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Capital gains bonds authorised, but unavailable

Please refer to your answer in The Hindu dated February 5, wherein you have stated that there are no notified bonds now available.

You have overlooked Notification No. 380 of 2006 dated December 22, 2006, wherein Rural Electrification Corporation has been authorised to issue bonds for a further amount of Rs. 3,500 crore, subject, however, to a ceiling of Rs. 50 lakh per person.

The bonds are available from December 26, 2006 to March 31, 2007. There is a widespread feeling that restrictions as to size of the issue and the limit on investment cannot be valid in law.

What is your reaction?

Answer to the query in The Hindu dated February 5 was penned before the Notification, but the Notification itself was referred in answer to another query in The Hindu dated January 15, wherein it was also pointed out that the size of the issue was such that it would not be able to meet all the demand for bonds covered under Section 54EC.

Notwithstanding the cap placed on investments at Rs. 50 lakh, only those on first-come-first-served basis or such other basis of allotment would be able to avail the same. It will, still be unavailable for many.

The new issue covers capital gains arising on assets transferred as between September 29, 2005 and September 30, 2006.

Many readers have also questioned the power of the Central Government to dilute the concession granted by Sec. 54EC by a notification limiting it both as to the size of the issue of approved bonds and the individual investments.

Apart from the limitations on delegated legislation, it has been widely felt that both the principles of promissory estoppel and the theory of legitimate expectation may well justify legal objections to the validity of the Notification.

But the question of validity can only be adjudicated by the courts.

One can only say that such restrictions by way of Notification undermine the credibility of the tax administration when a statutory relief is scuttled by subordinate legislation by way of Notification putting a large number of taxpayers in a quandary, where they had undertaken to sell their capital assets in anticipation of relief under Sec. 54EC in force, because of the intervening restrictions between the sale and the investment.

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