TMI Blog2013 (11) TMI 910X X X X Extracts X X X X X X X X Extracts X X X X ..... emption provided under Section 54EC of the Act cannot be denied to the assessee only on account of the fact that deeming fiction is created under Section 50 of the Act - Legal fiction created under Section 50 of the Act is though restricted to computation of capital gains, such deeming fiction cannot restrict application of Section 54EC which allows exemption of capital gains, if assessee makes investment in the specified assets - Decided against Revenue. - Tax Appeal No. 747 of 2013 - - - Dated:- 7-10-2013 - M. R. Shah And Sonia Gokani,JJ. For the Appellant : Mr. Mr. Bhatt, LD. Senior Counsel With Mrs. Mauna M. Bhatt ORDER (Per : Honourable Ms. Justice Sonia Gokani) 1. The Revenue has preferred the present Tax Appeal under section 260A of the Income-tax Act, 1961 (hereinafter referred to as the Act ), raising the following proposed substantial questions of law, aggrieved by the order dated January 31, 2013 of the Income-tax Appellate Tribunal, Ahmedabad (hereinafter referred to as the Tribunal ) : (A) Whether Appellate Tribunal is correct in holding that the deduction available u/s 54EC of the Act shall be available in the case of capital gains arising out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He has also relied on the decision of the Supreme Court in the case of Common Wealth Trust Ltd. v. Commissioner of Income-tax, reported in 228 ITR 1, wherein the Supreme Court has held thus : Section 55(2), however, makes it clear that the option is available only for the purposes of Section 48 and 49 and it is not available for a case falling under Section 50. Though the provisions of Section 55(2) would be available to every kind of capital asset whether the same has enjoyed the depreciation allowance or not whether in the hands of the assessee or the previous owner, the assessee in whose case depreciation allowance has been availed of before the transfer of the capital asset the meaning of "cost of acquisition" as stated in Section 48 and 49 would appear to have been modified in the manner stated in Section 50. Thus, where the assessee has not availed of depreciation allowance in respect of the capital asset Section 50 has no application. In this view of the matter there does not appear to be any conflict between the provisions of Section 50 and 55(2). Section 55(2) would be applicable to all assets depreciable or nondepreciable for the purposes of arriving at the cost of acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indexing the cost of acquisition by invoking sections 48 and 49. 5. As we can notice from the order of the Tribunal, it followed the decision of Bombay High Court and Gauhati High Court by holding that section 54E does not make any distinction between the depreciable assets and nondepreciable assets and, therefore, investment under section 54E is a permissible investment. It would be profitable to reproduce relevant paragraph 4 of the decision of the Tribunal as under : 4. With this factual as also legal background, we have heard both the sides. We are of the considered view that the issue as raised by the Revenue Department in the grounds of appeal that whether the capital gain as computed u/s 50 of IT Act qualifies for the exemption if investment is made out of the sale proceeds towards prescribed bonds u/s 54EC of I.T. Act. Now, this question is very well settled by the Hon ble Court and following the said decision we hereby confirm that there was no fallacy in the finding of CIT (A), the same is hereby confirmed and the grounds are dismissed. 6. We notice that this Court in Tax Appeal No.730 of 2013, in the case of Commissioner of Income-tax v. Aditya Medisales Limite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising from the transfer of short term capital assets. 54EC Capital gain not be charged on investment in certain bonds. (1) Where the capital gain arises from the transfer of a longterm capital asset (the capital asset so transferred being hereafter in this Section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the longterm specified asset, the capital gain shall be dealt with in accordance with the following provisions of this Section, that is to say- (a) if the cost of the long terms specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under Section 45; (b) if the cost of the longterm specified asset is less than the capital gain arising from the transfer 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 longterm specified asset bears to the whole of the capital gain, shall not be charged under Section 45: [Provided that the investment made on o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a constituted under Section 3 of the National Highways Authority of India Act, 1988 (68 of 1988); or (ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956), and notified by the Central Government in the Official Gazette for the purposes of this Section with such conditions (including the condition for providing a limit on the amount of investment by an assessee in such bond) as it thinks fit; [Provided that where any bond has been notified before the 1st day of April, 2007, subject to the conditions specified in the notification, by the Central Government in the Official Gazette under the provisions of clause (b) as they stood immediately before their amendment by the Finance Act, 2007, such bond shall be deemed to be a bond notified under this Clause;] (ba) longterm 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciable capital asset? 6. The Bombay High Court dealt with the entire issue in the following manner; 24. Section 54E of the Incometax Act grants exemption from payment of capital gains tax, where the whole or part of the net consideration received from the transfer of a longterm capital asset is invested or deposited in a specified asset within a period of six months after the date of such transfer. In the present case it is not in dispute that the assessee fulfills all the conditions set out in Section 54E to avail of the exemption, but the exemption is sought to be denied in view of fiction created under Section 50. 25. In our opinion, the assessee cannot be denied exemption under Section 54E, because, firstly, there is nothing in Section 50 to suggest that the fiction 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 subsections (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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee irrespective of the fact that the computation of capital gains is done either under Sections 48 and 49 or under Section 50. The contention of the Revenue that by amendment to Section 50 of the longterm capital asset has been converted into a shortterm capital asset is also without any merit. As stated hereinabove, the legal fiction created by the statute is to deem the capital gain as shortterm capital gain and not to deem the asset as shortterm capital asset. Therefore, it cannot be said that Section 50 converts a longterm capital asset into a shortterm capital asset. 7. We also notice that while doing so it has concurred with the decision of the Gauhati High Court in the case of CIT Vs. Assam Petroleum Industries (P.) Ltd. reported in [2003] 262 ITR 587. We are in agreement with both the decisions of the Gauhati High Court as well as the Bombay High Court in holding that capital gain arising of long term capital asset, if invested in specified asset, the assessee is not to be charged capital gains and exemption provided under Section 54EC of the Act cannot be denied to the assessee only on account of the fact that deeming fiction is created under Section 50 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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