2023 (7) TMI 1142 - AT - Income Tax

Tribunal grants partial exemption under Section 54EC for STCG, remits tax rate issue for reassessment.

The Tribunal allowed the assessee's appeal in part, granting exemption under Section 54EC of the Income Tax Act. The issue of the appropriate tax rate on ... Deduction u/s 54EC - LTCT or STCG - Investment of consideration against sale of depreciable assets - claim denied as asset transfer should be long term capital asset whereas in this case the assessee himself has offered short term capital gains (STCG) on the sale of office premise - AO also levied tax @ 30% on STCG computed u/s 111A of the Act as against 15% tax rate on the same as claimed by the assessee - HELD THAT:- As in the light of the decision rendered in case of Aditya Medisales Ltd. [2013 (11) TMI 576 - GUJARAT HIGH COURT] and Ace Builders (P.) Ltd. [2005 (3) TMI 36 - BOMBAY HIGH COURT] we are of the considered view that section 54EC of the Act does not make any distinction between depreciable assets and non depreciable assets and as such exemption otherwise available to the assessee under section 54EC of the Act cannot be denied by resorting to the fiction created under section 50 of the Act. Because legal fiction created by the statute under section 50 of the Act is only to deal with capital gain as STCG and not to deem the assets as short term capital assets. Section 50 cannot convert long term capital assets into short term capital assets. So the assessee is entitled for benefit of section 54EC of the Act as it has capital gain arisen out of long term capital assets invested in specified assets and as such the assessee is not liable to be charged capital gains and is entitled for exemption u/s 54EC - AO is directed to allow the same. Grounds No.1 to 3 are decided in favour of the assessee. Tax @30% on STCG computed under section 111A levied - assessee drew our attention towards consolidated account statement available - HELD THAT:- All these documents relied upon by the assessee have not been examined by the AO as well as the Ld. CIT(A). It is not clear from the record if the funds qua which STCG is to be taxed was an equity or in the mutual fund. To consider the same u/s 111A all these documents are required to be examined by the AO. In order to decide the issue once for all we set aside the findings returned by the CIT(A) and remit this issue back to the AO to decide ground No.4 afresh after providing opportunity of being heard to the assessee. Issues Involved:1. Exemption under Section 54EC of the Income Tax Act, 1961.2. Application of Section 50 and Section 54EC of the Income Tax Act, 1961.3. Consideration of judicial pronouncements in favor of the assessee.4. Levy of tax rate on Short Term Capital Gain (STCG) under Section 111A.5. Levy of interest under Sections 234B and 234C of the Income Tax Act, 1961.Summary:Issue 1: Exemption under Section 54EC of the Income Tax Act, 1961The assessee claimed a deduction of Rs. 1,00,00,000 under Section 54EC by investing in REC and NHAI bonds. The Assessing Officer (AO) disallowed this deduction on the grounds that the asset transfer was a short-term capital gain (STCG) rather than a long-term capital asset. The Tribunal, however, noted that Section 54EC does not distinguish between depreciable and non-depreciable assets and that the legal fiction under Section 50 is limited to the computation of capital gains. Therefore, the assessee is entitled to the exemption under Section 54EC.Issue 2: Application of Section 50 and Section 54EC of the Income Tax Act, 1961The Tribunal referred to judicial precedents, including decisions by the Hon'ble Gujarat High Court and the Hon'ble Bombay High Court, which held that the fiction under Section 50 is restricted to capital gain computation and does not affect exemptions under Section 54EC. The Tribunal concluded that the assessee is entitled to the exemption as the capital gains arose from long-term capital assets.Issue 3: Consideration of judicial pronouncements in favor of the assesseeThe Tribunal considered various judicial pronouncements, including those from the Hon'ble Gujarat High Court and the Hon'ble Bombay High Court, which supported the assessee's claim for exemption under Section 54EC despite the assets being depreciable. The Tribunal found these precedents applicable and ruled in favor of the assessee.Issue 4: Levy of tax rate on Short Term Capital Gain (STCG) under Section 111AThe AO levied a 30% tax rate on STCG, which was confirmed by the CIT(A). The assessee contended that the STCG should be taxed at 15% under Section 111A. The Tribunal noted that the necessary documents were not examined by the AO or CIT(A) and remitted the issue back to the AO for fresh examination.Issue 5: Levy of interest under Sections 234B and 234C of the Income Tax Act, 1961The Tribunal did not provide specific details on this issue in the judgment summary but implied that the matter would be reconsidered based on the fresh examination of the STCG tax rate issue.Conclusion:The appeal filed by the assessee is partly allowed for statistical purposes, with the exemption under Section 54EC being granted and the issue of the appropriate tax rate on STCG remitted back to the AO for fresh consideration.