In a case where the income of minor child is clubbed with the income of the assessee u/s. 64(1A), the assessee is eligible for separate deduction u/s 54EC of the Act on investment in specified bonds on account of minor’s income being long term capital gains. Prior to insertion of proviso to section 54EC, for the purpose of section 54EC, the investment is limited to Rs 50 lakh in respect of a person and not in respect of an assessee. Minor child being a separate person, investment in the name of minor child, whose income is to be clubbed in the hands of the assessee, is eligible for separate limit of investment prior to insertion of proviso to section 54EC.
Facts: During the previous year, the assessee and his two minor children sold shares which resulted in long term capital gains. The assessee invested Rs 50 lakh in bonds qualifying for deduction u/s 54EC of the Act. He also invested Rs. 49.50 lakh and Rs. 39.50 lakh in the names of two minor children. In the return of income filed, the assessee included total income of two minor children after claiming separate deduction for investment made in bonds, qualifying for deduction u/s. 54EC, in the names of the respective minor children. Thus, total deduction claimed u/s. 54EC was Rs. 139 lakh.
The Assessing Officer, relying upon Notification No. 380/2006 dated 22.12.2006, restricted the deduction u/s. 54EC to Rs 50 lakh.
Aggrieved, the assessee preferred an appeal to CIT(A) who allowed the appeal of the assessee. Aggrieved, the revenue preferred an appeal to the Tribunal.
Held: Section 54EC provides that capital gain is not to be charged to tax if net consideration is invested in certain bonds. Therefore, 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 Chapter VI-A which comes into picture only after computing the total income and the deductions are being allowed from gross total income as per section 80A(1). There is a difference between the word `assessee’ and the word `person’. The notification on which the AO relied upon has not put any embargo on 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 and the assessee is entitled to the benefits as per provisions of section 54EC under which restriction has been put only for investments from 1.4.2007.
The Tribunal noted that the ratio of the decision of Mumbai Tribunal in the case of JCIT v Govind Rohira alias Srichand Rohra 95 ITD 77 (Mum) and also other decisions of the High Court is 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 u/s. 64. The Tribunal allowed the claim of the assessee and directed the AO to re-compute the long term capital gains accordingly.
The appeal filed by the revenue was dismissed.