Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

Smt. Meena V. Pamnani, Versus The Commissioner of Income Tax, City-IX, Mumbai

2017 (10) TMI 596 - BOMBAY HIGH COURT

STCG - sale of depreciable assets - Applicability of provisions of section 50 on asset sold as ceased to be used for the purpose of the business - whether asset cannot move out of the ‘Block of Assets’? - Whether, the Tribunal was right in law in holding that an asset cannot move out of the ‘Block of Assets’, if depreciation was allowed to the asset some time in the past, even though depreciation was claimed for many years thereafter ? - Held that:- The assets being gala nos.210 and 211 were pur .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eciation has been granted on gala no.210 and even if business operations were not carried out therefrom, merely at the convenience of the assessee, it does not cease to be a business asset. The understanding of this provision and the concept, to our mind, conforms with the consistent view taken by the Tribunal earlier, and which has been upheld by this Court. We do not see how the provisions can be construed otherwise. - To our mind, the Kerala High Court in case of Commissioner of Income Ta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

50 have also been, with respect, rightly understood in that decision. The Kerala High Court on reading of these provisions took the view that once the building was acquired by the assessee and in respect of which depreciation was allowed to it as a business asset, no matter the non­user dis­entitles the assessee for depreciation for two years prior to the date of sale, still, this asset does not cease to be a part of block of assets. The character of such asset is not lost, according to Kerala H .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Tax Reference No. 96 of 2000 - Dated:- 29-9-2017 - S.C. DHARMADHIKARI AND PRAKASH D. NAIK, JJ. Mr. Rohan Deshpande for applicant. Mr. Suresh Kumar with Ms. Samiksha Kanani for Respondent. ORAL JUDGMENT (Per ­ S.C. Dharmadhikari, J.) :­ 1. The Income Tax Appellate Tribunal, Mumbai Bench A , Mumbai ( Tribunal for short) at the instance of assessee, has referred the following questions for answer and opinion by this Court:­ 1. Whether, the Tribunal was right in law in holding that even .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in holding that even in a case where there is evidence to prove that an industrial gala which was once used for business is not used for business for many years, the gain on sale thereof will attract the provisions of section 50 and will consequently be short term capital gain ? 2. The Income Tax Appeal No.6316 of 1993 for the assessment year 1991­92 pertains to the assessee, an individual. It is her case that she carried on weaving work on job basis in all her three concerns, viz. (i) Gita .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

h August 1990 for ₹ 6,60,000/­ and earned profit of ₹ 6,23,645/­. The assessee treated this gain as long term capital gain and claimed deduction under Section 48(2) of the Income Tax Act, 1961 ( I.T.Act ). The assessing officer noted that the assessee had not only claimed depreciation on the above gala for the assessment years 1981­82 to 1986­87 but also claimed deduction under Section 80(J) for the assessment years ( A.Y. for short) 1981­82 to 1985­86. 4. Acc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

preciation was claimed thereon. Since no depreciation was claimed and it was sold as personal asset, she contended as above. 5. The assessing officer negatived this claim by holding that once depreciation has been allowed, the asset would remain a business asset and the profit earned on sale of that asset would be taxed under Section 50 of I.T.Act. According to the assessing officer, though the section was effective from 2nd November 1986, it did not state that provisions of this section would a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eparately for the galas. The assessing officer found that even the claim of personal asset was not correct because the assessee claimed society charges of ₹ 62,935/­ in the Profit and Loss Account pertaining to the two galas. The assessing officer also noted that the assessee herself had shown in the Profit and Loss Account profit on sale of factory gala . With these findings, the assessing officer concluded that the gain arising on the sale of industrial gala No.210 was not long term .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

these circumstances that the questions have been referred for our answer and opinion by an order dated 21st May 1996. 7. Mr.Rohan Deshpande appearing for the assessee would submit that the concurrent views are not in accordance with law. Mr.Deshpande would submit that gala no.210 never became a part of the assessee s block of assets and therefore, Section 50 of the I.T.Act 1961 (as amended by Taxation Laws [Amendment and Miscellaneous] Provisions Act 1986]) is not attracted. Mr.Deshpande would .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion. It was during the period namely A.Y. 1987­88 to A.Y. 1991­92, when gala no.210 was not being used by the assessee for the purpose of business, that this concept of depreciation on block of assets was introduced vide Taxation Laws (Amendment and Miscellaneous) Act, 1986 with effect from 1st April 1988 i.e. from A.Y. 1988­89 onwards. It is in these circumstances that this gala no.210 never became a part of the assessee s block of assets and the amendment of 1986 cannot be made app .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Act, it is imperative that two criterias are satisfied. First is the ownership and second is the use for the purpose of business or profession. These two requirements are set out in Section 32(1) itself. In such circumstances, the user criteria is not satisfied to attract Section 32(1). Once that is not satisfied, then, the assessing officer as also other authorities under the Act, have erred in terming this asset as part of block of assets . Third fundamental error would enable us, according to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

refore, invited by Mr.Deshpande to the provisions and particularly Explanation­5 to Section 32(1) of I.T.Act. 9. In support of his contention, he relied upon following judgments :­ (i) (1954)25­ITR­265 (SC) ­ Liquidators of Pursa Limited Vs. Commissioner of Income Tax; (ii) (2004)134­Taxman­725 ­ Commissioner of Income Tax Vs Sree Senhavalli Textiles (P) Ltd.; Mr.Deshpande has invited our attention to some material documents compiled by him. 10. On the other hand, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

is how the law has been understood throughout. Therefore, there is no merit in the argument that assessing officer or the first appellate authority or the Tribunal have acted contrary to law. In these circumstances, he would submit that all the questions proposed by the assessee should be answered against her. 11. It is common ground that there is a concurrent finding that the assessee has originally purchased gala nos.210 and 211 together. She claimed depreciation of the cost of galas together .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

granted on gala no.210, but subsequently no business operations were carried on therefrom, that does not mean that it ceased to be a business asset. The Tribunal, therefore, relied upon an order passed by it in the case of M/s.Sonalika Vs. A.C.I.T in (Income Tax Appeal No.5807/Bom/1992, dated 6th December 1993). Therefore, the Tribunal concluded that it was unable to accept the assessee s contention that Section 50 did not apply because depreciation was neither claimed nor allowed in the year o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

her part of this definition indicates that these block of assets comprising as above in respect of which same percentage of depreciation is prescribed, can be understood as block of assets. 13. Section 32 of I.T.Act enables claiming deductions in respect of depreciation on the tangible and intangible assets owned, wholly or partly, by the assessee and used for the purpose of business or the profession. One of the aspect in respect of any block of assets is that such percentage of the written dow .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r under the Indian Income Tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the modifications set out in Section 50. Sections 48 and 49 provide for mode of computation of the capital gains. Section 48 deals with the mode of computation and deductions. The income chargeable under the head capital gains shall be computed by deducting the full value of the consideration received or accruing as a result of the transfer of the capital asset. Section 49 deals with th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ubject to modifications set out in Section 50, where capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed. 15. Mr.Deshpande has placed heavy reliance on the judgment of Hon ble Supreme Court in the case of Liquidators of Pursa Limited Vs. Commissioner of Income Tax reported in (1954)­25­ITR­265 (SC) (supra). In that case the facts relevant for our purpose have to be noted. There, the business of the assessee was that of growing .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and took possession of the factory on 10th December 1943. On the date of sale, the company possessed sugar stock valued at ₹ 6 lakh which was excluded from the sale. The company continued to sell this stock of sugar up to June­1944. Between 9th August 1943, when the firm offer was obtained and 10th December 1943 when possession of the factory was made over to the third party, the company never used the machinery and plant for the purpose of manufacturing the sugar and for any other pur .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd also to warn the shareholders accordingly. The Income Tax Officer had also asked for some information, which, however, the liquidators did not furnish. Instead, the liquidators sent their reply and disputed the view of Income Tax Officer that profits are taxable. Their contention was that the profits to which reference has been made, were not profits arising from the business carried on by the assessee, but were profits arising from the company ceasing the business. The Income Tax Officer did .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s exercise of an activity and the same central idea is implicit in the words carried on by him occurring in Section 10(1) of the Act of 1922 and those crucial words are an essential constituent of that which is to produce the taxable income. Therefore, it is clear that the tax is payable only in respect of the profits or gains of the business which is carried on by the assessee. 16. Mr.Deshpande would rely upon these observations and particularly the portion where the Hon ble Supreme Court has h .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to include a passive user. The Hon ble Supreme Court held that in order to attract operation of clauses (vi), (vi) and (vii) of Section 10(1) of the Income Tax Act, 1922, the machinery and plant must be such as were used, in whatever sense that word is taken, at least for a part of the accounting year. If they are not being used at all during the accounting year, no allowance can be claimed under clause (vii) of Section 19(2) of the Act of 1922. However, we must understand the context in which .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e the revenue had proposed a question which is noted in paragraph 2(a) of the order. The Tribunal had held that the assessee is eligible to claim depreciation in respect of plant and machinery of discontinued business without appreciating the fact of basic condition for claiming depreciation under Section 32 of the Act is the use of asset for business purpose of the assessee. In answering that question, the Division Bench found that the respondent­assessee claimed depreciation in respect of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

enabling claiming of depreciation viz user was not satisfied. The view of the assessing officer was confirmed in appeal before the first appellate authority. On further appeal, the Tribunal held that refining edible oil machinery was a part of block of assets of plant and machinery. In such a case, depreciation is granted to the entire block of assets, whether or not an individual item therein has been used during the subject assessment year. It is in that sense and relying upon its earlier vie .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ould submit that the view taken by this Court ought to be confined to the peculiar facts and should not be understood as a general proposition. 19. Mr.Deshpande also brought to our notice a judgment of Division Bench of Kerala High Court in case of Commissioner of Income Tax Vs. Sakthi Metal Depot reported in (2011)­333­ITR492 (Ker), but attempted to distinguish that as well. There, the assessee had purchased a flat for business purpose in 1974 and depreciation was allowed thereon upto t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

as assessable as short term capital gains under Section 50 of the I.T.Act. This view came to be confirmed by the Commissioner of Income Tax (Appeals). However, the Tribunal held that such profit was chargeable as tax as long term gains because no depreciation was claimed or allowed for two years prior to the previous year in which the building was sold. The revenue preferred an appeal to Kerala High Court and one question was framed as substantial question of law for opinion and answer by Kerala .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion 50 has to be understood with reference to the general scheme of assessment on sale of capital assets. The scheme of the Act is to categorise assets between short­term capital assets and long­term capital assets. Section 2(42A) defines short­term capital asset as an asset held for not more than 36 months. The non obstante clause with which section 50 opens makes it clear that it is an exception to the definition of short­term capital asset which means that even though the dura .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

set in respect of which depreciation has been allowed when sold should be assessed to tax as short­term capital asset. The other purpose of section 50 is to provide cost of acquisition and other items of expenditure which are otherwise allowable as deduction in the computation of capital gains and covered by sections 48 and 49 of the Act. Here again section 50 provides an exception for deduction of cost of acquisition and other items of expenditure otherwise allowable in the computation of c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

our view, the purpose of section 50A is to enable the assessee to claim deduction of the written down value of the asset in respect of which depreciation was claimed in any year as defined under section 43(6) of the Act towards cost of acquisition within the meaning of sections 48 and 49 of the Act. The condition for computation of short­term capital gains in the way it is stated in section 50A is that the assessee should have been allowed depreciation in respect of a depreciable asset sold .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ess asset and depreciable asset, no matter the nonuser dis­entitles the assessee for depreciation for two years prior to the date of sale. We do not know how a depreciable asset forming part of a block of assets within the meaning of section 2(11) of the Act can cease to be part of the block of assets. The description of the asset by the assessee in the balance­sheet as an investment asset in our view is meaningless and is only to avoid payment of tax on short­term capital gains on s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

available as on the date of ending of the previous year in which depreciation was allowed last. 20. Mr.Deshpande also attempted to distinguish this judgment by submitting that this view of Kerala High Court firstly is not binding on us. Secondly, there the High Court held that so long as the assessee continued business, the building forming part of the block of assets, will retain its character as such, no matter one or two of the assets in one or two years not used for business purposes disent .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the opinion that the Tribunal correctly understood this concept of block of assets . The argument has been and throughout that the expression block of assets means a group of assets falling within the assets enumerated in Section 2(11) of the I.T.Act. That section does not make any distinction between different units or different types of businesses, which may be carried out by the assessee. Only requirement in respect of an asset which forms part of assets, is that same percentage of deprec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e argument is that from A.Y.1988­89, this amendment would apply. However, it is not an accurate reading of this definition. The definition of the term block of assets means a group of assets falling within the class of assets and comprising both - tangible and intangible assets, in respect of which same percentage of depreciation is prescribed. Section 32 of the I.T.Act which provides for claiming depreciation, enables an assessee to claim it and in the case of any block of assets, on such p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ven though the assets were not used for the business of the assessee, they continued to be part of block of assets on which depreciation was allowed. The Tribunal in affirming this view of the first appellate authority, had passed a detailed order. Initially the order was passed in which all the contentions were referred including that once an asset ceased to be in use for the purpose of business, it does not remain a part of block of assets and it was not open for the assessee to claim deprecia .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ted in Section 2(11) is applicable. Both the galas are of the same nature. They form one class of assets. Once the depreciation has been granted on gala no.210 and even if business operations were not carried out therefrom, merely at the convenience of the assessee, it does not cease to be a business asset. The understanding of this provision and the concept, to our mind, conforms with the consistent view taken by the Tribunal earlier, and which has been upheld by this Court. We do not see how t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ents of Section 50 have also been, with respect, rightly understood in that decision. The Kerala High Court on reading of these provisions took the view that once the building was acquired by the assessee and in respect of which depreciation was allowed to it as a business asset, no matter the non­user dis­entitles the assessee for depreciation for two years prior to the date of sale, still, this asset does not cease to be a part of block of assets. The character of such asset is not los .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

under consideration. Our opinion is sought on the issue that on sale of the gala, whether the profits earned are taxable as short term capital gains or long term capital gains. To answer that question, we do not think we should travel beyond the applicable statutory provisions, namely, Sections 2(11), 2(42A) and 50 of the Income Tax Act, 1961. 25. We would also make in fairness a reference to the judgment of the High Court of Delhi in the case of Commissioner of Income Tax Vs. Ansal Properties & .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s in respect of other division. The Commissioner (Appeals) reversed the decision of assessing officer and held that Section 50 was applicable. The Tribunal confirmed that decision and in the backdrop of the definition of the term block of assets . The revenue appealed to the High Court and in the case of Ansal Properties (supra), the Tribunal s view was considered and eventually relevant provisions were referred. In conclusion, the Delhi High Court held that the question will have to be answered .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d with this argument and disallowed the depreciation. The Commissioner dismissed the appeal of the assessee. On further appeal, the Tribunal allowed the claim on the ground that it was a case of depreciation on block of assets, and the assets of Bhopal unit could not be segregated for the purpose of allowing depreciation and depreciation had to be allowed on entire block of assets. 27. Thus, the view taken by this Court in the decision which was brought to our notice fairly by Mr.Deshande in Inc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aspect is with regard to the introduction or insertion of explanation­5 in Section 32 of the I.T. Act and by this method the revenue is forcing or thrusting the claim of depreciation on the assessee. In that regard our attention was invited to the case of Commissioner of Income Tax Vs. Mahendra Mills/Arun Textile C/Humphreys/Glassgow Consultants reported in (2000)­109­Taxman­225 (SC). The argument was that in the present case, the assessee has not consciously claimed any benefit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

company and maintained accounts on mercantile basis. For the A.Y.1974­75 it did not claim depreciation. The assessing officer, however, allowed the depreciation. The assessee appealed to the Commissioner (Appeals) who allowed the appeal. The revenue took the matter to the Tribunal which dismissed the appeal of the revenue. The Hon ble Supreme Court, therefore, was considering an issue on the backdrop of the unamended Section 32 of I.T.Act. It noted that Section 32 of the I.T.Act has been ame .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version