TMI Blog2011 (4) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... oss from the long term capital assets - Hence, the appeal is allowed. - ITA No.6646/Mum/2008 : - - - Dated:- 13-4-2011 - Shri R.S.Syal, Smt.AshaVijayaraghavan, JJ. Appellant by : Shri S.C.Tiwari Respondent by : Shri Naresh Kumar Balodia O R D E R Per R.S.Syal, AM : This appeal by the assessee arises out of the order passed by the CIT(A) on 13.08.2008 in relation to assessment year 2005-2006. 2. There is a delay of 19 days in presenting this appeal before the Tribunal. Affidavit of the Director of the assessee-company is placed on record explaining the reasons for such delay, being its Accountant proceeding to his home town without informing his successor about the CIT(A) s order. No serious objection was raised by the ld. DR. We are satisfied with the reasonableness of the cause in presenting the appeal belatedly. As such the delay is condoned and appeal is admitted for hearing on merits. 3. The only issue raised through various grounds is against not allowing set off of long term capital gain on the sale of depreciable assets against the brought forward loss from long term capital assets. Briefly stated the facts of the case are that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off against the brought forward loss from long term capital assets as per section 74. The view point of the Assessing Officer is that since depreciation was allowed on these assets, their transfer would attract the provisions of section 50 and resultantly this gain would be deemed to be short term capital gain. Once such gain is held to be short term capital gain, the assessee would not qualify for the benefit of set off in terms of section 74. 5. Section 50 has marginal note : Special provision for computation of capital gains in case of depreciable assets . This section begins with the non-obstante clause excluding the operation of section 2(42A) and provides that 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, 1922, the provisions of section 48 and 49 shall be subject to modifications set out in clauses (1) and (2) of this section. Clause (2) of section 50, which is relevant for our purpose, reads as under: (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m capital assets in the manner provided in the latter section. It is this provision on which a great deal of emphasis has been placed by the authorities below for concluding that the assessee is not entitled to set off of brought forward loss on the transfer of long term capital assets against the income from the sale of assets of the block amounting to Rs.145.99 lakhs. 7. When we view section 50, it becomes apparent that it contains a special provision for computation of capital gains in case of depreciable assets. Further it is a deeming provision and only by legal fiction income from the transfer of otherwise long term capital assets ( held for a period of more than 36 months) is treated as capital gains arising from the transfer of short term capital assets. A deeming provisions is one, the mandate of which does not exist but for such provision. It is only as a result of such legal fiction contained in the provision that imaginary state of affairs is taken as actuality notwithstanding the fact that it is at variance with the otherwise legal position. It is trite that a deeming provision cannot be extended beyond the purpose for which it is enacted. The Hon ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 145.99 lakhs. It is not the case of the Department that the assessee made out a claim for computing capital gain as per section 48 and 49 by claiming any artificial cost of acquisition of such assets or taking the benefit of indexation etc., thereby lowering the amount of capital gain. The assessee strictly followed the prescription of section 50 and worked out income accruing as a result of transfer of capital assets at Rs.145.99 lakhs. Up to this stage the action of the assessee is in accordance with the provisions of section 50, being the computation of capital gain in case of depreciable assets. The Assessing Officer has also not disputed the computation of capital gain by the assessee at Rs.145.99 lakhs on the transfer of depreciable assets. 10. The dispute is about setting off of brought forward loss from long term capital assets against this income. Whereas the assessee is contending that the amount in question be considered as eligible for set off against the brought forward loss from long term capital assets as per section 74, the Revenue has held against this claim. At this juncture it would be relevant to note that the short term capital gain has been defined u/s 2(4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of ACE Builders (supra) in which that assessee was a partner in firm which was dissolved in the year 1984 and the assessee was allotted a flat towards its credit in the capital account with the firm. The assessee showed the flat as capital asset in its books of account and depreciation was claimed and allowed from year to year. In the previous year relevant to the assessment year 1992-93 the assessee sold the flat and invested the net sale proceeds in a scheme eligible u/s.54E of the Act and accordingly declared Nil income under the head Capital gains . The Assessing Officer opined that since the block of buildings ceased to exist on account of sale of flat during the year, the written down value of the flat was liable to be taken as cost of acquisition u/s.50(2) of the Act. He further held that since the assessee had availed depreciation on such asset, which was otherwise a long term capital asset, the deeming provision u/s.50 would apply and it would be treated as capital gain on the sale of short term capital asset and resultantly no benefit u/s.54E was admissible. When the matter came up before the Hon ble Bombay High Court it was noticed that section 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is attached to a long term capital asset, the same shall remain intact. It cannot be denied simply for the reason that, on the transfer of such a long term capital asset, the short term capital gain has been computed as per sec. 50 In the case of ACE Builders (supra), the assessee has been allowed the benefit u/s.54E, which is otherwise available only against long term capital gain. In the same manner there cannot be any rejection of any benefit which is associated with the character of otherwise long term capital gain notwithstanding the fact that capital gain on its transfer has been computed u/s.50 by deeming it as a short term capital gain. 14. The learned Departmental Representative relied on another judgment of the Hon ble Bombay High Court in CIT Vs. Citibank N.A [(2003) 261 ITR 570 (Bom.)]. In this case the assessee purchased a plot of land and constructed a banglow on it. The entire property was sold for Rs.30 lakhs. In the conveyance the price was allocated as Rs.14 lakhs for plant, Rs.9 lakhs for building and Rs.7 lakhs for air-conditioning plant etc. The assessee returned short term capital gain on the sale of house property and long term capital gain on the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a short term capital asset for all purposes, is incorrect as has been held in ACE Builders (supra). We have already held that section 50 contains a deeming provision and the same has to be restricted only for the purpose of which it is enacted. Since this deeming provision involves only the computation part of the capital gain in the case of depreciable assets, once this computation part is over, the operation of section 50 is also stopped. The amount so computed has to be dealt with in accordance with the relevant provision. If we accept the view point of the Department and hold that capital gain of Rs.145.99 lakhs be considered as short term capital gain for all purposes including section 74, then it would violate the judgment of the Hon ble jurisdictional High Court in the case of ACE Builders (supra). In that case also there was capital gain on the transfer of depreciable asset held by the assessee for period of more than three years which was determined u/s.50. The Hon ble High Court held that the assessee is entitled to the benefit u/s.54E which is available only against long term capital gain. Despite the fact that no long term capital gain entered into the computation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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