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2022 (10) TMI 215 - AT - Income TaxDisallowance being custom duty paid towards Yacht - whether the liability to pay the Customs Duty was of assessee or not and in which year assessee could claim the expenses? - HELD THAT:- Customs and Excise Settlement Commission has categorically held that the liability to pay Customs Duty was on the assessee because the yacht was used in India and, therefore, the assessee alone should pay the Customs Duty. The payment of Customs Duty by the assessee was a statutory liability of the assessee company which has been dispensed with and accordingly, assessee has rightly claimed the payment of Customs Duty as expenses. As the year of claim of expenses is concerned, though the assessee had paid the Customs Duty in the year 2009, it was only to release the yacht attached with the Customs authorities and same was done under protest as it was contesting the levy of Customs Duty on the ground that since it is a ‘foreign flag vessel’, there was no liability to pay the Customs Duty. When the Customs and Excise Settlement Commission had fixed the liability and determined the liability in the financial year 2012-13 relevant to Assessment Year 2013-14, the liability has definitely crystallised in this year only and, therefore, the same has rightly been claimed in this year. Accordingly, the order of the ld. CIT (A) is confirmed and the grounds raised by the Revenue is dismissed. Rate of tax on sale of depreciable assets - Long term capital gains on sale of helicopter - AO noted that the helicopter was part of block of assets and was a depreciable asset and why it should not be treated as Short term capital gains - Applicability of section 50 - whether sale of a depreciable asset (i.e. helicopter), which was part of block of assets and held for more than 3 years, is taxable u/s 50 as Short term capital gains, then whether the rate of tax would be of Long term capital gains treating it to be a long term capital asset or rate of short term capital gain? - HELD THAT:- As per Section 2(42A) of the Act, short term capital asset means capital asset held by the assessee for not more than 36 months immediately preceding the date of transfer. Section 50 is a special provision for computing the capital gains in case of a depreciable asset and is not only restricted to provisions of Section 48 and 49 of the Act. It is a deeming fiction carved out for treatment of depreciable asset which has limited application for the purpose of mode of computation of capital gains contained in Section 48 and 49 - Ergo, it deals with capital asset which forms part of block of assets in which depreciation has been allowed under this Act and, therefore, the mode of computation of profit u/s 48 and 49 of the Act are applied with certain modifications. In other words, the fiction created in Section 50 of the Act is only restricted to the mode of computation u/s 48 and 49 of the Act which cannot be extended beyond that. This issue had come up for consideration before case of CIT vs Ace Builders [2005 (3) TMI 36 - BOMBAY HIGH COURT] wherein the Hon'ble High Court in the context of claim of deduction under Section 54E of the Act in respect of capital gain arising on transfer of a capital asset on which depreciation has been allowed, which is deemed to be Short term capital gains under Section 50. Applicability of section 50 is for the limited purpose of working out the cost of acquisition u/s.48 and 49 of the depreciable asset sold and the applicability of section 50 is restricted for that purpose only and for the purpose of other provisions of the Act, the capital gain has to be treated as long term capital gain if the period of holding is more than 3 years. The ratio and the principle as culled out from the aforesaid judgments are that, the legal fiction created in Section 50 of the Act deems capital gains as short term capital gains but does not deem the asset as short term capital asset and, therefore, it cannot be said that Section 50 of the Act converts long term capital asset into short term capital asset. Thus, if we apply the same ratio and principle here then, as per Section 112 of the Act, the tax on long term capital gains on transfer of a long term capital asset is @ 20% and, therefore, even if the capital gains is deemed as short term capital gains in terms of Section 50 of the Act, but for all other purposes including for the purpose of Section 112, the deeming fiction cannot be extended for rate of taxes and, therefore, the rate of tax has to be as per Section 112 of the Act, i.e. 20%. Accordingly, the order of ld. CIT (A) is confirmed and ground no. 2 is dismissed.
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