359 : Circular No. 359, dated 10-05-1983

SECTION 54E EXEMPTION OF LONG-TERM CAPITAL GAINS WHEN CONSIDERATION IS INVESTED IN SPECIFIED ASSETS

 Assessee investing earnest money in specified assets before date of transfer - Whether amount so invested qualifies for exemption

1. Section 54E provides for exemption of long-term capital gains if the net consideration is invested by the assessee in specified assets within a period of six months after  the date of such transfer. A technical interpretation of section 54E could mean that the exemption from tax on capital gains would not be available if part of the consideration is invested prior to the date of execution of the sale deed as the investment cannot be regarded as having been made within a period of six months after the date of transfer.

2. On consideration of the matter in consultation with the Ministry of Law, it is felt that the foregoing interpretation would go against the purpose and spirit of the section. As the section contemplates investment of the net consideration in specified assets for a minimum period and as earnest money or advance is a part of the sale consideration, the Board have decided that if the assessee invests the earnest money or the advance received in specified assets before the date of transfer of asset, the amount so invested will qualify for exemption under section 54E.

Circular : No. 359 [F. No. 207/8/82-IT(A-II)], dated 10-5-1983.