Benefit of confusion in Circular and amendment to sec. 54EC goes to assessee; section 234B interest reduced

Where due to confusion created by CBDT’s circular and amendment made to section 54EC, assessee was under a bona fide belief of availing exemption, and did not pay capital gains tax, levy of interest for default in payment of advance tax was to be restricted

Facts

a) The assessee earned long-term capital gain of Rs. 1.82 crores on sale of property on 16-3-2006. For purpose of availing sec. 54EC relief he made application to NHAI for investing entire gains in NHAI's bonds in the absence of a limit on the quantum of investment under Section 54EC. Such application was rejected by NHAI;

b) In meantime, CBDT’s circular extended the time-limit for such an investment up to 31-12-2006 without any ceiling limit and, thereafter, up to 31-3-2007, however, imposing a maximum ceiling limit of Rs.50 lakhs, with retrospective effect from 01.03.2006;

c) In January, 2007, assessee applied for next issue of bond for investing Rs. 50 lakhs which was again rejected. The assessee now voluntarily paid capital gains tax;

d) The revenue sought to levy interest under sections 234A, 234B and 234C. The assessee prayed for waiver of interest levied under section 234B

The High Court held in favour of assessee as under:

1) Section 54EC, as it stood prior to its substitution by Finance Act, 2007 was without any ceiling limit for 'capital gain' investment in bonds. Its substitution by Finance Act, 2007 with retrospective effect from 1-4-2006 was to the detriment to the assessee, de hors which assessee would have had the benefit of exemption from capital gain tax;

2) There could be no dispute that the entire tax liability was discharged during the period from 1-4-2006 to 31-3-2007 and up to the Finance Act, 2007, the assessee was under a bona fide belief that he would be entitled to exemption from payment of capital gains tax under section 54EC;

3) The very fact that the words 'retrospective amendment of law' used in Paragraph 2(c) (of CBDT’s order dated 26-6-2006) established that it was one of the unavoidable circumstances by which an assessee would stand to benefit by the waiver of interest under section 234B;

4) Where a return of income could not be filed by the assessee due to unavoidable circumstances, and assessee proved to have a bona fide belief , coupled with the voluntary payment of tax liability, the Chief Commissioner was not justified in declining the benefit of a waiver of interest to assessee under section 234B. Thus, ends of justice would be met by waiving interest up to 80 per cent under section 234B - P.S. SESHADRI V. CHIEF CIT (2013) 38 taxman 10 (Karnataka)