A division bench of the Mumbai ITAT, on Monday, allowed a claim under section 54EC of the Income Tax Act, 1961 for making investment in RECL Bonds of Rs.50,00,000/- each in 2 financial years.
Coming to the facts of the case, the assessee, an individual, has received capital gains from the sale of his tenancy rights. For that assessment year, he claimed deduction of Rs. 1 crore towards the investment in RECL Bonds under section 54EC of the Income Tax Act.
It is significant to note that the investment of Rs.50 lakhs each was made in the month of March 2013 and May, 2013 falling within the stipulated period of six months but in two different financial years.
The above claim was disallowed by the Assessing Officer by stating that the deduction under section 54 EC by making an investment cannot exceed Rs.50 lakhs in the assessment year.
The first appeal filed by the assesse was allowed by the Commissioner (Appeals). The department approached the Tribunal for relief.
Dismissing the department’s contentions, the bench ruled that there is no ambiguity in the interpretation of the s. 54EC.
“From the provisions of Sec. 54EC we noted that the limit of Rs. 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.”
Explaining the legislative intent behind the provision, the bench said that if the legislature had an intention to restrict the exemption to Rs.50,00,000/-, it would have provided the embargo in this regard.
“Restriction relates only to the investment made in any financial year by the assessee. 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 Rs.50,00,000/-.”
Read the full text of the Order below.
