Tribunal grants Rs. 1 crore exemption under Section 54EC without Rs. 50 lakhs cap on total investment

The Tribunal allowed the appeal, overturning the decision of the lower authorities and directing the Assessing Officer to grant the exemption of Rs. 1 crore under Section 54EC. The Tribunal clarified that the proviso to Section 54EC limits the investment in eligible bonds to Rs. 50 lakhs per financial year but does not cap the total exemption at Rs. 50 lakhs if investments are made in different financial years within the specified six-month period. The Tribunal emphasized compliance with the financial year limits and the permissible investment period.

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Issues Involved:
1. Whether the Commissioner of Income-tax (Appeals) erred in restricting the exemption under Section 54EC to Rs. 50 lakhs instead of Rs. 1 crore claimed by the assessee.

Detailed Analysis:

Issue 1: Restriction of Exemption under Section 54EC
The sole issue in this appeal is the restriction of exemption under Section 54EC to Rs. 50 lakhs instead of Rs. 1 crore. The assessee earned Long Term Capital Gain (LTCG) on the sale of factory land and claimed an exemption of Rs. 1 crore under Section 54EC by investing in bonds of NHAI and REC. The Assessing Officer (AO) restricted the exemption to Rs. 50 lakhs based on the proviso to Section 54EC(1) inserted by the Finance Act, 2007, effective from 01.04.2007. The AO cited the Explanatory Notes and CBDT Circular No. 3/2008, which emphasized a ceiling on the quantum of investment in such bonds to Rs. 50 lakhs per financial year.

Before the Commissioner of Income-tax (Appeals), the assessee argued that the investment was made in two different financial years: Rs. 50 lakhs in FY 2007-08 and another Rs. 50 lakhs in FY 2008-09, thus complying with the stipulation of Section 54EC. The Commissioner of Income-tax (Appeals) upheld the AO's decision, interpreting the proviso to Section 54EC(1) as restricting the exemption to Rs. 50 lakhs per assessee per financial year. The Commissioner cited various judicial precedents and CBDT Circular No. 3/2008 to support this interpretation.

The assessee relied on several Tribunal decisions, including the Bangalore Bench in the case of Vivek Jairazbhoy, the Chennai Bench in the case of Smt. Sriram Indubal, and the Panaji Bench in the case of Ms. Raina Faleiro, which held that the proviso to Section 54EC restricts the investment in a single financial year to Rs. 50 lakhs but does not cap the total exemption to Rs. 50 lakhs if investments are made in different financial years within the six-month period.

The Departmental Representative supported the lower authorities' decisions, citing the Jaipur Bench's decision in ACIT v. Shri Raj Kumar Jain & Sons (HUF), which interpreted the proviso as limiting the exemption to Rs. 50 lakhs per financial year.

Upon review, the Tribunal found that the proviso to Section 54EC, as amended by the Finance Act, 2007, limits the investment in eligible bonds to Rs. 50 lakhs in a financial year but does not restrict the total exemption to Rs. 50 lakhs if investments are made in different financial years within the six-month period. The Tribunal referenced the CBDT Circular No. 3/2008 and the second proviso to Section 54EC inserted by the Finance (No.2) Act, 2014, which further clarified this interpretation.

The Tribunal concluded that the lower authorities were not justified in restricting the exemption to Rs. 50 lakhs and directed the AO to allow the exemption of Rs. 1 crore under Section 54EC for investments made in two different financial years within the specified six-month period.

Conclusion:
The Tribunal allowed the appeal, setting aside the orders of the lower authorities and directing the AO to grant the exemption of Rs. 1 crore under Section 54EC, as the investments were made within the permissible period and in compliance with the financial year limits.

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