Investment can be made out of advance received under sale agreement for sec. 54EC relief

Facts:

1) The assessee entered into an agreement to sell a property on 21-2-2006. The final sale took place under a sale deed dated 5-4-2007. The assessee had invested an amount of Rs. 50 lakhs from the advance received under the agreement to sale in the Rural Electrification Corporation Ltd. bonds on 2-2-2007.

2) The Assessing Officer as well as the Commissioner (Appeals) held that the assessee was not entitled to the benefit of section 54EC as the amount was invested in the bonds prior to the sale of the subject property on 5-4-2007.

3) The Tribunal, however, held that even when an assessee made investment in bonds as required under section 54EC on receipt of advance as per the agreement to sell, still it was entitled to claim the benefit of section 54EC.

The High Court held as under:

a) The sale deed dated 5-4-2007 records the fact that the agreement to sale had been entered into on 21-2-2006 in respect of the subject property and the amount being received by the assesse under that agreement to sale. Thus, these amounts when received as advance under an agreement to sale of a capital asset, is invested in specified bonds, the benefit of section 54EC is available.

b) The impugned order passed by the Tribunal does not give rise to any substantial question of law. Hence, exemption couldn’t be denied to assessee - [2017] 77 taxmann.com 226 (Bombay)