TMI Blog2011 (6) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 50 in respect of transfer of depreciable asset - Decided in favor of the assessee - IT APPEAL NO. 1764 (MUM.) OF 2010 - - - Dated:- 30-6-2011 - R.S. SYAL, SMT. ASHA VIJAYARAGHAVAN, JJ. Devi Singh for the Appellant. Kantilal B. Parekh for the Respondent. ORDER Smt. Asha Vijayaraghavan, Judicial Member. This appeal preferred by the Revenue is directed against the order dated 9.12.2009 passed by the ld. CIT(A)-23 for the Assessment Year 2006-07. 2. The grounds of appeal of the revenue are as under: "1. On the facts and circumstances of the case, the ld CIT(A) has erred in law in allowing exemption u/s 54EC from the Short Term Capital Gain computed u/s 50, on the depreciable asset and has failed to appreciate that as per the provisions of section 54EC of Income Tax Act 1961, the exemption is available only in respect of Long Term Capital Gain. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in allowing the benefit of cost inflation index u/s 48 of the Income Tax Act 1961. To Short term capital gain arising from the sale of a depreciable asset u/s 50, and has failed to appreciate that as per the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs 5,77,35,538/-The long term capital gain chargeable to tax on transfer of the asset has been shown by assessee at Rs. 'Nil' worked out by it as under: Sale consideration received Rs. 7,65,00,000/- Less: ( i ) share of assessee in stamp Duty/Reg charges 10,00,000 ( ii ) Cost of sale 13,63,462 Rs. 23,63,462/- Rs. 7,41,36,538 Less: Cost of acquisition 33,00,000 Indexed cost of acquisition= Rs 33,00,000 497 = Rs. 1,64,01,000 100 Capital gain Rs. 5,77,35,538 Less: Investment of Rs. 5,71,50,000 u/s. 54EC Rs. 5,71,50,000 Long term capital gain Rs. 5,85,538 Less: Brought forward losses Rs. 5,85,538 Nil 4. In the above computation of capital gains assessee adopted the fair market value of the flat sold a Rs 33 lakhs as on 1.1.1981 based on valuation report of a Registered valuer. The cost of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gain. Hence, the provisions of section 48 and 49 are not applicable here. The benefit of adoption of fair market value as on 1.4.1981 at the option of the assessee u/s 55(2)(b) is also not applicable because the said section is in relation to and for the purposes of section 48 49 which are out of purview of section 50. This view is supported by various judicial decisions of Hon'ble High Courts in favour mentioned below: 1. M. Raghavan v. Asstt. CIT [2004] 266 ITR 145/134 Taxman 790 (Mad.) 2. Rajnagar Vaktapur Ginning Pressing and Manufacturing Co. Ltd. v. CIT [1975] 99 ITR 264(Guj.) 3. CIT v. Upper Doab Sugar Mills [1979] 116 ITR 240(All.) 4. Prime Products (P.) Ltd. v. CIT [1979] 116 ITR 473 (All.) 5. India Jute Co. Ltd. v. CIT [1982] 136 ITR 597/[1981] 6 Taxman 239 (Cal.) 6. And finally this issue has been settled with the judgment of the Hon'ble Supreme Court in the case of Commonwealth Trust Ltd. v. CIT [1997] 228 ITR 1/94 Taxman 137 (SC). The assessee has not offered any proper explanation on the issues at all except making some vague statement about acquiring the property prior to 1.4.1981 and assessee's eligibility of indexation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation has been claimed. From this it is evident that a business asset even though falls under capital asset category is distinct from other capital assets and has its own separate identity. The capital gain invested in Specified Bonds by the assessee for exemption u/s 54EC has been the short term capital gain computed u/s 50 on transfer of the depreciable asset. Sec. 54EC qualifies a deduction out of chargeable capital gain only on transfer of a long term capital asset which was not the case with assessee. The section 54EC qualifies an exemption out of chargeable capital gain not on transfer of a long term capital asset alone but it also stipulate that the capital gain out of the 'original asset' transferred should remain invested in the specified long term capital asset. In other words categorization of capital gain as the long term capital gain is also an essential requirement. As per the provisions of sec 54EC, the capital gain remaining invested in the specified capital assets should arise from the transfer of the 'original asset' and it should also be a long term capital asset. Hence both these conditions of transfer of a long term capital asset as well as investment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce capital gain of Rs. 535,538/- has been set off against the carried forward long term capital gain/loss of Rs. 5,80,238/- The assessee firm has claimed depreciation on the said premises from year to year and hence as per section 50, the gain arising there from is deemed to be the short term capital gain. Section 50 of the IT Act, 1961 carves out an exception in respect of depreciable assets and provides that where depreciation has been claimed and allowed on the asset, then the computation of capital gain on transfer of such asset u/s 48 and 49 shall be as modified u/s 50. The effect of section 50(2) is that where the consideration received on transfer of depreciable asset exceeds the written down value of the asset, then the excess is taxable as a deemed short term capital gain. It is to be noted that the fiction created u/s 50 is confined to the computation of capital gains only and cannot be extended beyond that. The benefit of section 54E will be available to the assessee firm irrespective of the fact that the computation of capital gains is done either u/s 48 and 49 or u/s 50. There is nothing in section 50 to suggest that the fiction created in section 50 is not only appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the section are satisfied. Our view is also fortified by CIT v. Assam Petroleum Industries (P.) Ltd. [2003] 262 ITR 587 (Gau.). We, therefore, overturn the impugned order and direct that the exemption under this section be allowed to the assessee because of her having made investment in eligible bonds out of the sale proceeds from the transfer of long term capital asset. There is no dispute in the fact that the flat transferred was purchased in the year 1979 and has been held for more than 36 months. There is also no dispute that the assessee firm has invested or deposited in whole or part of the net consideration in the specified assets within the stipulated time. Thus, respectfully following the decisions of the jurisdictional High Court and the jurisdictional ITAT, the Assessing Officer is directed to allow exemption u/s 54E on account of investment in eligible bonds out of the sale proceeds from the transfer of the long term capital asset." 10. In so far as set off of carried forward long term capital losses against the current year's gains the Ld. CIT(A) dismissed the Assessee's claim holding as under: "The Assessing Officer has held that the capital gain computed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal in this case. The Ld. CIT(A) has rightly held that, following the decision of the Jurisdictional High Court referred to above, that the assessee is entitled to relief u/s 54E in respect of capital gains computed u/s 50 in respect of transfer of depreciable asset. Therefore, the appeal by the Revenue regarding ground of exemption u/s 54EC in respect of gains arising u/s 50 from transfer of depreciable asset is dismissed. 13. The ground No.2 3 of the Revenue is regarding computation of capital gains arising from sale of asset u/s 50. The Revenue on this ground has raised that the assessee cannot adopt as cost of acquisition of market value of asset as on 1.4.81 and apply the indexation permitted under provision of sec.48. The Ld. DR was not certain as to how these grounds arise from the order of CIT(A). The Deputy Commissioner in his order of assessment has clearly stated that the assessee is not entitled to adopt the fair market value as on 1.4.81 or apply to indexation. We do not find in the grounds of appeal raised by the assessee before the Ld. CIT(A) regarding the computation of capital gains by adopting the market value of the share as on 1.4.81 and apply the indexa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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