Section 54EC relief can apply to depreciable assets, and summary disallowance at return processing may be impermissible.

Section 54EC relief was treated as available where capital gains arose on transfer of a depreciable long-term capital asset, because the deeming fiction in section 50 was confined to computation of capital gains and did not extend to deny exemption provisions. The text also states that section 54EC does not distinguish between depreciable and non-depreciable assets. A summary adjustment under section 143(1)(a) was described as impermissible where the claim was not an apparent incorrect claim on the face of the return. The result stated is that the deduction was allowable and the disallowance at the processing stage was unsustainable.

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Issues: Whether deduction under section 54EC of the Income-tax Act, 1961 was allowable in respect of capital gains arising on transfer of a depreciable asset, and whether disallowance of the claim while processing the return under section 143(1)(a) was permissible.

Analysis: The claim under section 54EC was founded on transfer of a long-term capital asset, though the resulting gain was deemed to be short-term capital gain under section 50 because depreciation had been allowed. The deeming fiction in section 50 was held to be confined to computation of capital gains and not to extend to exemption provisions. The Court accepted that section 54EC does not distinguish between depreciable and non-depreciable assets, and that an adjustment under section 143(1)(a) could not be made where the claim was not apparent as an incorrect claim from the return itself in a manner justifying summary disallowance.

Conclusion: The deduction under section 54EC was held to be allowable, and the disallowance made at the processing stage under section 143(1)(a) was held to be unsustainable, in favour of the assessee.

Final Conclusion: The Revenue's appeal failed, and the order granting relief to the assessee was upheld.

Ratio Decidendi: The deeming fiction in section 50 applies only to the computation of capital gains and does not deny exemption under section 54EC where the capital asset transferred is otherwise a long-term capital asset; a summary adjustment under section 143(1)(a) cannot override such a claim unless the incorrectness is apparent from the return.

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