494B. REC and NHAI Bonds

Section 54EC of the Income-tax Act,1961 provides that capital gain arising from the transfer of a long-term capital asset shall not be charged to tax to the extent such gains are invested in ‘long-term specified asset’ within a period of six months after the date of such transfer.

2. Prior to the amendment to section 54EC by the Finance Act, 2006, ‘long- term specified asset’ for the purposes of said section means any bond redeemable after three years and issued by the National Bank for Agriculture and Rural Development (NABARD), National Highways Authority of India (NHAI), Rural Electrification Corporation Ltd. (REC), National Housing Bank (NHB), or Small Industries Development Bank of India (sidbi).

3. However, after the amendment to said section by the Finance Act, 2006, ‘long-term specified asset’ means any bond, redeemable after three years and issued on or after 1-4-2006 by NHAI and REC and notified by the Central Government in the Official Gazette for the purposes of said section. It has been reported by NHAI and REC that, consequent upon this amendment proposed by the Finance Bill, 2006, issue of old bonds was closed on 29-3-2006.

4. Bonds of NHAI and REC under the amended provision of section 54EC have been notified by the Central Government vide Notification Nos. S.O. 963(E) and S.O. 964(E), dated 29-6-2006 for Rs. 1,500 crores and Rs. 4,500 crores, respectively to be issued during financial year 2006-07. It has been informed by REC and NHAI that these bonds will be issued from 1st July, 2006 and 20th July, 2006, respectively.

5. It has been brought to the notice of the Central Board of Direct Taxes that some persons could not avail of the benefit under section 54EC of the Income-tax Act on account of the non-availability of the capital gain bonds. Further, for some other persons the effective time available for making the investment is less than six months because of non-availability of these bonds.

6. With a view to removing the hardship caused to taxpayers, the Central Board of Direct Taxes, in exercise of powers conferred by clause (c) of sub-section (2) of section 119 of the Income-tax Act, 1961, hereby orders that the limitation of six months for making the investment under section 54EC of capital gains arising from the transfer of a long-term capital asset, is extended—

   (i)  up to 30th September, 2006, in case of persons where the long-term capital asset was transferred between 29-9-2005 and 31-12-2005 (both dates inclusive);

  (ii) up to 31st December, 2006, in case of persons where the long-term capital asset was transferred between 1-1-2006 and 30-6-2006 (both dates inclusive).

Order F.No. 142/09/2006-TPL, dated 30-6-2006