The order of the Bench was delivered by
Inturi Rama Rao (Accountant Member)- This is an appeal filed by the Revenue directed against the order of the Commissioner of Income-tax (Appeals), Mangaluru, dated February 15, 2016 for the assessment year 2012-13.
2. The Revenue raised the following grounds of appeal :
"1. The order of the learned Commissioner of Income-tax (Appeals) is against law and facts of the case.
2. The learned Commissioner of Income-tax (Appeals) erred in deleting the additions made on account of excess deduction claimed under section 54EC which is not in accordance with the said provision.
3. The learned Commissioner of Income-tax (Appeals) erred in determining the application of section 54EC due to which there is differential treatment between two assessees for the same financial year with the same nature of transaction and same head of income with only the difference in date of transaction during the financial year.
4. The learned Commissioner of Income-tax (Appeals) erred in not considering the fact that the decision of the hon'ble Income-tax Appellate Tribunal (Bang 'C' Trib) dated December 14, 2012 in the case of Vivek Jairazbhoy v. Dy. CIT in I. T. A. No. 236/Bang/2012 is pending in the High Court of Karnataka, Bengaluru in I. T. A. No. 166 of 2013."
3. Brief facts of the case are that the respondent-assessee is an individual and is engaged in the business of retail trade of IMFL, HPCL dealer and also runs business of commission agency. Return of income for the assessment year 2012-13 was filed on September 28, 2012 declaring a total income of Rs. 78,98,020. The return of income was processed under section 143(1) (hereinafter referred to as "the Act" for short) (hereinafter referred to as "the Act" for short and subsequently the case was selected for scrutiny assessment under CASS. Against the said return of income, the assessment was completed by the Income-tax Officer, Ward 2(2), Mangaluru, vide order dated November 28, 2014 passed under section 143(3) of the Act at a total income of Rs. 1,22,29,845. While doing so, the Assessing Officer disallowed the claim for deduction under section 54EC of the Act for a sum of Rs. 49,09,181.
4. The background facts leading to the above disallowance is as under : During the previous year relevant to assessment year under consideration, the assessee sold the following two properties :
(i) Sy. No. 361/1, Idu Grama, Karkala Taluk, Udupi District, Karna taka
(ii) Sy. No. 6-4A Derebail Village, Mangalore City, Dakshina Kannada, Karnataka.
Out of the sale consideration, the assessee has invested in the bonds prescribed under the provisions of section 54EC i.e., Rural Electrification Corporation falling within same financial year as well as in the following years, the details of which are as under :
(a) REC Bonds of Rs. 12,50,000 on January 31, 2012 (date of allotment)
(b) REC Bonds of Rs. 10,00,000 on March 31, 2012 (date of allotment)
(c) REC Bonds of Rs. 27,50,000 on March 31, 2012 (date of allotment)
(d) REC Bonds of Rs. 12,50,000 on March 31, 2012 (date of allotment)
(e) REC Bonds of Rs. 6,00,000 on September 30, 2012 (date of allotment)
(f) REC Bonds of Rs. 31,50,000 on September 30, 2012 (date of allotment)
5. The Assessing Officer disallowed the claim holding that the exemption under section 54EC is restricted to a sum of Rs. 50 lakhs only and therefore, investment made in the subsequent financial year was disallowed. The relevant observations of the Assessing Officer are as follows :
"9. The assessee's objection is not acceptable under the following grounds. The honourable Jaipur Income-tax Appellate Tribunal in Asst. CIT v. Rajkumar Jain and Sons (HUF) TS-142-ITAT-2012(Jpr) had held that the exemption of gains was to be restricted to investment in specified bonds to Rs. 50 lakhs only and any other interpretation would lead to discrimination against various taxpayers depending upon date of transfer of long-term capital assets. Proviso to sub- section (1) of section 54EC is proposed to be inserted to restrict the investment eligibility in specified bonds to Rs. 50 lakhs only even in a situation where the eligibility for investment in bonds falls in two different financial years. Further, the assessee objected for proposed to the disallowance of Rs. 50 lakhs and has quoted Tribunal decisions from Panaji (ITAT) Tribunal in the case of ITO v. Ms. Rania Faleiro I. T. A. No. 9/Pnj/2013 for the assessment year 2008-09. However, the Panaji Income-tax Appellate Tribunal decision has not been accepted by the Department and it has further appealed before the hon'ble High Court of Bombay at Goa against of this order which was admit ted by the High Court of Bombay at Goa vide Tax Appeal No. 16 of 2013 on the following substantial question of law :
'9.(i) Whether the Income tax Appellate Tribunal erred in interpreting the provisions of section 54EC which clearly provides that the amount allowable for the financial year is Rs. 50,00,000 only and accordingly the amount allowable for the corresponding to the relevant financial year is 2007-08 is Rs. 50,00,000 and therefore the Income-tax Appellate Tribunal could not have granted relief thereby allowing deduction under section 54EC of Rs. 1,00,00,000.'
Hence, the assessee's objection to the proposal for disallowance a sum of Rs. 49,09,181 is not acceptable. Therefore, the excess deduction claimed for a sum of Rs. 49,09,181 is disallowed and treated as capital gain and added back to the assessee's income."
6. Being aggrieved, an appeal was preferred before the Commissioner of Income-tax (Appeals), who vide the impugned order, allowed the appeal placing reliance on the decision of the hon'ble Madras High Court in the case of CIT v. C. Jaichander [2015] 370 ITR 579 (Mad). The relevant portion of the impugned order reads as under :
"5.3 The submissions of the appellant were considered carefully. The Assessing Officer in the order restricted the exemption of capital gains to Rs. 50 lakhs only relying on the decision of the hon'ble Income-tax Appellate Tribunal, Jaipur in Asst. CIT v. Ramkumar Jain and Sons (HUF). The Assessing Officer also rejected the caselaw relied upon by the appellant in the case of ITO v. Ms. Raina Faleiro (I. T. A. No. 9/Pnj/2013) (Panaji ITAT) on the ground that the Department did not accept the said decision and filed appeal before the hon'ble Mumbai High Court.
5.4. The hon'ble Income-tax Appellate Tribunal Mumbai Bench "A" in the case of Mrs. Lilavati M. Sayani v. ITO [2014] 32 ITR (Trib) 174 (Mumbai) held that the issue involved in the appeal of the asses see is squarely covered by decision rendered in the case of ASPI Ginwala, Shree Ram Engg. and Mfg. Industries v. Asst. CIT [2012] 52 SOT 16 ; 20 taxmann.com 75 (Ahd), wherein the Ahmedabad Bench of the Income-tax Appellate Tribunal held that the provision of section 54EC makes it clear that where the assessee transfers it capital asset after the 30th September of the financial year, he gets an opportunity to make an investment of Rs. 50 lakhs each in two different financial years and is able to claim exemption up to Rs. 1 crore under section 54EC. The Tribunal observed that the language of the proviso is clear and unambiguous and relied on the decision of the hon'ble Supreme Court in the case of IPCA Laboratory Ltd. v. Deputy CIT [2004] 266 ITR 521 (SC) ; 135 Taxman 594 to hold that since the wording of the proviso to section 54EC is clear, the benefits which are available to the assessee cannot be denied. Following the aforesaid decision the assessee was entitled to full exemption under section 54EC.
5.5. The hon'ble Income-tax Appellate Tribunal (Bang), in para graph 9.7 and 9.8 of the order (reproduced above) considered the decision of the hon'ble Income-tax Appellate Tribunal Jaipur (relied upon by the Assessing Officer) and decided that the assessee is entitled to total deduction under section 54EC of the Act spread over a period of two financial years at Rs. 50 lakhs each on investments made in specified instruments within a period of six months from the date of sale of the property. The hon'ble Madras High Court in paragraph 11 of the order held that from a reading of section 54EC(1) and the first proviso, it is clear that the time limit for investment is six months from the date of transfer and even if such investment falls under two financial years, the benefit claimed by the assessee cannot be denied.
5.6. The following conditions should be satisfied for the purpose of 54EC :
(a) The assessee may be an individual, firm, company or any other person.
(b) The asset transferred should be a long-term capital asset.
(c) The assessee should invest the whole or any part of the capital gain in long-term specified asset (bonds issued by NHAI and REC) within six months from the date of transfer of the asset.
5.7 In the instant case, during the previous year the appellant sold two capital assets on October 3, 2011 and March 20, 2012. The appellant derived long-term capital gains from the above transactions. During the previous year and also the immediate financial year the appellant invested a total amount of Rs. 1 crore in REC bonds. Investment in each financial year was Rs. 50,00,000 and the investments were within six months of transfer of the above immovable properties as stipulated under the provisions of section 54EC of the Act. There is no dispute regarding the investment dates.
The appellant fulfilled all the conditions laid down under section 54EC of the Income-tax Act, In view of the above, respectfully following the decision of the hon'ble Madras High Court and the jurisdictional hon'ble Income-tax Appellate Tribunal, Bangalore "C" Bench in the case cited above, I hereby direct the Assessing Officer to delete the entire addition made.
The appellant fulfilled all the conditions laid down under section 54EC of Income-tax Act. In view of the above, respectfully following the decision of the hon'ble Madras High Court and the jurisdictional hon'ble Income-tax Appellate Tribunal, Bangalore "C" Bench in the case cited above, I hereby direct the Assessing Officer to delete the entire addition made."
7. Being aggrieved, the Revenue is in appeal before us in the present appeal.
8. The only issue that arises in the present appeal is whether the assessee is entitled for deduction of claim under section 54EC in respect of investment made in prescribed bonds though in different financial years i.e. immediately succeeding financial year. There is no dispute as to the amount of capital gains computed. The provisions of section 54EC provide for deduction in respect of investment made in prescribed bonds against income from long-term capital gains in case investment is made in specified assets within a period of six months from the date of sale assets. The said section also specifies maximum amount of investment to be made in financial year i.e., Rs. 50 lakhs in any financial year. The relevant provisions of section 54EC, as they stood at the relevant point of time are reproduced below :
"54EC. Capital gain not to be charged on investment in certain bonds.-(1) Where the capital gain arises from the transfer of a long- term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,-
(a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45 ;
(b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45 :
Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees."
From a bare reading of the above provisions, it is clear that assessee is entitled to deduction where he makes investment of Rs. 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 Rs. 50 lakhs in each financial year totalling to Rs. 1 crore. This issue had come up for consideration before the hon'ble Madras High Court in the case of C. Jaichander (supra) and again in CIT v. Coromandel Indus tries Ltd. [2015] 370 ITR 586 (Mad) 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 Rs. 50 lakhs in each financial year aggregating to Rs. 1 crore. The relevant portion of the judgment of the hon'ble Madras High Court in the case of Coromandel Indus tries Ltd. (supra) is extracted below (page 592) :
"In any event, from a reading of section 54EC(1) and the first proviso, it is clear that the time limit for investment is six months from the date of transfer and even if such investment falls under two financial years, the benefit claimed by the assessee cannot be denied. It would have made a difference, if the restriction on the investment in bonds to Rs. 50,00,000 is incorporated in section 54EC(1) of the Act itself. However, the ambiguity has been removed by the Legislature with effect from April 1, 2015 in relation to the assessment year 2015- 16 and the subsequent years."
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 Rs. 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. The said second proviso reads as under :
Provided further that the investment made by an assessee in the long-term specified asset, from capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees.
The above decision of the hon'ble Madras High Court was followed by the co-ordinate Bench of Pune in the case of ITO v. Smt. Bala R. Venkitachalam [2016] 71 taxmann.com 219 (Pune-Trib). Paragraph 9 of the above decision reads as under :
"9. The issue arising in the present appeal is against the claim of deduction under section 54EC of the Act, under which deduction is provided against the income from long-term capital gains in case the investment is made in specified assets within time frame of six months from the date of sale of asset. The said section also provides a cap on the investment to be made in the bonds to the extent of Rs. 50 lakhs in any financial year. As per the mandate of the said section and the proviso thereunder, where the assessee makes an investment of Rs. 50 lakhs in the specified bonds within time frame of six months from the date of sale, in any financial year, then the benefit of said section is to be allowed to the assessee. In case, the period of six months falls within two financial years, then the question which arises for adjudication is whether the assessee can claim the aforesaid deduction under section 54EC of the Act to the extent of Rs. 50 lakhs in each of the financial year totalling Rs. 1 crore, where the investment is made in the aforesaid bonds in two financial years separately but within period of six months from the date of sale of assets. This issue arose for consideration before the hon'ble High Court of Madras in C. Jaichander (supra) and later in CIT v. Coromandel Industries Ltd. [2015] 370 ITR 586 (Mad) ; 230 Taxman 548 ; 56 taxmann.com 209 (Mad) have laid down that the exemption granted under the proviso to section 54EC(1) of the Act should be construed not transaction- wise but financial year wise, wherein if the assessee was able to invest sum of Rs. 50 lakhs each in two different financial years, within period of six months from the date of transfer of capital assets, the said deduction was allowable to the assessee. The hon'ble High Court of Madras in C. Jaichander (supra) has held that as per the mandate of section 54EC(1) of the Act, time limit for investment is six months and benefit that flows from the first proviso is that if the assessee makes investment of Rs. 50 lakhs in any financial year, it would have benefit of section 54EC(1) of the Act. The hon'ble High Court further held that however, to remove the ambiguity in the above said provisions, the Legislature by the Finance (No. 2) Act, 2014 with effect from April 1, 2015 had inserted proviso after existing proviso to sub-section (1) of section 54EC of the Act. The second proviso, as per which the investment made by the assessee in long-term capital gains specified assets out of capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in subsequent financial years, does not exceed Rs. 50 lakhs. The said amendment was held to be applicable from the assessment year 2015-16 and the subsequent assessment years. The hon'ble High Court thus, categorically held that the investment made on or after April 1, 2007 in long-term specified assets by an assessee during any financial year should not exceed Rs. 50 lakhs. However, the benefit that flows from the proviso was that where the assessee makes investment of Rs. 50 lakhs in any financial year, it could have the benefit of section 54EC(1) of the Act. Applying the aforesaid proposition to the facts of the present case, where the assessee had invested Rs. 50 lakhs in REC bonds i.e., specified assets as provided under section 54EC of the Act on February 28, 2010 i.e., in financial year 2009-10 and Rs. 22,50,000 on April 30, 2010 i.e., in financial year 2010-11 as against the capital gains arising of Rs. 72,49,401 on the transfer of long-term capital gains i.e., sale of shares on January 21, 2010 falling in financial year 2009-10, the asses see is entitled to the benefit provided by the proviso under section 54EC of the Act and consequently, the order of Commissioner of Income-tax (Appeals) merits to be upheld. Dismissing the grounds of appeal raised by the Revenue, the appeal of the Revenue is dismissed."
Thus, in the light of the ratio laid down in the above decisions, we do not find any fallacy in the reasoning of the Commissioner of Income-tax (Appeals).
9. In the result, the appeal filed by the Revenue is dismissed