2018 (3) TMI 134 - AT - Income Tax

Section 54EC deduction claim disallowed - Assessee jointly sold the capital asset in question in the relevant previous year on 26.10.2010 for ₹ 6,60,00,000/-. His 1/3rd share therein was of ₹ 2,20,00,000/-. He thereafter invested ₹ 1crore (supra) in NHAI bonds to claim Section 54EC deduction - decline of deduction as the said statutory provision caps the re-investment amount to ₹ 50lacs only, therefore restrict assessee s claim to ₹ 50lacs to disallow the remaining equal amount - Held that - We find no force in this approach above of revenue. Hon ble Madras high court s judgment in CIT vs. C. Jaichander (2014 (11) TMI 54 - MADRAS HIGH COURT) has admittedly upheld a co-ordinate bench s decision that such a deduction claim of ₹ 50 lacs each spread over to two financial years but falling within six months of the capital asset s transfer in question is very much allowable. The legislature has inserted second proviso to Section 54EC (1) introducing the above cap on re-investment quantum by the Finance (Act No.2), 2014 w.e.f. 01.04.2015 whereas we are dealing with assessment year 2011-12. This is not the Revenue s case that the above amendment carries any retrospective operation. We therefore reject Mr. Kabra s vehement contentions supporting the impugned disallowance. - Decided in favour of assessee.

Summary

Issues:
Assessment of Section 54EC deduction claim exceeding the statutory cap.

Analysis:
The appeal pertains to the assessment year 2011-12 where the assessee's Section 54EC deduction claim was restricted by the Assessing Officer to ?50 lakhs, despite the assessee having invested ?1 crore in NHAI bonds. The lower authorities upheld this restriction based on the statutory provision capping reinvestment at ?50 lakhs. However, the Tribunal disagreed with this approach, citing a judgment from the Hon'ble Madras High Court in CIT vs. C. Jaichander (2015) 370 ITR 579 (Madras), which allowed a deduction claim of ?50 lakhs each spread over two financial years within six months of the capital asset's transfer. The Tribunal noted that the legislative amendment introducing the cap came into effect from 01.04.2015, not applicable to the assessment year in question. Therefore, the Tribunal rejected the Revenue's contentions and allowed the assessee's appeal, accepting the substantive ground raised.

This judgment highlights the interpretation of Section 54EC of the Income Tax Act, 1961, concerning the deduction claim for investments in NHAI bonds. The Tribunal emphasized that the amendment introducing the cap on reinvestment amounts was not applicable retrospectively to the assessment year 2011-12. By referencing the Madras High Court's decision, the Tribunal clarified that a deduction claim of ?50 lakhs each spread over two financial years within six months of the asset's transfer is permissible. The Tribunal's analysis focused on the legislative intent behind the amendment and its temporal application to the relevant assessment year, ultimately leading to the allowance of the assessee's appeal.

In conclusion, the Tribunal's decision in this case provides clarity on the interpretation and application of Section 54EC deduction claims, specifically addressing the statutory cap on reinvestment amounts. By considering relevant judicial precedents and the legislative timeline of amendments, the Tribunal ruled in favor of the assessee, emphasizing the non-retrospective nature of the statutory provision and allowing the deduction claim as per the permissible limits set by the law.