TMI Blog2010 (7) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961, as the assessee-company had sold the entire machinery and plant of the block of depreciable assets belonging to its Paper Division. 2. The facts of the case are that original assessment was completed in which the short-term capital gain was brought to tax on the ground that the assessee had transferred the whole of machinery and plant of the Paper Division, which was an independent business. This order was confirmed by the ld. CIT(A). However, the proceedings were restored to the file of the Assessing Officer by the "C" Bench of Delhi Tribunal in ITA No. 7646(Delhi)/1992, dated 22-10-2003. Consequently fresh assessment order was passed on 24-5-2005, assessing the total income at Rs. 1,71,96,600. In this order, short-term capital gains were also included in the total income. Aggrieved by this order, the assessee filed appeal before the CIT (Appeals)-I, New Delhi. This appeal was disposed off on 30-9-2009, in which the aforesaid addition was deleted. Aggrieved by this order, the revenue is in appeal before us. 3. The ld. DR referred to the history of the case narrated above by us. Thereafter, she drew our attention towards paragraph 25 of the first appellate order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assets of one unit falling in a particular block of assets may not fall in the same block of assets in another unit because of different nature of activities carried out in different units of the appellant-company. I will, therefore, not accept the plea of the ld. counsel in this regard and will confirm the computation of the short-term capital gains under section 50 as worked out by the Assessing Officer in respect of the paper division. Further, the next claim of the appellant-company is that while working out the said capital gains the Assessing Officer has failed to take into account the WDV of the following assets of the paper division comprised in the 33.33 per cent block of plant and machinery-( i ) vehicles Rs. 94,756; ( ii ) air- conditioners/coolers Rs. 36,158 and Rs. 1,30,914 respectively. In this regard the claim regarding vehicles should not be accepted as the vehicles cannot form plant and machinery block of paper division. However, the Assessing Officer will find out whether the air-conditioners and coolers were installed in the factory building or in the office premises. If they were installed in the factory building then they will be included in the block ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other unit because of different nature of activities of different units. Based upon these findings of the ld. CIT (Appeals), the Assessing Officer invoked the provisions contained in section 50(2) and computed short-term capital gains. It was her case that the Assessing Officer rightly invoked the provision contained in section 50(2) and brought short-term capital gains to tax for this year. 4. In reply, the ld. counsel took us through various provisions in this behalf. He referred to section 2( 11 ), which defines the term "block of assets". The provision is reproduced below : "(11)"block of assets" means a group of assets falling within a class of assets comprising ( a )tangible assets, being buildings, machinery, plant or furniture; ( b )intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, in respect of which the same percentage of depreciation is prescribed;" 4.1 Thereafter, he referred to the provision contained in section 14, which makes it obligatory to compute income under different heads. The provision reads as under : "14. Save as otherwise provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-term capital assets;" Further, clause ( 2 ) of this section deems the capital gains so computed as short-term capital gains. 4.4 We also drew the attention of the learned counsel towards the provision contained in section 70(1) which for our purpose provides that if computation of income under business head is loss from a source, the same can be set off against profit of the business from another source. Thus, this section provides for computation of profits of different businesses separately and then clubbing them together to arrive at profit or loss from business. 4.5 The case of the ld. counsel is based upon three distinct arguments that ( i ) all assets of different divisions having same rate of depreciation form one block of assets, ( ii ) all divisions of the assessee form one business because of unity of finance, management and control, and ( iii ) even if aforesaid pleas are rejected, computation of capital gains has to be made in accordance with the provision contained in section 50(2), i.e., even the actual cost of any asset falling within the block of assets acquired during the previous year in some other unit will have to be taken into account for this pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accepted, the purpose of section 50 will be defeated. 6. We have considered the facts of the case and rival submissions. We may deal with various definitions, referred to above. Section 2( 11 ) defines the "block of assets" to mean a group of assets in respect of which same percentage of depreciation is prescribed. This definition does not make a distinction between the block of assets of one division and block of assets of another division even if they constitute separate businesses. Section 14 enjoins upon the Assessing Officer to compute the income of the assessee under five distinct heads. The provisions for computing income under these heads are different and income under a particular head has to be computed in accordance with provision prescribed in this behalf. Thus, the provision applicable to one head may not be applicable to another head unless specifically so provided. Thus, "capital gains" have to be computed in accordance with the provisions contained in Chapter IV-E and not in accordance with provisions contained in Chapter IV-D, regarding computation of business income. Section 32(1) provides for deduction of depreciation in respect of any block of assets on su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if they are independent units. 6.1 We may now examine various cases relied upon by the ld. counsel to support the deduction in respect of the third amount. In the case of Express Newspapers Ltd. ( supra ), the question before the Hon ble Court was regarding assessment of successor in business in respect of terminal charge and capital gains. The facts of that case are somewhat distinguishable, but at page 259, it was mentioned that section 10(1) and section 26(2) of the 1922 Act stand on different footings because of section 6 of that Act regarding six heads of income. The relevant portion at pages 259 and 260 is reproduced below : "A conspectus of the said sections discloses a clear-cut scheme. Though income-tax is only one tax levied on the total income, section 6 enumerates six heads whereunder the income of an assessee falls to be charged. This Court in United Commercial Bank Ltd. v. Commissioner of Income-tax laid down that sections 7 to 12 are mutually exclusive and where an item of income falls specifically under one head it is to be charged under that head and no other. The expression "income, profits and gains" in section 6 is a composite concept which takes in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the purpose for which it is created and should not be extended beyond its legitimate field. Sub-sections (2A) and (2B) of section 24 provide for the setting off of the loss falling under the head "Capital gains" against any capital gains falling under the same head. Such loss cannot be set off against an income falling under any different head. These three sections indicate beyond any doubt that the capital gains are separately computed in accordance with the said provisions and they are not treated as the profits from the business. The profits and gains of business and capital gains are two distinct concepts in the Income-tax Act: the former arises from the activity which is called business and the latter accrues because capital assets are disposed of at a value higher than what they cost the assessee. They are placed under different heads; they are derived from different sources; and the income is computed under different methods. The fact that the capital gains are connected with the capital assets of the business cannot make them the profit of the business. They are only deemed to be income of the previous year and not the profits or gains arising from the business during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the requirement of the use of the asset for the purpose of the business is of the asset that is sold because but for such usage, the asset could not have been allowed deduction of depreciation in computing the income from business. 12. One of the adjustment that is permitted by the said section from the sale proceeds of the asset, is of the WDV of the sold asset as at the beginning of the previous year. This implies that the asset that is sold during the previous year, the assessee would be entitled for the application of the said section 50 of the Act, on the satisfaction of the condition that it was used for business in any of the earlier assessment year, on satisfaction of which condition, it was allowed depreciation in that assessment year and use or non-use for the purpose of business in the year of sale would have no effect on its qualification of applicability of the said section." 6.4 On combined reading of these cases, it becomes clear that even if new asset is not used for the purpose of business, its cost will have to be deducted from the full value of consideration received or accruing on transfer of the block of assets, while computing short-term capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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