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TMI Blog2011 (6) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... set u/s 50, and has failed to appreciate that as per the provisions of section 48, the cost inflation index is to be applied only in respect of long term capital asset. 3. On the facts and circumstances of the case, the ld CIT(A) has erred in law in allowing the assessee to adopt Fair Market Value as on 1.4.1981 in respect of a depreciable asset which is a short term capital asset as per section 50 and has failed to appreciate that as per the provisions of the Act, the fair market value as on 1.4.1981 needs to be adopted only in respect of long term capital assets. 4. On the facts and circumstances of the case, the ld CIT(A) has erred in law in allowing the set off the Short Term capital gain arising from the sale of a depreciable asset u/s 50 of the Income Tax Act 1961. Against the brought forward Long Term Capital Loss and has failed to appreciate that as per the provisions of section 70(3) the short term capital gain can be set off only against the short term capital loss brought forward." 3. In its return of income, the assessee declared the long term capital gain of Rs. 5,77,35,538/- from the transfer of Flat No.41B owned by assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to the assessee's valuation report there had been an increase of 542% to the value of the flat within a short period of 2 years i.e., from 1979 to 1981. The Assessing Officer was of the view that the valuation of the assessee as on 1/4/1981 adopted by assessee with such a sharp increase in property value is unbelievable. The valuation of the said flat to determine the fair market price as on 1.4.1981 was referred by the Assessing Officer to the District Valuation Officer of the Department. Vide reference u/s 55A(b)(ii) dated 14/5/2008. The report of the department's valuer was not been received till date of assessment order. Since this assessment was getting barred by limitation of time shortly, the assessment was finalized to be suitably modified later with regard to the fair market value as on 1.4.1981 with the value determined by the Departmental valuer, if a need arises to do so. This was done optionally without prejudice to the computation of capital gains done subsequently in this order without resorting to the fair market valuation as on 1.4.1981 at all. 5. The Assessing Officer held that it is a settled law now that in the computation of capital gain of depreciable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.4.1981. The Assessing Officer held that the stand taken by the assessee was incorrect and the capital gain need to be computed under the provisions of section 50(2) as applicable in the assessee's case and worked out below: Rs. Rs. Sale consideration 76500000 Less: (i) WDV of block of assets as on 1.4.05 194747 (ii) cost of sales 2363462 2558209 Short term Capital Gains 73941791 7. While examining the assessee's claim for exemption u/s 54C, the Assessing Officer examined the provisions of section 2(14), section 2(42A) and Section 2(42B) and section 2(29A) & Section 2(29B) and stated that it therefore follows that on the transfer of a capital asset the resultant income arriving is long term capital gain from a long term capital asset and short term capital gain from a short term capital asset, unless the provisions of the Act specifically provides otherwise. From the definition of capital asset it is evident that a business asset also comes within the category of capital asset like any non business investment asset. Unlike in the ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing a long term capital gain are required to be satisfied. In the case of the assessee the capital asset transferred was a depreciable asset and its computation of capital gain is u/s 50. The capital gain thus computed had been a short term capital gain arising out of short term capital asset. The investment made in specified long term capital asset u/s 54EC by the assessee has been out of short term capital gain on the transfer of a short term capital asset, and therefore the condition to be satisfied for the transfer of a long term capital asset for obtaining the deduction u/s 54EC has not been fulfilled, since a short term capital gain arises only from the transfer of a short term capital asset. It also follows that the provisions of section 50, despite being the deeming provisions shall apply equally for the purpose of section 54EC also, The Act under the provisions of section 50 recognizes the depreciable asset as a short term capital asset only. It was also stated by the Assessing Officer that the assessee has placed reliance on the decision of Bombay High Court in the case of CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210/[2005] 144 Taxman 855 (Bom.). Department has not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but also applies to other provisions. On the contrary, this section makes it explicitly clear that the deeming provision created in sub section (1) and (2). Is restricted only to the mode of computation of gains contained in section 48 and 49. The legal fiction is to deem the capital gains as short term capital gain and not to deem the asset as short term capital asset. Section 50 does not convert a long term capital asset into a short term capital asset. Though section 50 has been enacted with the object of denying multiple benefits to own depreciable assets, yet the restrictions is limited to the computation of capital gains and not to exemption provisions Thus the exemption u/s 54E cannot be denied to the assessee firm on account of the fiction created in section 50. It was further submitted that the assessee firm has relied upon before the AO on the following decisions exactly on the same point and identical issue which is in appeal: 1. Ace Builders (P.) Ltd. (supra) 2. CIT v. Assam Petroleum Industries (P.) Ltd. [2003] 262 ITR 587/131 Taxman 699 (Gau.) 3. Dr. (Mrs) Sudha S Trivedi v. ITO [2009] 31 SOT 38 (Mum.) Order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputed in the order on transfer of flat is of short term capital gain instead of long term computed by the assessee, Against the current years short term capital gain, the set off that can be given against the brought forwarded losses of earlier years are the short term capital loss of Rs. 23773 and Rs. 4575 for AY 2004-05 and 2005-06 respectively. The long term capital losses brought forward from earlier years are not eligible for set off against the short term capital gain of the current year in view of the provisions of section 74. The provisions of section 50 deem the capital gain on depreciable asset as a short term capital gain even though the exemption u/s 54EC is allowable if the asset is held for more than 36 months. Since the capital gains remain as short term capital gains, the Assessing Officer's stand is confirmed." 11. Aggrieved the Revenue is on appeal. In this case the flat which has been held for more than three years. We find that this issue has been covered by the Jurisdictional High Court in the case of ACE Builders (P.) Ltd. (supra). The Jurisdictional High Court has held that in the case of depreciable assets the deemed fiction created under sub-section 1 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndexation permitted u/s 48. Again, while the assessee has submitted these arguments before the CIT(A), the CIT(A) has not decided the same. From the records it would appear that the assessee has not agitated the issue regarding re-computation of capital gains by adopting market value of the asset as on 1.4.81 and applying indexation thereto. In the circumstances, we hold that the grounds 2 & 3 raised by the Revenue regarding adoption of fair market value as on 1.4.81 and granting benefit of cost of inflation index u/s 48 is misconceived and does not arise from the order of CIT(A). These two grounds are accordingly dismissed. 14. The fourth ground of the Revenue is against the Ld. CIT(A) allowing to set off of short term capital gains arising from sale of depreciable assets u/s 50 against the brought forward long term capital loss. Here again, we are not certain as to how this ground has been raised by the Department. The CIT(A) in para 4.1 has concluded as under: "The long term capital losses brought forward from earlier years are not eligible for set off against the short-term capital gain of the current year in view of the provisions of section 74." 15. Thus, the Ld.CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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