Eligibility for Deduction under Section 54EC Confirmed by High Court

The High Court held that the assessee is eligible for a deduction of Rs. 1 Crore under Section 54EC for investments made in two different financial years within six months from the date of transfer. The Court also determined that there was no need to refer the matter to a Special Bench under Section 255(4). The appeals were dismissed, and the substantial questions of law were answered against the Revenue.

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Issues Involved:
1. Eligibility for deduction under Section 54EC for investments made in two different financial years.
2. Necessity of referring the matter to the Special Bench under Section 255(4) due to conflicting views by different benches.

Issue-wise Detailed Analysis:

1. Eligibility for deduction under Section 54EC for investments made in two different financial years:

The core issue is whether the assessee is eligible for a deduction of Rs. 1 Crore under Section 54EC of the Income Tax Act, 1961, for investments made in two different financial years. The assessee sold a property and invested Rs. 50 Lakhs in Rural Electrification Corporation Bonds in the financial year 2007-2008 and another Rs. 50 Lakhs in National Highways HAI Bonds in the financial year 2008-2009, both within six months of the sale.

The Assessing Officer limited the benefit to Rs. 50 Lakhs, asserting that the ceiling prescribed under Section 54EC(1) restricts the total investment eligible for exemption to Rs. 50 Lakhs. This view was upheld by the Commissioner of Income Tax (Appeals).

However, the Income Tax Appellate Tribunal (ITAT) held that the exemption should be construed financial year-wise, not transaction-wise. The Tribunal ruled that if an assessee invests Rs. 50 Lakhs each in two different financial years within six months from the date of transfer, the total exemption can be Rs. 1 Crore. The Tribunal relied on the case of Aspi Ginwala & Others v. ACOT (52 SOT 16) to support this interpretation.

The High Court upheld the Tribunal's decision, stating that Section 54EC(1) restricts the investment period to six months but does not cap the investment amount within this period. The first proviso to Section 54EC(1) specifies that the investment should not exceed Rs. 50 Lakhs in any financial year. The Court noted that the ambiguity was clarified by the Finance (No.2) Act, 2014, which inserted a second proviso effective from 1.4.2015, limiting the investment to Rs. 50 Lakhs in the financial year of transfer and the subsequent financial year. However, this amendment applies prospectively from the assessment year 2015-16.

2. Necessity of referring the matter to the Special Bench under Section 255(4) due to conflicting views by different benches:

The second issue is whether the Tribunal should have referred the matter to a Special Bench under Section 255(4) due to conflicting views by different benches. The Tribunal did not refer the matter to the Special Bench, and the High Court did not find any necessity for such a referral.

The High Court noted that the Tribunal's decision was consistent with the interpretation of Section 54EC(1) and its proviso, as clarified by subsequent legislative amendments. The Court found no infirmity in the Tribunal's orders and dismissed the appeals, answering the substantial questions of law against the Revenue.

Conclusion:

The High Court concluded that the assessee is eligible for a deduction of Rs. 1 Crore under Section 54EC for investments made in two different financial years within six months from the date of transfer. The Court also held that there was no need to refer the matter to a Special Bench under Section 255(4). The appeals were dismissed, and the substantial questions of law were answered against the Revenue.

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