Tribunal grants deductions under section 54EC for assessee and minor child, upholding income separation principle.

The Tribunal allowed both appeals, directing the Assessing Officer to permit a deduction of Rs. 1 crore under section 54EC for the assessee. Additionally, the Tribunal ruled in favor of the minor daughter's deduction claim under section 54EC, emphasizing that the minor child's income should be computed independently with all relevant deductions before being clubbed with the parent's income. The Tribunal highlighted the prospective application of the 2014 amendment and upheld the principle of allowing deductions for the minor child's investments.

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Issues Involved:
1. Claim of deduction under section 54EC of the Income Tax Act, 1961.
2. Allowability of deduction under section 54EC for investments made in the name of minor daughter.

Issue-wise Detailed Analysis:

1. Claim of Deduction under Section 54EC of the Income Tax Act, 1961:

The primary issue in both appeals was the claim of deduction under section 54EC of the Income Tax Act, 1961. The assessee declared long-term capital gains and claimed deductions on investments made in specified assets within the financial year and the subsequent financial year, totaling Rs. 1 crore. The Assessing Officer restricted the deduction to Rs. 50 lakhs, interpreting the proviso to section 54EC as limiting the deduction to Rs. 50 lakhs per financial year.

The CIT(A) upheld the Assessing Officer's decision, relying on the Jaipur Tribunal's decision in ACIT Vs. Rajkumar Jain & Sons (HRF) and the Memorandum explaining the provisions of the Finance Act, 2014, which clarified the intent to limit the deduction to Rs. 50 lakhs. The CIT(A) dismissed the binding precedent of the Madras High Court in CIT Vs. C. Jaychander, stating that decisions of non-jurisdictional High Courts are not binding.

The Tribunal, however, referenced the Pune Bench's decision in ITO Vs. Smt. Bala R. Venkitachalam and the Madras High Court's rulings in CIT Vs. C. Jaychander and CIT Vs. Coromandel Industries. The Tribunal concluded that the amendment by the Finance (No.2) Act, 2014, effective from 01.04.2015, should be applied prospectively from the assessment year 2015-16 onwards. Therefore, for the assessment year 2012-13, the assessee was entitled to claim the deduction of Rs. 1 crore, as the investments were made within six months from the date of sale of the asset, albeit in two different financial years.

2. Allowability of Deduction under Section 54EC for Investments Made in the Name of Minor Daughter:

The second issue pertained to the deduction claim under section 54EC for investments made in the name of the assessee's minor daughter. The minor daughter had declared income from capital gains and claimed a deduction under section 54EC. The Assessing Officer denied this deduction, arguing that the maximum allowable deduction under section 54EC was Rs. 50 lakhs, which had already been claimed by the assessee.

The Tribunal examined the provisions of section 64 of the Act, which deals with the clubbing of income of minor children with that of the parent. It was noted that the income of the minor child should first be computed independently, allowing all permissible deductions, and only the net income should be clubbed with the parent's income.

The Tribunal referred to various judicial precedents, including CIT Vs. S.K. Nayak, CIT Vs. Lalji Agrawal, and DCIT Vs. Rajeev Goyal, which supported the view that the minor child is entitled to deductions independently. The Tribunal concluded that the minor daughter's investment in specified assets under section 54EC should be allowed, and the net income after such deduction should be added to the parent's income.

Conclusion:

Both appeals were allowed, with the Tribunal directing the Assessing Officer to allow the deduction under section 54EC of Rs. 1 crore for the assessee and to permit the deduction claimed by the minor daughter independently before clubbing her net income with that of the parent. The Tribunal emphasized the prospective application of the amendment by the Finance (No.2) Act, 2014, and upheld the principle that the minor child's income should be computed independently, allowing all relevant deductions.

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