TaxTMI 
TaxTMI 
TaxTMI 
2012 (12) TMI 607
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....ncome in which the assessee had claimed short term capital gain of Rs.40,99,947/- arising from the sale of assets included in the block of assets. With respect to such gain, assessee had claimed the exemption u/s. 54EC of the Act, for having made investment in the specified bond. The Assessing Officer previously accepted the assessment u/s. 143(1) of the Act . However, subsequently on the basis that such exemption was not available to the assessee and therefore income chargeable to tax has escaped assessment, issued notice u/s. 148 of the Act of reopening of the assessment. In the assessment framed by the Assessing Officer pursuant to such notice, he disallowed the claim of exemption of the assessee. Assessee carried the matter in Appeal. CIT(Appeals) allowed the appeal holding that deeming fiction created u/s. 50 of the Act with respect to depreciable assets would be confined for the purpose of mode of computation of capital gains contained in Section 48 and 49 of the Act and would not cover the exemption u/s. 54EC of the Act. Finding that assets transferred were held for more than 36 months and that otherwise requirements of Section 54EC were fulfilled, CIT(A) deleted the addit....
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....d exclusively in connection with such transfer; and (ii) the cost of acquisition of the asset and the cost of any improvement thereto. Section 49 of the Act provides for cost with reference to certain modes of acquisition. Sub-section (1) of Section 49 provides for deeming cost of acquisition of capital assets in cases such as (i)on any distribution of assets on the total or partial partition of a Hindu undivided family; (ii) under a gift or will; (iii) by succession, inheritance or devolution etc. In such cases, it is provided that cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. Section 50 of the Act makes Special provision for computation of capital gains in case of depreciable assets and reads as under: Notwithstanding anything contained in clause (42A) of Section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income tax Act, 1922 (11 of 1922) the provisions of ....
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.... Act. Thus, Special provision made for computation of capital assets in respect of which depreciation has been allowed, is confined for the purpose of Section 50 in relation to Section 48 and Section 49 only. With this background, we may take notice of Section 54EC of the Act. Section 54EC pertains to Capital gain not to be charged on investment in certain bonds, relevant portion of which are as under :- 54EC. (1) Whether the capital gain arises from the transfer of a long-term capital asset (the capital asset to transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this Section, that is to say - (a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under Section 45; (b) if the cost of the long-term specified as....
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.... term capital asset. Secondly, that the amount received by him towards the transfer of long term capital asset has been invested or deposited in any specified asset which are mentioned in Section 54E partially or fully within a period of six months from the date of transfer. If these two conditions are satisfied by the assessee he shall be entitled for the benefit as provided under Section 54E of the Act. Section 54E is an independent provision, which is not controlled by Section 50 of the Act. Section 50 is a special provision where the mode of computation of capital gains is substituted if the assessee has claimed the depreciation on capital assets. Section 50 nowhere says that depreciated asset shall be treated as short-term asset, whereas Section 54E has an application where long term capital asset is transferred and the amount received is invested or deposited in the specified assets as required under Section 54E. For application of section 54E the necessary pre-requisite condition and enquiry would be, whether the assessee has transferred long-term capital asset and whether the consideration so received is invested or deposited within the time limit in spe....