TMI Blog2017 (12) TMI 1327X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular had clearly stated that the limit is for financial year and various Tribunals have decided the issue that where the investment of ₹ 50 lakhs is made in two financial years, but within period of six months from the sale of asset, then the assessee is entitled to claim deduction at ₹ 1 crore. The Assessing Officer however, referring to the amendment made w.e.f. 01.04.2007 by the Finance Bill, 2007 pointed out that investments in specified assets to avail exemption under section 54EC of the Act on or after 01.04.2007 was not to exceed ₹ 50 lakhs in a financial year. The Assessing Officer was of the view that proviso so introduced refers to the investment to be made for the purpose of claiming deduction of capital gains and the same could not give undue benefit to one section of taxpayers, wherein if the asset was transferred in the month of April of financial year, then he has to make investment within six months and he would be entitled to make investment of ₹ 50 lakhs only. In case, the asset was transferred in the month of October of any financial year or thereafter, then the assessee would get the benefit of making the investment of ₹ 50 lakhs i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trib.). 8. The learned Departmental Representative for the Revenue on the other hand, relying on the order of CIT(A) pointed out that the intention of the Act was to allow deduction under section 54EC of the Act at ₹ 50 lakhs only. 9. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against investment made by the assessee under section 54EC of the Act, wherein the assessee had shown income from long term capital gains. The assessee had claimed the deduction under section 54EC of the Act on account of investments made in the financial year in which the asset was sold at ₹ 50 lakhs and in the specified financial year another investment of ₹ 50 lakhs, which was made within period of six months from the date of sale of capital asset. The case of Revenue on the other hand, was that under section 54EC of the Act, the assessee was only entitled to the deduction to the extent of ₹ 50 lakhs and not ₹ 1 crore as claimed by the assessee and hence, the same was restricted to ₹ 50 lakhs. 10. Similar issue of claim of deduction under section 54EC of the Act arose before the Pune Bench of Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 CIT Vs. C. Jaichandar (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 ₹ 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, legislature by Finance (No.2) Act, 2014 w.e.f. 01.04.2015 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 ₹ 50 lakhs. The said amendment was held to be applicable from assessment year 2015-16 and subsequent assessment years. The Hon ble High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal is identical to the ground of appeal No.1 raised in Smt. Kinna Patel and applying the same principle, we hold that the assessee is entitled to claim deduction under section 54EC of the Act at ₹ 1 crores. 13. However, the assessee has further raised ground of appeal No.2, which reads as under:- 2. On the facts and in the circumstances of the case and in law the Lower Authorities have erred in not allowing the claim of exemption u/s 54EC of the Income Tax Act, 1961, a sum of ₹ 45,95,766/- invested in the name of minor daughter, Ms. Jogoya B Desai as not eligible for separate exemption. However, the gain accruing to her is separately clubbed to the income of the appellant. 14. Brief facts relating to the issue are that the minor daughter of assessee had also declared income from capital gains and had further claimed deduction under section 54EC of the Act, wherein investment to the extent of ₹ 45,95,765/- was made in the specified assets. The Assessing Officer was of the view that since the assessee himself in the financial year had claimed deduction under section 54EC of the Act at ₹ 50 lakhs, no further deduction under section 54EC of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is to be allowed in the hands of assessee. 19. The issue needs to be adjudicated on account of interpretation of provisions of clubbing of income under section 64(1) of the Act. It may be pointed out that the Act provides that where the child is a minor, then his / her income is to be clubbed with the parent whose income is higher. In other words, what is to be clubbed is the income determined in the hands of minor. So, the first step is to determine income in the hands of minor child and thereafter include it in the hands of parent i.e. the father or the mother, as the case may be. While computing the income in the hands of minor, then the first step is to compute the gross income and then allow the deduction, if any, which is permissible under the Act. 20. The Hon ble High Court of Karnataka in CIT Vs. S.K. Nayak (supra) which ratio was further applied by the Hon ble High Court of Allahabad in CIT Vs. Lalji Agrawal (supra) held that the net salary income of spouse is to be determined after providing the standard deduction under section 16(1) of the Act, which in turn, is to be clubbed under section 64(1) of the Act in the hands of husband. 21. The Kolkata Bench of Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by an assessee can be notified or could have been notified by the Central Govt. But in the notification relied on the by the AO as aforesaid, no limit of investment by an assessee is prescribed. But the condition for allotment of bonds to a single person is specified. In fact the issuing authority was fully aware of the notification and taking into account the fact that it was being issued to three different persons the allotment was made. The deduction or otherwise was not the subject matter of notification rather it was out of the purview of the aforesaid notification. In view of the above even if section 54EC(3) Explanation (b) of the Act is considered, assessee's case falls outside the embargo put on by the amendment made in this section. Even section 64(1A) speaks of the addition of the total income of minor child and income of a minor child for the purpose of inclusion u/s 64(1A) will be his total income. The relevant provisions of section 64 (1A) of the Act reads as under: 64 INCOME OF INDIVIDUAL TO INCLUDE INCOME OF SPOUSE, MINOR CHILD, ETC. (1A) In computing the total income of any individual, there shall be included all such income as arises or accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arent. We after going through provisions of the Act are of the view that capital gain which is the subject matter of this appeal is to be computed under Chapter IV-E of the Act. Section 54EC provides that capital gain not to be charged on investment on certain bonds. Therefore the investments made in certain bonds shall be outside the scope of capital gain for the purpose of computation of total income itself. It is not a deduction under Chap. VIA which comes into picture only after computing the total income and the deductions are being allowed from gross total income as per section 80A(l). As stated earlier for the purpose of computation of gross total income from capital gain, any amount invested as per the provision of section 54EC is outside the computation of total income itself. It may also be mentioned that there is difference between the word assessee and the word person . The notification on which the AO relied upon have not put on any embargo on the investments by an assessee but the embargo is on allotment of the bonds to a person and such embargo is on the allotting authority. The bonds have been allotted to the three persons as per the notification itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm and assessee borrowed funds and invested the same in the partnership firm in the name of his minor daughter, the interest payable by the assessee on capital borrowed by the assessee on behalf of the minor daughter was deductible under section 67(3) from the share income arising to the minor child and it was only the resultant income, after deduction which was to be included in the total income of the assessee under section 64(1) (iii) . The above judgment clearly shows that even if the income of the minor is clubbed with the income of the other individual, all the deductions are to be allowed while computation of income of the minor/spouse and only the net taxable income is to be clubbed under section 64. In view of the above, we allow the claim of assessee and direct the AO to recompute the long term capital gains accordingly. The facts and circumstances in ITA No.951/K/2011are exactly similar, hence, taking a consistent view, we allow the claim in this appeal also. 22. Applying the said principle to the facts of the present case, we hold 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 deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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