/2006-Last date of extended period as per CBDT Circular dated 30/6/2006
• 22/1/2007 to 31/1/2007-REC bonds once again available
• 31/1/2007-Respondent assessee purchased REC bonds
• AO disallowed section 54EC benefit to respondents vide order dated 26/09/2008
• CIT(A)dismissed respondent-assessee's appeal
• ITAT allows assessee's appeal against CIT(A)'S order
• Revenue filed an appeal before the High Court against the order of Tribunal.
HELD
• The REC bonds could not be purchased as they were not available throughout the period of six months commencing from the date of the sale of the factory by the respondents and even thereafter till the extended date of 31/12/2006 under the CBDT Circular. That the bonds were available for a limited period between 1/7/2006 to 3/8/2006, makes no difference. The respondents had time till 21/9/2006, to invest in these bonds to avail the benefit under section 54EC. Section 54EC entitles a person to avail of the right conferred thereby at any time during the period of six months from the date of sale of the asset. The respondents cannot be deprived of this right conferred by the Act for no fault of theirs. Thus, the availability of the bonds only for a limited time cannot prejudice the assessee's right to exercise the same upto the last date. The bonds were admittedly not available except during the said period.

• The maxims Lex not cogit impossibila (law does not compel a man to do that which he cannot possibly perform) andimpossibilum nulla oblignto est (law does not expect a party to do the impossible) squarely apply to the present case. As the bonds were not available, it was impossible for the respondent-assessee to invest in them within six months of the sale of their factory building.

• The extent to and precise period during which the extension ought to be granted to avail the benefit of the provisions of section 54EC when the bonds referred to therein are not available would have to be determined, based on two factors - the duration when the bonds were not available, and the period during the six months or the extended period, if any, when they were not available. For instance, the bonds may not have been available at the commencement of the six months period or for a broken period or periods during the six months or towards the end of the six months

• A person is entitled to invest in the said bonds upto the last available date. If that be so, it must follow that the extension ought to be granted at least for the period prior to the expiry of six months when the bonds were not available and upto the date on which they were ultimately made available. In any event, in such a case an assessee would be entitled to a reasonable extension which must then be decided, depending upon the facts of each case. A person cannot be expected to make the investment on the first possible date on which the bonds were made available after the expiry of the six months period or any extended date prescribed by the CBDT. During the period the bonds were unavailable a person is likely to invest the amount elsewhere. To expect or require him not to do so would be unjust for reasons too obvious to state. He cannot then be expected at a day's notice to break the investment and transfer the same to the bonds stipulated in Section 54EC.

• In the present case, the bonds were not available from 4/8/2006 to 22/1/2007. The last date for investment in the normal course would have been 21/9/2006 which was extended upto 31/12/2006. The respondents ought to be entitled to an extension of the number of days between 4/8/2006 to 21/9/2006 at the very least and, in any event, to a reasonable extension. The respondents admittedly invested in the bonds on 31/1/2007 i.e. within nine days of their being available once again from 22/1/2007. Considering that the bonds were not available for such a long period, an extension of merely nine days is extremely reasonable in the present facts.

• Section 54EC of the Act having given the respondent a choice of investing either in the bonds of REC or the NHAI, the Revenue cannot insist that the respondent ought to have invested its capital gain on sale of property in the bonds of the NHAI.

• If the bonds of respondent's choice are not available as is proved in the present case, the time to invest in the bonds get automatically extended till the bonds are available in the market and the assessee can purchase the same.
• In the result, Revenue's appeal against ITAT's order dismissed.

EDITOR'S NOTE
The High Court observed "…we have not expressed any opinion as to the extent and specific period of extension in any other situation, including where the bonds may not have been available only for a day or two prior to the expiry of the six months period.
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