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2017 (5) TMI 168 - AT - Income TaxExemption u/s. 54EC of the I.T. Act, 1961 - investment in REC Bonds - Whether the first proviso to Section 54EC(1) would restrict the benefit of investment of capital gains in bonds to that financial year during which the property was sold or it applies to any financial year during the six months period? - Held that - Hon ble Madras High Court has elaborately considered this issue in the case of CIT vs. C. Jaichander 2014 (11) TMI 54 - MADRAS HIGH COURT has held that Section 54EC(1) of the Act restricts the time limit for the period of investment after the property has been sold to six months. There is no cap on the investment to be made in bonds - assessee is eligible for exemptions as per the extant provision of Section 54EC for the whole of the amount of Rs. One Crores invested - it was permissible on the part of assessee to make investment of ₹ 1 crore split into ₹ 50 lakh each in two financial years that is on 21.01.2011 and 06.07.2011 respectively - appeal dismissed - decided against Revenue.
Issues:
1. Interpretation of Section 54EC of the Income Tax Act regarding exemption on investment in REC Bonds exceeding the statutory limit. Analysis: Issue 1: Interpretation of Section 54EC The case involved a dispute regarding the interpretation of Section 54EC of the Income Tax Act concerning the exemption on investment in REC Bonds exceeding the statutory limit. The assessee had claimed an exemption of ?1,00,00,000 under Section 54EC, which was challenged by the Assessing Officer (AO) as the total investment exceeded the prescribed limit of ?50,00,000 in a financial year. The AO referred to a previous ITAT decision to support the restriction of the deduction to ?50,00,000. However, the CIT-A ruled in favor of the assessee, stating that the investment of ?1 crore split into ?50 lakhs each in two financial years was permissible under the law. The CIT-A relied on various decisions to support this conclusion. Analysis Continued: The Revenue appealed against the CIT-A's decision, arguing that the second proviso to Section 54EC was applicable in the case, as per a judgment of the Madras High Court. The High Court had clarified that the second proviso was effective from 11.04.2015 and not applicable to the assessment year in question. The ITAT carefully analyzed the legal provisions and the High Court's judgment in the case of CIT vs. C. Jaichander. The High Court had explained that the first proviso to Section 54EC(1) restricts the time limit for investment to six months after the property sale, with no cap on the investment in bonds. The second proviso, introduced in 2015, imposed a limit of ?50,00,000 for investments made in the financial year of property transfer and the subsequent year. The ITAT concluded that since the second proviso was not applicable for the relevant assessment year, the assessee's investment of ?1 crore in two financial years was permissible under Section 54EC. Therefore, the ITAT upheld the CIT-A's decision, dismissing the Revenue's appeal.
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