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Sec. 54EC becomes a dead relief

A reader would like to bring to the notice of Tax Forum the hardship that is being experienced by a large number of income-tax assessees who are liable to pay tax on long-term capital gains. Sec. 54EC of the Income-tax Act provides for exemption from tax if the whole or part of the capital gains is invested in specified securities. The Government has notified by Notification No.142/2006 F.No.142/09/ 2006-TPL dated June 29, 2006, bonds of the National Highway Authority of India and Rural Electrification Corporation Limited for investment during the financial year 2006-07 for relief under the aforesaid section. However, a ceiling has been fixed on the amount of bonds that could be issued by the two Authorities — Rs. 1,500 crore for the National Highway Authority of India and Rs. 4,500 crore for Rural Electrification Corporation Limited. The Government has also extended the time within which the investment has to be made up to September 30, 2006 and December 31, 2006 for certain categories of assessees. An extraordinary situation has arisen in that a number of assessees, who are ready to make the investment, are informed by the two authorities that the issues have been oversubscribed and are closed. In default of making the investment, the assessee may have to pay tax for no fault of theirs, only because appropriate arrangements have not been made by the Government for making the investments as provided in the statute.

Sec. 54EC relief is available for assessment year (AY) 2006-07 as well.

Investments in the two specified bonds, for the year, however, are not available in view of the limit up to which such bonds could be issued by the approved public sector undertakings for this purpose. In the result, relief available in the statute is not available in practice. The Board, in fact, had extended the time limit for those whose time limit for investments had expired because of the delay in notification till September 30, 2006 and December 31, 2006 vide F.No. 142/ 9/ 2006-TPL dated June 30, 2006.

But then, these bonds were available only for a short time, because they were over-subscribed shortly after they were made available.

In view of the fact that unlimited funds are necessary for various infrastructure undertakings both in Central and State sectors, the provision can be made use of by further notifications of other undertakings badly in need of funds.

The loss for revenue by way of capital gains tax, which is a tax on deemed income, is bound to be more than made good by the public benefit arising out of the funds for implementing infrastructure development. There is no dearth of urgent projects requiring such funds.

S. RAJARATNAM

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