2016 (6) TMI 1122 - AT - Income Tax

Appeal Dismissed: Investment in Two Years for Tax Deduction Upheld

The Income Tax Officer, Ward -2 (4), Nashik Versus Smt. Bala R. Venkitachalam,

The appeal filed by the Revenue challenging the order of CIT(A)-2, Nashik, regarding the allowability of deduction under section 54EC of the Income-tax ... Eligibility of exemption u/s 54EC - investment is made in two financial years - Held that:- The benefit that flows from the proviso was that where the assessee makes investment of ₹ 50 lakhs in any financial year, it could have the benefit of section 54EC(1) of the Act. In the present case as where the assessee had invested ₹ 50 lakhs in REC bonds i.e. specified assets as provided under section 54EC of the Act on 28.02.2010 i.e. in financial year 2009-10 and ₹ 22,50,000/- on 30.04.2010 i.e. in financial year 2010-11 as against the capital gains arising of ₹ 72,49,401/- on the transfer of long term capital gains i.e. sale of shares on 21.01.2010 falling in financial year 2009-10, the assessee is entitled to the benefit provided by the proviso under section 54EC of the Act and consequently, the order of CIT(A) merits to be upheld. Dismissing the grounds of appeal raised by the Revenue, the appeal of the Revenue is dismissed. - Decided in favour of assessee Issues:- Allowability of deduction under section 54EC of the Income-tax Act in excess of Rs. 50 lakhs if investment is made in two financial years.Analysis:The appeal filed by the Revenue challenges the order of CIT(A)-2, Nashik, regarding the allowability of deduction under section 54EC of the Act in excess of Rs. 50 lakhs if investment is made in two financial years. The assessee declared income from long term capital gains and invested Rs. 72.50 lakhs in specified securities in two financial years within the statutory period of six months from the date of transfer of the capital asset. The Assessing Officer restricted the exemption to Rs. 50 lakhs based on instructions from JCIT, Range - 2, Nashik. However, the CIT(A) allowed the claim, noting that the investment limit of Rs. 50 lakhs during the financial year was applicable, and the investment made during any financial year falling within the six-month span could total up to Rs. 1 crore. The CIT(A) relied on the decision of the High Court of Madras in CIT Vs. C. Jaichandar, emphasizing the interpretation of the time limits and the monetary cap set by the legislation.The issue revolves around the interpretation of section 54EC of the Act and the proviso therein regarding the deduction against long term capital gains. The High Court of Madras in various judgments clarified that the investment limit of Rs. 50 lakhs applies per financial year, and if investments are made in two different financial years within the six-month period, totaling Rs. 1 crore, the deduction is allowable. The legislative intent was further clarified by an amendment in 2014, specifying that investments exceeding Rs. 50 lakhs in any financial year would not be eligible for deduction. Applying these principles to the present case, where the assessee invested Rs. 50 lakhs in one financial year and Rs. 22,50,000 in another within the stipulated time frame, the CIT(A) correctly allowed the deduction under section 54EC of the Act.The Revenue's appeal was based on the decision of the Jaipur Bench of Tribunal, but no contrary decision from a High Court was presented. The judgment highlights the importance of adhering to the statutory provisions and interpreting them in line with judicial precedents to determine the eligibility for deductions under the Income-tax Act. The appeal of the Revenue was dismissed, upholding the order of the CIT(A) in favor of the assessee regarding the deduction under section 54EC of the Act.