S. 54EC: Investment in specified bonds from the amounts received as an advance is eligible for s. 54EC deduction. The fact that the investment is made prior to the transfer of the asset is irrelevant

(i) The short question is whether an amount received on sale of a capital asset as an advance on the basis of Agreement to Sale and the same being invested in specified bonds before the final sale, would entitle the assessee to the benefit of Section 54EC of the Act.

(ii) An Agreement to Sale for the subject property was entered into on 21st February, 2006. The final sale took place under a Sale Deed dated 5th April, 2007. The assessee invested an amount of Rs.50 lakhs from the advance received under the Agreement to Sale in the Rural Electrification Corporation Ltd. bonds on 2nd February, 2007. The Assessing Officer as well as the Commissioner of Income Tax (Appeals) held that the assessee is not entitled to the benefit of Section 54EC of the Act as the amounts were invested in the bonds prior to the sale of the subject property on 5th April, 2007. The Tribunal upheld the claim of the assessee by following the decision of its coordinate bench in Bhikulal Chandak HUF Vs. Income Tax Officer 126 TTJ 545 wherein it has been held that where an assessee makes investment in bonds as required under Section 54EC of the Act on receipt of advance as per the Agreement to Sale, then the assessee is entitled to claim the benefit of Section 54EC of the Act. On appeal by the department to the High Court HELD dismissing the appeal:

(iii) The Sale Deed dated 5th April, 2007 records in clause (d) thereof the fact that the Agreement to Sale had been entered into on 21st February, 2006 in respect of the subject property and the amounts being received by the vendor (respondent assessee) under that Agreement to Sale. Thus, these amounts when received as advance under an Agreement to Sale of a capital asset are invested in specified bonds the benefit of Section 54EC of the Act is available. In the above view, the Tribunal holds that the facts of the present case are similar to the facts before the Tribunal in Bhikulal Chandak HUF (supra). The Revenue does not dispute the same before us. Moreover, on almost identical facts, this Court in Parveen P. Bharucha Vs. DCIT, 348 ITR 325, held that the earnest money received on sale of asset, when invested in specified bonds under Section 54EC of the Act, is entitled to the benefit of Section 54EC of the Act. This was in the context of reopening of an assessment and reliance was placed upon CBDT Circular No. 359 dated 10th May, 1983 in the context of Section 54E of the Act.

(iv) The Revenue had preferred an appeal against the order of the Tribunal in Bhikulal Chandak HUF (supra) to this Court (Nagpur Bench) being Income Tax Appeal No.68 of 2009. This Court by an order dated 22nd August, 2010 refused to entertain the Revenue’s above appeal from the decision of the Tribunal in Bhikulal Chandak HUF (supra). In the above view, the question as proposed for our consideration in the present facts does not give rise to any substantial question of law.