Exemption u/s.54EC — Granted even in respect of bonds purchased in wife’s name where repayment was to be received by the assessee.

exemption u/s.54eC — Granted even in respect of bonds purchased in wife’s name where repayment was to be received by the assessee.

Against the long-term capital gain on surrender of tenancy rights the assessee claimed exemption u/s.54EC on the ground that he invested a total sum of Rs.46 lakh in REC bonds. There were two certificates of REC bonds of Rs.23 lakh each. In the first certificate the assessee was mentioned as the main holder of the bonds, whereas wife and daughter of the assessee were shown as the joint holders. In respect of other certificate, Smt. Sabita Shirodkar, wife of the assessee, was the main holder of the certificate and the assessee along with his son were only the nominees of the first beneficial owner.

The AO allowed exemption in respect of first certificate of Rs.23 lakh in the light of the decision of the Tribunal, Mumbai Bench in the case of Dr. (Mrs.) Sudha S. Trivedi v. ITO, 27 DTR (Mum.) (Trib.) 271 though wife and daughter were co-holders. But he disallowed the exemption in respect of another certificate of Rs.23 lakh since the assessee was not the main-holder.

Held:

In respect of the assessee’s investment in REC Bonds the CIT(A) observed that the primary requirement for claiming deduction u/s.54EC of the Act was fulfilled in the instant case by virtue of the fact that the funds invested emanated from the sum received from the transfer of long-term capital asset and that it was invested within a specified time. In his opinion payment of the maturity proceeds to any one of the bond holders is not a material factor for deciding the ownership of the bonds. In the statement of facts before the CIT(A) the assessee stated that though rules were framed for ease of operation and not for determining ownership and/or succession rights, the fact remains that the assessee’s wife had instructed REC to remit the maturity proceeds directly to the account of the assessee and REC had agreed to the change readily without asking for any documentation for the reason that they are not concerned with the question as to who among the joint applicants are the true owners of the bonds. It was stated that the REC had confirmed the change vide their letter dated 27th July, 2009.

Having regard to the factual matrix, the CIT(A) observed that the payment of the maturity deposit to any one of the bond-holders is not a material factor so long as investment was made out of the sale proceeds and the assessee’s name also figures as one of the investors, more particularly when REC changed the name of recipient in its records. Thus, the CIT(A) held that the assessee had invested in REC Bonds.

ITAT primarily relied upon the decision of Dr. (Mrs.) Sudha S. Trivedi v. ITO, 27 DTR (Mum.) (Trib.) 271 and confirmed the above findings of CIT(A).