2017 (9) TMI 377 - AT - Income Tax

Claim u/s 54EC - making investment in RECL Bonds of ₹ 50,00,000/- each in 2 financial years - investment of ₹ 50 lakhs each were made in the month of March 2013 and May, 2013 falling within the stipulated period of six months but in two different financial years - AO disallowed the deduction under section 5 EC by making an investment cannot exceed ₹ 50 lakhs in the assessment year Held that - From the provisions of Sec. 54EC we noted that the limit of ₹ 50,00,000/- as given under the proviso is per person per financial year. The plain reading of the section as well as the proviso clearly suggests the same interpretation. There is no ambiguity in the interpretation. Had there been an intention of the legislature to restrict the exemption to ₹ 50,00,000/-, the legislature would have provided the embargo in this regard. Making of the investment is a condition for availing of the exemption. Condition for availing of the exemption requires that the investment can be made within a period of 6 months. If 6 months falls within a different financial year, as has happened in this case, in our opinion, this Tribunal cannot add the embargo that the assessee cannot make the investment to avail of the exemption under Section 54EC in the different financial year if he had already made the investment in the financial year in which the capital asset is transferred. In our opinion, the language of Section 54EC is clear and unambiguous and it leads to the interpretation that the assessee can make the investment in two different financial years provided in a financial year the investment made did not exceed ₹ 50,00,000/-. Also gone through the circular no. 3/2008 dtd. 12.3.2008 issued by the CBDT being an explanatory note on the provisions relating to direct taxes in Finance Act, 2007 , it is apparent that the Government only intended to restrict the investment in a particular financial year and accordingly has fixed the limit of ₹ 50,00,000/- as permissible limit in a particular financial year. The Government did not intend to restrict the maximum amount of exemption permissible under Section 54EC. Legislature in our opinion has consciously used the words in a financial year in the proviso to Sec. 54EC of the Act. If the legislature wanted to restrict the exemption itself to ₹ 50,00,000/-, it could have have simply dispensed with using the words in a financial year . CIT(A) has rightly deleted the addition made by the Assessing Officer. CIT(A) has rightly deleted the addition - Decided against revenue.

Summary

Issues Involved:
1. Whether the CIT(A) erred in allowing the claim under Section 54EC of the IT Act for investments in RECL Bonds exceeding ?50 lakhs by making investments in two different financial years.
2. Whether the order of the CIT(A) should be set aside and the Assessing Officer's decision restored.

Issue-wise Detailed Analysis:

1. Allowing the Claim under Section 54EC:

The core issue revolves around the interpretation of Section 54EC of the Income Tax Act, 1961, particularly the proviso limiting the exemption to ?50 lakhs per financial year. The assessee made two separate investments of ?50 lakhs each in RECL Bonds within the stipulated six-month period but in two different financial years (March 2013 and May 2013). The Assessing Officer (AO) disallowed the second investment, arguing that the total exemption should not exceed ?50 lakhs in a single assessment year.

The CIT(A), however, allowed the assessee's claim, relying on decisions from various Tribunals, including the Bangalore Bench in Vivek Jairazbhoy Vs. Dy. Commissioner of Income-tax and the Ahmedabad Bench in Aspi Ginwala, Shree Ram Engg. & Mfg. Industries Vs. Asst. Commissioner of Income-tax. These cases held that the proviso to Section 54EC allows an assessee to invest ?50 lakhs each in two different financial years if the six-month investment period spans two financial years, thus permitting a total exemption of ?1 crore.

The Tribunal agreed with this interpretation, stating that the language of the proviso to Section 54EC is clear and unambiguous, allowing for investments of ?50 lakhs each in two different financial years within the six-month period. The Tribunal emphasized that the restriction is on the investment per financial year, not on the total exemption amount. The Tribunal also referenced Circular No. 3/2008 issued by the CBDT, which supports this interpretation by aiming to ensure equitable distribution of bonds among investors without limiting the total exemption.

2. Setting Aside the CIT(A) Order:

The Tribunal found no merit in the Revenue's appeal to set aside the CIT(A) order and restore the AO's decision. The Tribunal highlighted that the legislative intent and the wording of the proviso to Section 54EC clearly support the assessee's position. The Tribunal also noted that the second proviso inserted in Section 54EC(1) from 01.04.2015, which restricts the total exemption to ?50 lakhs irrespective of the financial years, is not retrospective and thus does not apply to the assessment year in question.

In conclusion, the Tribunal upheld the CIT(A)'s decision, confirming that the assessee is entitled to an exemption of ?1 crore under Section 54EC by making investments of ?50 lakhs each in two different financial years within the six-month period.

Order Pronouncement:

The appeal filed by the Revenue was dismissed, and the order was pronounced in the open court on 4th September 2017.