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2007] 292 ITR 247 [2007] 160 TAXMAN 107 (KER.) HIGH COURT OF KERALA Smt. P.G. Bhanumathy v. Commissioner of Income-tax C.N. RAMACHANDRAN NAIR AND K.M. JOSEPH, JJ. IT APPEAL NO. 132 OF 2001 JULY 18, 2006 Section 54E of the Income-tax Act, 1961 - Capital gains - Not to be charged in certain cases - Assessment year 1992-93 - Whether 'net consideration' does not include any accruals on investment from out of net consideration of asset transferred - Held, yes - Whether advance interest income generated on investment, from out of net consideration of asset transferred, in specified assets under section 54E cannot be treated as 'net consideration' for reinvestment in same or another specified asset for claiming exemption under section 54E on such amount also - Held, yes FACTS During the accounting year relevant to the assessment year 1992-93, the assessee sold a flat and received a net consideration of Rs. 52 lakhs. Out of said amount, the assessee invested Rs. 44 lakhs in bank as fixed deposit and availed a loan of Rs. 4 lakhs on the security of the fixed deposit. After adjusting the loan amount, the balance amount of Rs. 40 lakhs received by the assessee was deposited in capital bonds issued by the IDBI as investment in specified asset in terms of section 54E. The deposit in the IDBI bonds yielded an advance interest of Rs. 9.4 lakhs which along with another amount of Rs. 60,000 taken by the assessee from the bank was also deposited in the 'IDBI' bonds. Since both amounts were deposited within six months in terms of section 54E, the assessee claimed exemption from capital gains on the entire deposit of Rs. 50 lakhs. Even though, the Assessing Officer allowed exemption attributable to Rs. 40 lakhs deposited by the assessee in the specified asset under section 54E, exemption was declined for the investment of Rs. 10 lakhs under the specified asset on the ground that the same did not form part of the net consideration. On appeals, the Commissioner (Appeals) as well as the Tribunal upheld the disallowance made by the Assessing Officer. On appeal : HELD It was admitted that out of Rs. 10 lakhs disallowed under section 54E, the source of Rs. 9.4 lakhs raised by the…

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