TMI Blog2012 (4) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... dditions to the building up to 31.03.2003 and reckoned from this date the assessee did not hold the property for more than 3 years and, therefore, the sale of land cannot be considered as a sale of a long term capital asset – Held that:- incurred substantial expenditure on additions to the building could well have been because of the compulsions of its business and not because it considered the land to be of considerably low worth compared to the worth of the building. We are unable to appreciate or accept the line of argument adopted by the Assessing Officer – against revenue. - ITA No.791/2011 - - - Dated:- 29-3-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. N. P. Sahni, Sr. Standing Counsel. For Respondent: Mr. Ajay Vohra with Ms. Kavita Jha Mr. Somnath Shukla, Advocates. R.V. EASWAR, J.: 1. On 11.11.2011 the following substantial questions of law were framed: - (1) Whether the Income Tax Appellate Tribunal was right in holding that Assessing Officer was not justified in invoking Section 50(2) of the Income Tax Act, 1961? In case the first question in answered against the Revenue; (2) Whether the assessee is entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 16,00,000/-. The assessee had bifurcated the total purchase price of Rs. 2,16,00,000/- (including stamp duty) as Rs. 1,48,00,000/- for the land and Rs. 68,00,000/- for the building. In the financial years 2001-02 and 2002-03 the assessee had made additions to the building in the amounts of Rs. 92,62,242/- and Rs. 62,54,181/-. The aggregate amount of additions came to be Rs. 1,58,16,423/-. In the income tax assessments for the assessment years 2002-03 and 2003-04 the assessee had claimed depreciation at the rate of 10% on the building which was allowed in the assessments. On 29.08.2005 the assessee sold the land and building comprised in the property, namely, S-7 8, Green Park, New Delhi for a consideration of Rs. 7,25,00,000/-. This price included Rs. 1,50,00,000/- for the fixtures and furniture in the building. Excluding the same, the sale consideration for the land and building came to Rs. 5,75,00,000/-. Out of the consolidated sale price of Rs. 5,75,00,000/-, Rs. 4,72,00,000/- was for the land and Rs. 1,03,00,000/- was received in respect of the building. 5. In computing the capital gains on transfer of the property in terms of Section 45 of the Act, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aggregate WDV was Rs. 3,06,97,710/-. These 19 items included land as well as the building in Serial Nos.1 2 respectively. Out of the 19 items of assets the Assessing Officer has excluded only the computer and softwares having WDV of Rs. 2,42,799/- and vehicles having WDV of Rs. 9,95,511/-. It follows that all the other 17 items were taken into account by the Assessing Officer while arriving at the WDV of the assets sold and these included the land and the building comprised in the property transferred. The WDV of the land was shown in the depreciation chart at Rs. 1,48,00,000/- and WDV of the building on the said land was shown as Rs. 1,06,93,049/-. The WDV of the other 15 items of assets comprised in the block of assets need not be separately noticed since the controversy does not centre around them. 9. Having arrived at the WDV of the assets sold at Rs. 2,94,59,400/-, the Assessing Officer proceeded to compute the capital gain on the sale of the building along with the furniture and fixtures as follows: - Sale price of the assets: Rs. 7,25,00,000/- Less: WDV of the assets sold: Rs. 2,94,59,400/- Rs. 4,30,40,600/- 10. The aforesaid amount of Rs. 4,30,40,60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble and that the Assessing Officer was not right in treating the building as a short term capital asset and in consequently rejecting the claim for relief under Section 54EC. He found that in the books of account of the assessee, the cost of the land and the superstructure were separately shown on the basis of registered valuer s report dated 30.06.2001. He further found that the assessee had claimed and was allowed depreciation only on the super structure/ building and no depreciation had been allowed in respect of the land. The depreciation had been allowed on the building year after year from the assessment year 2002-03 till the assessment year 2005-06. The CIT (Appeals) agreed with the assessee that long term capital gains had to be computed on the sale of the land since no depreciation had been claimed or allowed thereon. If no rate of depreciation is prescribed in respect of an asset, the said asset does not form part of the block of assets as provided in Section 32 of the Act. On this line of reasoning, the CIT (Appeals) directed the Assessing Officer to compute the long term capital gains on sale of land as it was held for more than 36 months and consequently directed the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, Owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed; 14. A combined reading of Section 2(11), Section 32(1) and Section 50(2) of the Act shows that (i) a block of assets is one in respect of which the same percentage of depreciation is prescribed in respect of the assets falling in the same class; (ii) no depreciation is allowable in respect of land as it is not specifically mentioned as an asset eligible for depreciation either in Section 2(11) or in Section 32(1) and (iii) the provisions of Section 50 are applicable only when the asset transferred forms part of a block of assets a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in CIT v. The Madras Cricket Club, (1934) 2 ITR 209 wherein the difference between the legal position in this regard obtaining in England and in India was noticed and highlighted and it was observed by Owen Beasley, C.J. as under: - . The first contention put forward by the assessees is that they are not the owners of the buildings which are now upon the land. The rule in India which is different from that in England, is that a person who builds a superstructure upon the land of another man remains the owner of the superstructure and can at the end of his term remove that superstructure from the land, whereas in England a person who erects a building on the land of another cannot do so as the building at the end of the lease becomes the property of the lessor. We felt the need to refer to the legal position because of the arguments addressed before us on behalf of the Revenue that the cost attributed to the building when it was purchased was only Rs. 68,00,000/- divided as Rs. 49,32,000/- for S-7, Green Park, New Delhi and Rs. 18,68,000/- for S-8, Green Park, New Delhi, whereas the assessee had incurred expenditure on additions to the building in the amount of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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