2017 (9) TMI 1513 - AT - Income Tax

Entitlement for deduction of claim under section 54EC - investment made in prescribed bonds though in different financial years i.e. immediately succeeding financial year - Held that - Assessee is entitled to deduction where he makes investment of ₹ 50 lakhs in specified assets within a period of six months in one financial year. The issue then crops up is in case said period of six months falls within two financial years, whether the assessee can claim deduction under section 54EC to the extent of ₹ 50 lakhs in each financial year totalling to ₹ 1 crore. This issue had come up for consideration before the hon ble Madras High Court in the case of C. Jaichander (2014 (11) TMI 54 - MADRAS HIGH COURT) and CIT v. Coromandel Indus tries Ltd. 2014 (12) TMI 852 - MADRAS HIGH COURT wherein the hon ble Madras High Court has laid down that the exemption granted under proviso to section 54EC(1) should be construed not transaction-wise but financial year-wise. Consequently, the assessee is entitled to exemption of ₹ 50 lakhs in each financial year aggregating to ₹ 1 crore. In this connection, it is worth mentioning that the Legislature, by the Finance (No. 2) Act, 2014 with effect from April 1, 2015 has inserted second proviso to sub-section (1) of section 54EC to remove the above ambiguity in the said provision so that the exemption is limited to ₹ 50 lakhs on account of investment in the specified bonds out of the long-term capital gains from the transfer of one or more assets during the financial year. - Decided against revenue

Summary

Issues Involved:
1. Legality of the Commissioner of Income-tax (Appeals) order.
2. Deletion of additions made on account of excess deduction claimed under section 54EC.
3. Differential treatment of assessees for the same financial year.
4. Consideration of pending High Court case in the Tribunal's decision.

Issue-wise Detailed Analysis:

1. Legality of the Commissioner of Income-tax (Appeals) order:
The Revenue contended that the order of the Commissioner of Income-tax (Appeals) was against the law and facts of the case. The Commissioner had allowed the appeal of the assessee by relying on the decision of the Madras High Court in CIT v. C. Jaichander and other Tribunal decisions, which held that the assessee could claim deductions under section 54EC spread over two financial years, even if the total exceeded ?50 lakhs. The Tribunal upheld this view, stating that the assessee fulfilled all conditions under section 54EC and was entitled to the deductions.

2. Deletion of additions made on account of excess deduction claimed under section 54EC:
The Assessing Officer had disallowed the assessee’s claim for deduction under section 54EC for investments exceeding ?50 lakhs, arguing that the exemption was limited to ?50 lakhs per financial year. The Commissioner of Income-tax (Appeals) deleted this addition, referencing decisions from various High Courts and Tribunals which supported the assessee's claim. The Tribunal affirmed this deletion, noting that the assessee had invested within the prescribed time frame and in two different financial years, thus qualifying for the deduction.

3. Differential treatment of assessees for the same financial year:
The Revenue argued that the Commissioner’s decision led to differential treatment between assessees with similar transactions within the same financial year. The Tribunal, however, found that the legal provisions allowed for such differential treatment based on the timing of the investments across financial years. The Tribunal cited the Madras High Court’s interpretation that the exemption under section 54EC is financial year-wise and not transaction-wise.

4. Consideration of pending High Court case in the Tribunal's decision:
The Revenue pointed out that a similar case, Vivek Jairazbhoy v. Dy. CIT, was pending in the Karnataka High Court. Despite this, the Tribunal decided based on existing judgments that favored the assessee’s interpretation of section 54EC. The Tribunal emphasized that the legislative amendment effective from April 1, 2015, clarified the ambiguity, but for the relevant assessment year, the assessee's claim was valid.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue, upholding the Commissioner of Income-tax (Appeals)’s order. The Tribunal concluded that the assessee was entitled to the deduction under section 54EC for investments made in specified bonds across two financial years, totaling ?1 crore, as the investments were within six months from the date of sale of the capital assets. The Tribunal’s decision was pronounced in open court on May 2, 2017.