TMI Blog2013 (11) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... ified assets. Thus, the assessee cannot be charged to capital gains when short term gains of long terms capital assets get invested in the areas specified under the law – Decided against the Revenue. - Tax Appeal No. 730 of 2013 - - - Dated:- 2-9-2013 - M.R. Shah AND MS. SONIA GOKANI, JJ. For the Appellant : K.M. Parikh. JUDGMENT:- PER : Ms. Sonia Gokani The Tax Appeal has been preferred by the revenue challenging the order of the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') dated 11/01/2013 proposing the following substantial questions of law for our consideration; (A) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in law in not appreciating that 'long term assets' referred in Section 54EC of the Act can only yield long term capital gains and that gain on sale of depreciable asset can only be short term capital gain? (B) Whether the Tribunal was correct in allowing exemption under Section 54EC of the Act of Rs.30,28,732/- on the capital gain in respect to Automatic Electrical Load Monitoring System, included in the depreciable assets under the meaning of Section 50 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bombay High Court in the case of CIT v. ACE Builders (P.) Ltd. reported in [2006] 281 ITR 210. 4.3 This was challenged by the revenue before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') and the Tribunal vide its impugned order held in favour of the assessee and against the revenue. Therefore, the present appeal is preferred raising the aforementioned proposed questions of law. 4.4 The question therefore to be addressed is whether the exemption permitted by the statute under Section 54EC for the depreciable assets can also be claimed for short term capital gain. 4.5 Section 50 of the Act is the deeming provision made for the purpose of computation of capital gain as far as depreciable assets are concerned. 4.6 Section 50 of the Act is being reproduced at this stage profitably along with Section 54EC of the Act. "50. Special provision for computation of capital gains in case of depreciable assets: Notwithstanding anything contained in clause (42A) of Section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under Section 45: Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees (2) Where the long-term specified asset is transferred or converted (otherwise than by transfer) into money at any time within a period of three years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under Section 45 on the basis of the cost of such long-term specified asset as provided in Clause (a) or, as the case may be, clause (b) of Sub Section (1) shall be deemed to be the income chargeable under the head "Capital gains" relating to long-term capital asset of the previous year in which the long-term specified asset is transferred or converted (otherwise than by transfer) into money. Explanation. In a case where the original asset is transferred a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be a bond notified under this Clause; (ba) "long-term specified asset" for making any investment under this Section on or after the 1st day of April, 2007 means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 by the National Highways Authority of India constituted under Section 3 of the National Highways Authority of India Act, 1988 (68 of 1988) or by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956).' 4.7 Section 45 of the Act is a charging Section, which provides that in any profit or gains arising from the transfer of a capital asset effected in the previous year, shall, save as otherwise provided in Sections 54, 54B, 54D and 54E, chargeable to income tax under the head 'capital gains' and shall be deemed to be the income of the previous year in which the transfer took place. 4.8 Sections 48 and 49 are machinery Sections for computation of capital gains. 4.9 Section 50 is an exception in relation to the depreciable assets and provides that where depreciation is claimed and allowed on the assets the computation of capital gain on transfer of such asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion created in Section 50 is not only restricted to Sections 48 and 49 but also applies to other provisions. On the contrary, Section 50 makes it explicitly clear that the deemed fiction created in sub-sections (1) and (2) of Section 50 is restricted only to the mode of computation of capital gains contained in Sections 48 and 49. Secondly, it is well-established in law that a fiction created by the Legislature has to be confined to the purpose for which it is created. In this connection, we may refer to the decision of the Apex Court in the case of State Bank of India v. D. Hanumantha Rao [1998] 6 SCC 183. In that case, the Service Rules framed by the bank provided for granting extension of service to those appointed prior to July 19, 1969. The respondent therein who had joined the bank on July 1, 1972, claimed extension of service because he was deemed to be appointed in the bank with effect from October 26, 1965, for the purpose of seniority, pay and pension on account of his past service in the army as Short Service Commissioned Officer. In that context, the Apex Court has held that the legal fiction created for the limited purpose of seniority, pay and pension cannot be exten ..... X X X X Extracts X X X X X X X X Extracts X X X X
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