2017 (12) TMI 1327 - AT - Income Tax

Claim of deduction under section 54EC - Held that - The amendment by the Finance (No.2) Act, 2014 w.e.f. 01.04.2015 by which proviso has been inserted after the proviso to section 54EC(1) of the Act is to be applied prospectively from assessment year 2015-16 onwards. Accordingly, the year under appeal being assessment year 2012-13, the assessee is entitled to claim the deduction under section 54EC of the Act at ₹ 1 crore i.e. on account of investment made in the financial year in which the asset was sold at ₹ 50 lakhs and further deduction of ₹ 50 lakhs which was made in the subsequent financial year, though within period of six months from the date of sale of asset. Accordingly, we allow the claim of assessee and direct the Assessing Officer to allow the deduction under section 54EC of the Act at ₹ 1 crore. The ground of appeal raised by the assessee is thus, allowed. Clubbing of income - Computation of income in the hands of minor children on sale of beneficial shares, wherein the children had purchased REC Bonds and claimed the deduction under section 54EC - - Held that - While computing the income of minor child, first the income has to be computed in the hands of said child i.e. income less deduction allowable under the Act and the balance is to be then, added to the income of father. In the present case, the minor child against its income from long term capital gains had claimed the deduction under section 54EC of the Act on account of investments in specified assets, which has to be allowed in the hands of said minor child and the balance income is to be added in the hands of parent. There is no merit in the stand of Revenue authorities that where the parent has already claimed the deduction under section 54EC of the Act at ₹ 50 lakhs, then the minor child is not entitled to any deduction under section 54EC of the Act. The said deduction which is claimed by the minor child is on footing of the minor child being an individual in whose hands the income has to be computed first i.e. after allowing deduction permissible under the Act and the balance only is to be added in the hands of parent under section 64(1) of the Act. Accordingly, we hold so. The ground of appeal No.2 raised by the assessee is thus, allowed.

Summary

Issues Involved:
1. Claim of deduction under section 54EC of the Income Tax Act, 1961.
2. Allowability of deduction under section 54EC for investments made in the name of minor daughter.

Issue-wise Detailed Analysis:

1. Claim of Deduction under Section 54EC of the Income Tax Act, 1961:

The primary issue in both appeals was the claim of deduction under section 54EC of the Income Tax Act, 1961. The assessee declared long-term capital gains and claimed deductions on investments made in specified assets within the financial year and the subsequent financial year, totaling ?1 crore. The Assessing Officer restricted the deduction to ?50 lakhs, interpreting the proviso to section 54EC as limiting the deduction to ?50 lakhs per financial year.

The CIT(A) upheld the Assessing Officer's decision, relying on the Jaipur Tribunal's decision in ACIT Vs. Rajkumar Jain & Sons (HRF) and the Memorandum explaining the provisions of the Finance Act, 2014, which clarified the intent to limit the deduction to ?50 lakhs. The CIT(A) dismissed the binding precedent of the Madras High Court in CIT Vs. C. Jaychander, stating that decisions of non-jurisdictional High Courts are not binding.

The Tribunal, however, referenced the Pune Bench's decision in ITO Vs. Smt. Bala R. Venkitachalam and the Madras High Court's rulings in CIT Vs. C. Jaychander and CIT Vs. Coromandel Industries. The Tribunal concluded that the amendment by the Finance (No.2) Act, 2014, effective from 01.04.2015, should be applied prospectively from the assessment year 2015-16 onwards. Therefore, for the assessment year 2012-13, the assessee was entitled to claim the deduction of ?1 crore, as the investments were made within six months from the date of sale of the asset, albeit in two different financial years.

2. Allowability of Deduction under Section 54EC for Investments Made in the Name of Minor Daughter:

The second issue pertained to the deduction claim under section 54EC for investments made in the name of the assessee's minor daughter. The minor daughter had declared income from capital gains and claimed a deduction under section 54EC. The Assessing Officer denied this deduction, arguing that the maximum allowable deduction under section 54EC was ?50 lakhs, which had already been claimed by the assessee.

The Tribunal examined the provisions of section 64 of the Act, which deals with the clubbing of income of minor children with that of the parent. It was noted that the income of the minor child should first be computed independently, allowing all permissible deductions, and only the net income should be clubbed with the parent's income.

The Tribunal referred to various judicial precedents, including CIT Vs. S.K. Nayak, CIT Vs. Lalji Agrawal, and DCIT Vs. Rajeev Goyal, which supported the view that the minor child is entitled to deductions independently. The Tribunal concluded that the minor daughter's investment in specified assets under section 54EC should be allowed, and the net income after such deduction should be added to the parent's income.

Conclusion:

Both appeals were allowed, with the Tribunal directing the Assessing Officer to allow the deduction under section 54EC of ?1 crore for the assessee and to permit the deduction claimed by the minor daughter independently before clubbing her net income with that of the parent. The Tribunal emphasized the prospective application of the amendment by the Finance (No.2) Act, 2014, and upheld the principle that the minor child's income should be computed independently, allowing all relevant deductions.