Section 54E of the Income Tax Act, 1961, (operative up to March 31, 1992) provided exemption in respect of capital gains arising from the transfer of a long-term capital asset before April 1, 1992.
The exemption was available to the assessee if he invests whole or any part of net consideration arising from the transfer of such an asset in any of the specified assets. The amount of exemption depended on whether the net consideration is less than or exceeds the cost of new assets.
Issue for consideration
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In the case of Bombay Housing Corporation vs assistant commissioner of income-tax (2002) 81 ITD 545 (Mumbai), an interesting question came up for the consideration of the Bombay Bench of the income-tax appellate tribunal. The assessee during the relevant accounting year disposed of its entire business as a going concern for Rs 3.55 crore. The sale price was received in full between Septe-mber 27, 1991, and October 22, 1991. Before the assessing officer, the assessee claimed the benefit of deduction under Section 54E, proportionate to the amount invested in the Industrial Development Bank of India (IDBI) bonds.
The assessing officer felt that Section 54E contemplated the investment or deposit of the sale consideration itself in the specified assets and inasmuch as the assessee had diverted the sale consideration of Rs 3.55 crore to various parties and had made the investment in the bonds by borrowings Rs 1.42 crore from a trust, the exemption as claimed could not be given. On appeal, the commissioner of income-tax (appeals) endorsed the assessing officer