TMI Blog2011 (8) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... of law raised by the assessee in this Tax Case Appeal against the order of the Tribunal relating to assessment year 1993-94. "1.Whether on the facts and in the circumstances of the case, the Tribunal is wrong in disregarding the scope of Section 50 of the Income Tax Act for the purpose of computing the capital gains under the Income Tax Act? 2.Whether on the facts and in the circumstances of the case, the Tribunal is wrong in justifying ignoring the total additions made during the accounting year which is very relevant for the purpose of computing capital gains under Section 50 of the Income Tax Act and addition is much more than the sale consideration? 3.Whether on the facts and in the circumstances of the case, the Tribunal is wrong in computing the capital gains under sub section 2 of Section 50 without applying its mind?" 2. The assessee is an individual engaged in the business of rig operation, transportation of LPG gas, marbles etc. The assessee had an export oriented unit run under the name and style of 'GTP Granites'. On the expiry of the term of the benefit available to 100% export oriented unit under Section 10B of the Income Tax Act, 1996, during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Act. Aggrieved by the said order, the assessee is on appeal before this Court. 5. Learned counsel appearing for the assessee placed reliance on the definition of 'block of assets' as given under Section 2(11) as well as to the scheme of Section 10B and submitted that given the fact that the relief under Section 10B is of on limited duration, on the expiry of said period, when the assessee transferred the said assets to one of his sister concerns, which is also in the same line of business, the investments made in the purchase of machines during the relevant assessment year has to take note of depreciation value as given to the block of assets. Hence, the benefit under Section 50(2) of the Act has to be given in favour of the assessee. He pointed out that there is no dispute on the side of the Revenue that the assets transferred and the asset purchased carry the same percentage of depreciation as given under the Rule to form 'block of assets'. That being so, when the assets in the block are transferred during the previous year, the cost of the assets have to be taken as written down value of the block of assets at the beginning of the previous year, as increased by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be extended to other business. 8. Heard learned counsel for the assessee as well as learned Standing counsel for the Revenue and perused the materials on records. 9. Section 2(11) of the Income Tax Act defines 'block of assets' which reads as follows:- " 'block of assets' means a group of assets falling within a class of assets, being buildings, machinery, plant or furniture, in respect of which the same percentage of depreciation is prescribed. 10. Section 50(2) speaks about the computation of the capital gains in the case of depreciable assets, which read as follows:- " 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, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short term capital assets. " 11. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of excluding this income was available only for five consecutive assessment years, falling within a period of eight years, beginning with the assessment year relevant to the previous year in which undertaking begins to manufacture or produce articles. The specification of the period is left to the option of the assessee. 14. Since the section contemplates exclusion of the income referrable to the 100% export unit, sub section (4) of Section 10B deals with the manner of availing various allowances available under the Act, particularly, with reference to Sections 32, 32A, 33, 36(1)(ix), 72(1), 74(1) and (3) of the Act. Thus, even though for the purpose of Section 10B, the export is referred to as the business of the undertaking, which must satisfy the requirement under Section 10B(2) to qualify for exemption and the income is excluded from the total income of the assessee, the assets of the undertaking are subject to the working of depreciation as per Section 32, that the WDV of any asset used for the purpose of the business of the undertaking is taken as if the claim on depreciation was actually allowed under each of the relevant assessment years. Thus, going by sub Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be justified in seeking adjustment in the matter of working out the capital gains. 17. The assessee carried on same line of business, both as an export undertaking as well as on domestic trade. In this case, apart from export business in granites, the assessee also had local business in selling granites. As far as the present case is concerned, as pointed out by the assessee, the assessee made an addition of 25% in the block of assets, viz., plant and machinery, during the previous year. Given the fact that the depreciation in respect of the asset transferred and purchased carry the same rate of depreciation, hence fall under 'block of assets', we find that the assessee is justified in its claim on capital gains, that with the cost of the new machinery added to the written down value of the machinery and the sale of the machinery during the relevant previous year, the Commissioner of Income Tax (Appeals) rightly considered the said aspect and granted relief to the assessee. Going by the provisions under Section 10B, we do not think the Revenue would be justified in treating the assets of an Export Oriented Unit in isolation on the expiry of the tax holiday period, particular ..... X X X X Extracts X X X X X X X X Extracts X X X X
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