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Ceiling on reinvestment — can it be circumvented?

My property was sold on February 3, 2007. To avail capital gains tax benefit as per the Act, I need to invest in capital gains bond scheme within six months of the transfer. I do know that there is a cap of Rs. 50 lak

h on the amount to be invested in the scheme. Since this six months period spreads over two financial years namely February and March 2007 and April, May, June and July 2007, please clarify whether I am eligible to invest Rs. 50 lakh in each of the financial year.

Proviso to Sec. 54EC provides for a ceiling of Rs. 50 lakh in following words:

“Provided that the investment made on or after the April 1, 2007, in the long-term specified asset by an assessee during any financial year does not exceed Rs. 50 lakh.” (emphasis supplied).

“During any financial year” in the above proviso would mean that the ceiling is for an assessee for each financial year, so that there is no bar for investment of Rs. 50 lakh for each year. But then both the investments would refer to capital gain of the financial year in which the transfer took place. Investment has to made within six months from the date of transfer, whether such period of six months falls in the same financial year or two different financial years, as is possible in case of every transfer during last quarter of the financial year.

Relief is in respect of capital gains during the financial year, so that the ceiling of Rs. 50 lakh should apply, whether made in the same financial year or within six months of transfer in the next financial year.

If the assessee can avail himself of the ceiling of Rs. 1 crore by investing Rs. 50 lakh each before and after March 31, it would mean that the law gives an additional benefit for those who postpone the transaction to last quarter of the financial year. This would be an absurd conclusion. Such an interpretation, effectively circumventing the ceiling by reading the proviso in isolation without reading it in connection with the main part of the provision, will not accord with law. Deposit during next financial year is possible, if the period of six months falls in the next financial year, but that does not mean that there is a duplicate limit available. In other words, the ceiling of Rs. 50 lakh should be considered in the light of capital gains for the year as a further condition implied under Sec. 54EC. Any other view would be adventurist, running risk of rejection.

S. RAJARATNAM

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