2015 (3) TMI 1299 - AT - Income Tax

Applicability of section 50C - issue of rate of tax while computing the capital gains - Held that - We direct the AO to compute the capital gain from sale of industrial units and apply the appropriate tax rate after necessary verification as the assets have been claimed to have been owned for more than three years. Ground no.1 is decided against the assessee. Interest under section 220(2) - Held that - In view of the circular of CBDT vide Circle No.334 Dt.3.4.1982 the interest can be levied only from the date of default of the demand notice issued in pursuance of the fresh assessment order. The order of CIT(A) holding that interest under section 220(2) has to be levied from the date of default as per the original assessment order therefore cannot be sustained. The same is set aside and the claim of the assessee is allowed.

Issues Involved:
1. Applicability of Section 50C for the sale of depreciable assets.
2. Disallowance of deduction from capital gains under Section 48(1).
3. Charging of interest under Section 220(2).
4. Application of tax rate for long-term capital gains versus short-term gains.

Detailed Analysis:

1. Applicability of Section 50C for the Sale of Depreciable Assets:
The primary issue revolved around whether Section 50C of the Income Tax Act, 1961, which mandates adopting the stamp duty valuation for computing capital gains, applies to the sale of depreciable assets. The assessee argued that Section 50 and Section 50C have independent applications and that Section 50C should not apply to depreciable assets. The AO, supported by the ITAT Mumbai bench decision in United Marine Academy, applied Section 50C, using the stamp duty valuation of Rs. 70,14,442/- instead of the agreement value of Rs. 46,53,000/-. The FAA upheld the AO's decision, referencing the ITAT Mumbai bench's decision in ETC Industries Ltd., confirming that Section 50C applies to depreciable assets.

2. Disallowance of Deduction from Capital Gains under Section 48(1):
This issue was not pressed by the assessee during the hearing due to the smallness of the tax effect, leading to its dismissal.

3. Charging of Interest under Section 220(2):
The AO levied interest under Section 220(2) from the date of the original order, which the assessee contested. The assessee cited the Hon'ble Bombay High Court's decision in Chika Oversease (P) Ltd. and the Tribunal's decision in Narad Investments and Trading P. Ltd., arguing that interest should be charged only from the date of the fresh assessment order. The Tribunal agreed, referencing CBDT Circular No. 334, which clarifies that interest under Section 220(2) should be charged from the date of the fresh assessment order if the original order is set aside and a fresh assessment is made. Consequently, the Tribunal decided this issue in favor of the assessee.

4. Application of Tax Rate for Long-Term Capital Gains versus Short-Term Gains:
The assessee contended that the capital gains from the sale of depreciable assets, though computed as short-term under Section 50, should be taxed at the rate applicable to long-term capital gains if the assets were held for more than three years. The Tribunal, referencing the decision in Smita Conductor and the Hon'ble Bombay High Court's judgment in Ace Builders Ltd., agreed that for the purpose of tax rate application, the gains should be treated as long-term if the assets were held for more than three years. The AO was directed to apply the appropriate tax rate after necessary verification.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the applicability of Section 50C to the sale of depreciable assets but directed the AO to apply the long-term capital gains tax rate for assets held over three years. Additionally, the Tribunal ruled in favor of the assessee regarding the charging of interest under Section 220(2), aligning with the CBDT Circular and relevant case law.

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