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2015 (11) TMI 491 - ITAT MUMBAI

2015 (11) TMI 491 - ITAT MUMBAI - TMI - Claim of the assessee made under section 54EC denied - short term capital gain u/s 50 of the Act on depreciable assets of shops - Held that:- The capital asset sold by the assessee during the year is a shop, comprising of land (or rights therein) as well as building or the super-structure thereon, which are separate and distinct assets under the Act (refer: CIT v. Alps Theatre [1967 (3) TMI 6 - SUPREME Court] and CIT v. Citi Bank N.A. [2003 (4) TMI 92 - BO .....

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ion qualify to be a long-term capital asset (LTCA) u/s.2(29A), and the capital gain arising on its transfer eligible for exemption u/s. 54EC.

So, however, the Hon'ble jurisdictional High Court, even as noticed by the ld. CIT(A), has in Ace Builders (P.) Ltd. (2005 (3) TMI 36 - BOMBAY High Court) clearly held deduction u/s.54EC to be available on the capital gains computed u/s.50 of the Act. The said authority, as well as we are bound by the said case law. No difference in facts, as cl .....

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directed against the impugned order dated 29th November 2013, passed by the learned Commissioner of Income Tax (Appeals)-31, Mumbai, for the assessment year 2009-10. The sole, effective ground raised by the Revenue is reproduced below:- 1. The learned CIT(A) has erred on the 54EC of the I.T. Act, 1961, on short term capital gain u/s 50 of the Act on depreciable assets of shops following the decision in the case of CIT v/s Ace Builder Pvt. Ltd., 281 ITR 210, as facts of the case is different. 2. .....

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al gain, which was claimed exempt under section 54EC. The assessee sold one shop and earned capital gain on the sale of the said shop. The assessee made investment of ₹ 25,50,000, in capital gain bonds of National Highway Authority of India and claimed exemption under section 54EC of the Act against the aforesaid capital gain earned. The Assessing Officer denied the benefit of exemption under section 54EC on the ground that the shop was a depreciable asset and the resultant gain was a shor .....

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Court in the above cited order, although as per section 50 the profit arising from the transfer of depreciable asset is deemed to be gain arising from the transfer of short-term capital asset, the provisions do not deem, the long-term capital asset so transferred is to be considered a short-term capital asset. In other words, the nature of the asset does not change, only the gains arising from the transfer thereof are to be treated in a specified manner i.e. as short-term capital gains. In the d .....

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depreciable assets held for more than 36 months. In the impugned order, the A.O. has noted the decision of the Bombay High Court in the case of CIT Vs ACE Builders (cited supra), but has observed that the said decision was not accepted in principle by the Department and the SLP against the decision was not filed by the Department due to the smallness of the tax effect involved. However, as per judicial principles in such a situation, the decision of the jurisdictional High Court is binding on th .....

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rejecting the claim of the assessee in-as-much as the capital gain on the sale of shop, a depreciable asset, is deemed as a short-term capital gain (STCG) u/s.50, while exemption u/s. 54EC is allowed only on LTCG, i.e., which is, by definition, not STCG. 5.2 The ld. counsel for the assessee would submit that the issue under reference is covered in favour of the assessee by the decision of the Hon'ble jurisdictional High Court in CIT vs. Ace Builders (P.) Ltd. [2006] 281 ITR 210 (Bom). 6. We .....

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CIT(A) (refer para 3 of the impugned order), the capital gain arising on its transfer would be, in terms of section 50 of the Act, a short-term capital gain (STCG), to be computed in the manner prescribed therein. To this extent, there is no dispute. The assessee, however, claims that the building having been held for a period in excess of three years, it would by definition qualify to be a long-term capital asset (LTCA) u/s.2(29A), and the capital gain arising on its transfer eligible for exemp .....

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s both section 2(42A), as explicitly stated therein and, by implication, section 2(29A). Accordingly, by virtue of the deeming provision of section 50, cost of a long-term capital asset (LTCA), i.e., as per section 2(29A), where depreciable, forming part of a block assets on which depreciation stands claimed, the capital gain on its transfer would have to be computed in terms thereof, i.e. by treating the WDV of the relevant block of assets (or, as the case may be, the relevant asset) as its cos .....

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ciable asset gets exhausted on its deployment and user for the purpose of business/profession over its useful life. The depreciation allowed represents the depletion of an asset to that extent, i.e., over the holding period, so that it signifies its consumption to that extent. How could it cost, thus, remain constant? The constancy of cost, i.e., as crystallized, is the premise for deducting the cost of acquisition of a capital asset on its transfer in computing the capital gains. Further, the u .....

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siness to in the process, maintain the capital of the firm. Income, by definition, is accretion to capital, so that only the excess, i.e., over cost, including the cost of depletion of capital, would be income, both in economic and accounting theory. The charge of depreciation, thus, has a sound basis thereto, well accepted in taxing statutes. Reference in this regard be made to the decisions in CIT vs. Badiani (PK) [1970] 76 ITR 369 (Bom) and CIT vs. Society of Sister of St. Anne p1984] 146 ITR .....

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