2009 (2) TMI 230 - AT - Income Tax

214-Day Delay Condoned; Exemption Granted Under Section 54EC; Section 50 Inapplicable; Rectification Allowed Under Section 154

The Tribunal allowed the appeals, condoning the 214-day delay in filing, and granted the exemption under section 54EC of the Income Tax Act, 1961. It ... Condonation of Delay - late by 214 days - ld counsel for the assessee contended that the assessee was entertaining a bona fide belief that the relief will be allowed by CIT in the rectification proceedings which was erroneously denied - HELD THAT:- In our considered opinion there is a just and sufficient cause for not filing the present appeal in time. We, therefore, condone the delay in the light of the aforesaid judgment of the Hon'ble Supreme Court in the case of Collector, Land Acquisition vs. MST. Katiji & Ors.[1987 (2) TMI 61 - SUPREME COURT] and admit this appeal for hearing on merits. Denial of exemption u/s. 54EC - assessee is a doctor by profession following cash system of accounting - She sold her business premises during the year for sum which resulted into capital gain - said sum was invested in Rural Electrification Corporation Bond (REC) - HELD THAT- From the language of s. 50 it is clearly proved that where a capital asset forming part of a block of assets, in respect of which depreciation has been allowed, is transferred and the block of assets ceases to exist, then the resultant capital gain shall be deemed to be from the transfer of short-term capital asset. It is no doubt true that block of assets as defined in s. 2(11) clearly means a group of assets falling within the block of assets comprising inter alia, the buildings in respect of which percentage of depreciation is prescribed. Therefore, we observe that the assessee sold her building in which she was carrying on her profession. The building as such is a capital asset on which depreciation rate has been prescribed, hence such building will fall within the definition of 'block of asset'. Where the assessee has not claimed depreciation or not furnished requisite particulars then should the depreciation be mandatorily granted by the AO - When the matter was finally taken up by the Hon'ble Supreme Court in the case of CIT vs. Mahendra Mills [2000 (3) TMI 3 - SUPREME COURT] it was held that if the assessee does not claim depreciation and does not furnish particulars for claiming depreciation, the depreciation cannot be thrust upon him. The sum and substance of this judgment is that the AO has no authority for allowing depreciation u/s. 32 when the assessee has not claimed it in computing the income u/s. 29. We note that the building transferred by the assessee was held by her for a period more than 36 months, which is a condition precedent for classifying any asset under 'long-term capital asset' as per s. 2(29A). Sec. 54EC is an independent provision not controlled by s. 50. If the capital asset is held for more than 36 months, the benefit of s. 54EC cannot be snatched away because s. 50 is restricted only to the mode of computation of capital gain contained in ss. 48 and 49 and this fiction cannot be extended beyond that for denying the benefit otherwise available to the assessee u/s.54EC, if the other requisite conditions of the section are satisfied. Our view is also fortified by CIT vs. Assam Petroleum Industries [2003 (6) TMI 23 - GAUHATI HIGH COURT]. We, therefore, overturn the impugned order and direct that the exemption under this section be allowed to the assessee because of her having made investment in eligible bonds out of the sale proceeds from the transfer of long-term capital asset. The other appeal by the assessee is against the order passed in CIT(A) rejecting her request for the rectification of the order u/s. 154. In view of our decision on the former appeal supra, the assessee's contention in this appeal also merits acceptance ex consequenti. We, therefore, set aside the impugned orders and accept the assessee's claim. The appeals are allowed. Issues Involved:1. Delay in filing the appeal.2. Denial of exemption under section 54EC of the Income Tax Act, 1961.3. Application of section 50 of the Income Tax Act, 1961.4. Rectification of the order under section 154 of the Income Tax Act, 1961.Detailed Analysis:1. Delay in Filing the Appeal:The assessee's appeal against the CIT(A)'s order was delayed by 214 days. The assessee contended that she had a bona fide belief that relief would be granted in the rectification proceedings under section 154, which was denied despite the jurisdictional High Court's judgment in CIT vs. Ace Builders (P) Ltd. The Tribunal condoned the delay, citing the Supreme Court's judgment in Collector, Land Acquisition vs. MST. Katiji & Ors., which allows for condonation if there is sufficient cause for the delay.2. Denial of Exemption under Section 54EC:The assessee, a doctor, sold her business premises and claimed exemption under section 54EC. The AO denied the exemption, treating the capital gain as short-term under section 50, arguing that the building fell within the 'block of assets' and depreciation was deemed to be allowed under Explanation 5 to section 32. The CIT(A) upheld this view, stating that the building used for the profession was subject to depreciation and thus fell under section 50.3. Application of Section 50:The Tribunal examined whether section 50 applied to the building transferred by the assessee. Section 50 applies to assets forming part of a block of assets on which depreciation has been allowed. The Tribunal noted that for section 50 to apply, both conditions must be met: the asset must be part of a block of assets, and depreciation must have been allowed. Since the assessee had not claimed depreciation on the building in previous years, the Tribunal concluded that section 50 did not apply. Consequently, the building was considered a long-term capital asset, making the assessee eligible for exemption under section 54EC.4. Rectification of the Order under Section 154:The Tribunal addressed the assessee's appeal against the CIT(A)'s rejection of her rectification request under section 154. Given the Tribunal's decision on the main appeal, it found merit in the assessee's contention for rectification. The Tribunal set aside the impugned orders and accepted the assessee's claim.Conclusion:The Tribunal allowed both appeals, condoning the delay in filing the appeal and granting the exemption under section 54EC. It also set aside the CIT(A)'s order rejecting the rectification request under section 154. The Tribunal's decision was based on the interpretation that section 50 did not apply since depreciation had not been claimed on the building, thus qualifying it as a long-term capital asset eligible for exemption under section 54EC.