2015 (9) TMI 393 - HC - Income Tax

Deduction u/s. 48(1) - ITAT allowed deduction - Held that - As after expiry of Shri P.M. Moghe on 20.03.1996, the assessee and his three daughters were faced in a peculiar position. They resolved the situation and a family settlement was reduced into writing. It was agreed that at the time of sale, each sister shall be given ₹ 15 lakh and each niece shall be given Rs. Five lakh. Accordingly, when the property was sold on 07.07.2006, this family settlement has been given effect to. It is, therefore, obvious that in the absence of such family settlement and payment, the sale of property on 07.07.2006 by the assessee could not have materialized. The CIT(A) in the Appeal filed by the assessee has not accepted payment of Rs. Five lakh each given to three nieces and that finding has been maintained even by the ITAT. The assessee has not questioned it in further appeal. As such, the only question is whether amount of ₹ 45 lakh paid to his sisters has been rightly accepted as expenditure in connection with transfer of property. The sisters had a title in property and without their cooperation there could not have been any sale. In this situation, we do not find any error in concurrent findings reached by the CIT as also by the ITAT. - Decided against revenue Deduction claimed under Section 54EC for investment in purchase of REC Bonds allowed by ITAT - Held that - Section 54EC gives assessee an option to invest either in bonds of National Highway Authority of India or then in bonds of Rural Electrification Corporation Limited. The said provision does not stipulate that the investment has to be in any bond whichever is available. Both bonds carry different benefits and hence deliberately the Parliament has given option to the assessee to invest in any one out of two as per his choice. In a given case, the assessee may choose to invest in both. However, discretion is conferred upon the assessee, who is the best judge of his own needs and interests. He cannot be forced to invest in the bond whichever is available because period of six months is about to expire. This option or discretion given by the Parliament to the assessee needs to be honoured here. If said option was available when period of six months was to expire and could have been expressed by the assessee when said period was about to expire, the situation would have been otherwise. In present matter, the REC Bonds became available in VIA issue on 22.01.2007 and, therefore, investment made therein cannot be said to be after an undue or unreasonable delay. The investment has been made at the earliest possible opportunity.- Decided against revenue

Summary

Issues Involved:
1. Deduction of Rs. 45 lakhs claimed under Section 48(1) of the Income Tax Act, 1961.
2. Deduction of Rs. 22 lakhs claimed under Section 54EC for investment in REC Bonds.

Detailed Analysis:

Issue 1: Deduction of Rs. 45 lakhs claimed under Section 48(1) of the Income Tax Act, 1961
The revenue questioned whether the ITAT was justified in allowing the deduction of Rs. 45 lakhs paid to the assessee's three sisters as an expenditure incurred in connection with the transfer of property. The assessee inherited a residential bungalow through a Will executed by his mother, which included an overriding title in favor of his three sisters. Upon selling the property, the assessee paid Rs. 15 lakhs each to his three sisters to extinguish their potential claims, totaling Rs. 45 lakhs. The CIT(A) and ITAT upheld this payment as a legitimate expenditure connected with the transfer of property, necessary to facilitate the sale. The High Court found no error in these concurrent findings, stating that the sisters had a title in the property and without their cooperation, the sale could not have materialized. Thus, the court concluded that this issue does not raise a substantial question of law.

Issue 2: Deduction of Rs. 22 lakhs claimed under Section 54EC for investment in REC Bonds
The revenue also questioned the ITAT's decision to allow the deduction of Rs. 22 lakhs invested in REC Bonds beyond the prescribed period of six months. The assessee sold the property on 07.07.2006 and was required to invest in specified bonds by 06.01.2007. However, REC Bonds were not available during this period; they became available on 22.01.2007, and the assessee invested on the same date. The High Court referred to a similar case (Income Tax Appeal No. 3731 of 2010) where the unavailability of bonds within the stipulated period was considered a reasonable cause for delayed investment. The court emphasized that Section 54EC gives the assessee the discretion to choose between bonds issued by the National Highway Authority of India and REC Bonds. The court concluded that the assessee exercised this discretion appropriately and invested at the earliest possible opportunity when REC Bonds became available. Therefore, this issue also does not raise a substantial question of law.

Conclusion:
The High Court dismissed the appeal, finding no substantial questions of law in both issues raised by the revenue. The court upheld the ITAT's decision to allow the deductions claimed by the assessee under Sections 48(1) and 54EC of the Income Tax Act, 1961. The appeal was dismissed without any orders as to costs.