Deduction u/s 54EC allowable on investment after six months if bonds were not available

Brief about the case

In the case of ACIT Vs Shri Kamlakar Moghe it was held by Nagpur Bench of Bombay HC that  deduction u/s 54EC can be claimed by the assessee despite making the investment in REC bonds beyond six months if the delay was due to non-availability of the REC Bonds.

High Court Further held that amount paid to sisters for creating better title over the property and to sell the property peacefully is alloowable expenditure U/s. 48(1) in calculation of Capital Gain on Sale of Property.

Facts of the case:

• The assessee’s mother had executed a will 17.12.1978 which became effective on 18.05.1988 after her death. By that will the assessee received property with clause providing overriding title in favour of his three sisters. In this situation, assessee decided to pay Rs.15 lakh each to his three sisters so that in future they should not claim any right in the property. He also paid an amount of Rs. Five lakh each to his three nieces.
• The assessee then sold the property after entering into a family settlement reduced into writing to avoid future dispute and received the sale consideration on 07.07.2006.
• While calculating the Capital Gains the assessee claimed deduction of the amounts paid to sisters and niece u/s 48 and invested the Capital gain amount of Rs.22 lacs in REC Bonds on 24.01.2007 and further claiming its deduction u/s 54EC.
• Subject to ITAT dismissal, the revenue sought adjudication from the Bombay High Court.
• After hearing both the counsels at length the HC felt that no substantial questions of law arise for determination in this appeal.

Contention of the Revenue

• The contention of the revenue was that the payment made to sisters was not necessary and it cannot be treated as cost for acquiring the title to property. It is not an expenditure which can be connected with transfer of property.
• With regard to deduction u/s 54EC of the Act , the revenue asserted that the amount has not been invested within prescribed period of six months from the date of transfer and so such deduction cannot be claimed.

Contention of the Assessee

• The Assessee’s contention was that the three sisters had a right in property and without extinguishing it or without providing for its adjustment, the assessee could not have sold property. As such, the amount of Rs.45 lakh paid to three sisters is correctly found to be an expenditure incurred in connection with transfer of property.
• With regard to deduction claimed u/s 54EC the assessee claimed that the he was prevented by reasonable cause from making investment within six months due to the non-issue of bonds during that period. But he invested in the REC bonds as and when it became available on 22.01.2007.

Held by High Court

• The sisters had a title in property and without their cooperation there could not have been any sale. Thereby the deduction claimed u/s 48 is valid and is not a substantial question of law.
• The learned counsel brought attention on a Division Bench judgment of this Court in Income Tax Appeal No. 3731 of 2010 decided on 27.07.2012 (Commissioner of Income tax, Central III vs. M/s. Cello Plast, Mumbai), at Bombay which established the fact that the availability of the bonds only for a limited period during this period cannot prejudice the assessee’s right to exercise the same up to last date. Therefore, deduction u/s 54EC claimed by the assessee despite making the investment in REC bonds beyond six months is allowed as it was due to non-availability of the REC Bonds.
• Appeals dismissed as no merit found in it.