TMI Blog2008 (9) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... e same Assessee i.e. M/s Eastman Industries Ltd in respect of the assessment years 1998-99 and 2001-02. 2. The Revenue which is in appeal before us, has sought consideration by this Court, of the following questions of law, which according to the Revenue, are substantial in nature:- "a. Whether Income Tax Appellate Tribunal was correct in allowing depreciation to the assessee @ 100% ignoring the material fact that the assets were entered in the books of accounts only after 30.09.1997? b. Whether assessee was entitled to depreciation @ 50% or @ 100% when the assets were entered in the books of accounts only after 30.09.1997? c. Whether Income Tax Appellate Tribunal was correct in law in holding that no short-term capital gain on transfer or block of assets could be taxed in the present case? d. Whether provisions of Section 50(2) are attracted in the present case so as to tax short-term capital gain on transfer of block of assets?" 3. In order to deal with the issues raised in the appeal, it would be necessary for us to record certain undisputed facts. The same are as follows:- 3.1 The assessee is in the business of export of cycle parts and light engineerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee that during the previous year 1997-98 which ended on 31.03.1998, it had purchased two premises, one, an office premises located at Andheri, Mumbai for Rs 75,52,982/-, and the other premises, situate at Prithvi Raj Road, Delhi for Rs. 1,09,96,112/- and hence, at the end of the previous year for the relevant assessment year, the 'block of assets' within the meaning of Section 50(2) of the Act was available as on 31.03.1998; the Assessing Officer did not deviate from his view. The Assessing Officer was of the opinion that the capital gain arose on 16.06.1997, as on that date, when, the office premises at Mumbai was sold, the "block of assets" ceased to exist. Based on this reasoning the Assessing Officer made an addition on account of capital gain to the extent of Rs 1,76,32,250/- to the assessee's total income. 6. Aggrieved by the aforesaid order of the Assessing Officer, the assessee preferred an appeal bearing No. 559/01-02 in respect of assessment year 1998-99 before the Commissioner of Income-tax (Appeals) (hereinafter referred as the CIT). By an order dated 13.02.2002, the CIT allowed the appeal of the assessee with respect to both the issues referred to hereinabove. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer had overlooked a crucial piece of evidence in the form of a challan which established, that the assets had been transferred from the partnership firm M/s Eastman Industries to the Assessee on 01.04.1997. It was no one's case that the assets had not been used during the relevant previous year. The Assessing Officer had disallowed 50% of the depreciation on the ground that the assets have been put to use after 30.09.1997, that is, for a period of less than 180 days. The CIT, as well as, the Tribunal has rightly noted that once the said evidence is taken into account, then it cannot be said that the assets had been put to use after 30.09.1997. We concur with the view taken by both the CIT, as well as, the Tribunal. This is a finding of fact which does not call for interference by this Court. 2 nd Issue 11. As regards the second issue, it would be important to note the provisions of Section 2 (11) of the Act and Section 50 of the Act. Section 2 (11) defines 'block of assets'. The definition of 'block of assets' has not materially changed from what it was between 1.4.1998 to 31.3.1999, to what it is, w.e.f. 1.4.1999. The definition of 'block of assets' between 1988 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the provision of Section 2 (11) and 50 (2) of the Act would show 'block of assets' as defined in Section 2 (11) of the Act means nothing but a group of assets falling in the same class in respect of which the same percentage of the depreciation is prescribed. Section 50 (2) of the Act comes into play only if assets of the same class 'cease to exist' for the reason that all assets in that block are transferred during the previous year. 14.1 The submission of the leaned counsel for the Revenue based on the reasoning of the Assessing Officer, is that: if, at any, particular point in time in the relevant previous year a class of assets ceases to exist, then in terms of Section 50(2), the surplus amount received after adjusting thereto the cost of acquisition of assets as prescribed under the said provision shall be deemed to be the capital gain arising from transfer of short-term capital assets. 14.2 In the present case it is not disputed that the asset which was sold and those which were bought during the relevant previous year were in the same group, the same class and were amenable to same percentage of the depreciation, what is contended and very vociferously by the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng conditions are fulfilled does Section 50(2) get triggered in:- i) all the assets in the block, ii) are transferred iii) throughout the course of or after the commencement and before the expiration of iv) the financial year of the assessee immediately preceding the assessment year. 14.6 A clearer indicator of the untenability of, the Revenue's submission, is demonstrable from the latter part of the provision of section 50(2) which provides the manner in which capital gains are to be arrived at. In order to do so, firstly, the cost of the acquisition of "block of assets" is ascertained by taking the written down value of the "block of assets? at the beginning of the previous year as increased by the actual cost of any asset falling within the "block of assets" acquired during the previous year. Then, the income received or accruing as a result of such transfer or transfers is deemed to be short term capital gains. A bare reading of the provision of sub-section (2) of Section 50 of the Act would show that, the very fact that, there is a reference to, in arriving at the cost of acquisition, to the written down value of the "block of assets" at the beginning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xisting system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate bookkeeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregated has to be the record keeping. Moreover, the practice of granting the terminal allowance as per Section 32(1)(iii) or taxing the balancing charge as per Section 41(20 of the Income Tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation of lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely, buildings, machinery, plant and furniture???.. Under the new system, the written down value of any block of assets may be reduced to nil for any of the following reasons:- (A) The moneys recei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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