TaxTMI 
TaxTMI 
2017 (10) TMI 596
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.... for many years thereafter ? 3. Whether, the Tribunal was right in law in holding that even in a case where there is evidence to prove that an industrial gala which was once used for business is not used for business for many years, the gain on sale thereof will attract the provisions of section 50 and will consequently be short term capital gain ?" 2. The Income Tax Appeal No.6316 of 1993 for the assessment year 1991­92 pertains to the assessee, an individual. It is her case that she carried on weaving work on job basis in all her three concerns, viz. (i) Gitanjali Silk Mills; (ii) Kalpana Silk Mills and (iii) M/s. J.R. Enterprises. There were eight looms in M/s.Gitanjali Silk Mills and four each in other concerns. It is her case that the looms of M/s. Gitanjali Silk Mills were operated from gala No.210 and other looms of the sister concerns were operating from gala no.211. 3. These two galas being gala nos.210 and 211 were purchased by the assessee on 30th June 1977 for Rs. 1,39,500/­. Of these two galas, the assessee sold gala no.210 on 16th August 1990 for Rs. 6,60,000/­ and earned profit of Rs. 6,23,645/­. The assessee treated this gain as ....
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....s claimed by the assessee, but short term capital gain under Section 50 of the I.T.Act. He accordingly taxed the amount. In appeal, the Commissioner of Income Tax (Appeals) concurred with this view of the assessing officer. 6. The matter came up before the Tribunal in further appeal and the Tribunal also upheld the order of assessing officer and Commissioner of Income Tax (Appeals) and with the observations which have been noted in paragraph no.5 of the statement of case. It is in these circumstances that the questions have been referred for our answer and opinion by an order dated 21st May 1996. 7. Mr.Rohan Deshpande appearing for the assessee would submit that the concurrent views are not in accordance with law. Mr.Deshpande would submit that gala no.210 never became a part of the assessee's block of assets and therefore, Section 50 of the I.T.Act 1961 (as amended by Taxation Laws [Amendment and Miscellaneous] Provisions Act 1986]) is not attracted. Mr.Deshpande would submit that from the A.Y. 1987­88 onwards, when gala no.210 was vacated and all machinery and looms were moved to gala no.211, the assessee never used gala no.210 for the purposes of her business. Conseque....
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....of I.T.Act. 9. In support of his contention, he relied upon following judgments :­ (i) (1954)25­ITR­265 (SC) ­ Liquidators of Pursa Limited Vs. Commissioner of Income Tax; (ii) (2004)134­Taxman­725 ­ Commissioner of Income Tax Vs Sree Senhavalli Textiles (P) Ltd.; Mr.Deshpande has invited our attention to some material documents compiled by him. 10. On the other hand, Mr.Suresh Kumar appearing on behalf of revenue would submit that there is no merit in the contentions of Mr.Deshpande. Our attention is invited by Mr.Suresh Kumar to each of these provisions and he submitted that once an asset has been treated as block of asset, then, irrespective of its disposal and in the manner done by the assessee, it would continue to be treated as such. Once it is treated on its initial introduction in the block as 'block of asset', then, that treatment continues and that is how the law has been understood throughout. Therefore, there is no merit in the argument that assessing officer or the first appellate authority or the Tribunal have acted contrary to law. In these circumstances, he would submit that all the questions proposed by the assessee should....
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....on for computation of capital gains in case of depreciable assets. The section opens with a non obstante clause and states that 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 I.T.Act or under the Indian Income Tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the modifications set out in Section 50. Sections 48 and 49 provide for mode of computation of the capital gains. Section 48 deals with the mode of computation and deductions. The income chargeable under the head capital gains shall be computed by deducting the full value of the consideration received or accruing as a result of the transfer of the capital asset. Section 49 deals with the cost with reference to certain modes of acquisition. Where the capital asset became the property of the assessee on distribution of assets of a HUF, or under gift or will or by succession/inheritance or devolution and/or on distribution of assets on liquidation of a company or under a transfer to a revocable or an irrevocable trust etc., the cost of such acquisition o....
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....contention was that the profits to which reference has been made, were not profits arising from the business carried on by the assessee, but were profits arising from the company ceasing the business. The Income Tax Officer did not agree and passed an assessment order making above provisions applicable. The first appellate authority as also the Tribunal dismissed the liquidator's objections. On reference, the High Court held that surplus profit is assessable as taxable profit under Section 10(2)(vii) of 1922 Act. When the matter was carried to the Hon'ble Supreme Court, the Supreme Court referred to Section 10(2)(iv) of Income Tax Act, 1922 and held that fundamental idea underlying each of these words is the continuous exercise of an activity and the same central idea is implicit in the words 'carried on by him' occurring in Section 10(1) of the Act of 1922 and those crucial words are an essential constituent of that which is to produce the taxable income. Therefore, it is clear that the tax is payable only in respect of the profits or gains of the business which is carried on by the assessee. 16. Mr.Deshpande would rely upon these observations and particularly the portion where....
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....was disallowed by the assessing officer on the ground that one of the twin requirements of ownership and user under Section 32(1)(ii) of the Act enabling claiming of depreciation viz user was not satisfied. The view of the assessing officer was confirmed in appeal before the first appellate authority. On further appeal, the Tribunal held that refining edible oil machinery was a part of block of assets of plant and machinery. In such a case, depreciation is granted to the entire block of assets, whether or not an individual item therein has been used during the subject assessment year. It is in that sense and relying upon its earlier view to this effect, that Tribunal allowed the assessee's appeal and consequently the claim for depreciation. In confirming this view of the Tribunal that individual asset looses its identity for the purposes of depreciation and the user test is to be satisfied at the time the purchased machinery becomes a part of the block of assets for the first time, has been confirmed by this Court. The revenue tried to distinguish this judgment, but this Court found no merit in the argument. 18. Mr.Deshpande would submit that the view taken by this Court ought t....
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....rm capital asset which means that even though the duration of holding of an asset is more than the period mentioned in section 2(42A), still the asset referred to therein will be treated as short­term capital asset. No one can doubt that assets covered by section 50 are depreciable assets forming part of block assets as defined under Section 2(11) of the Act. Section 50 has two components, one is as to the nature of treatment on an asset, the profit on sale of which has to be assessed to capital gains. The section mandates that a depreciable asset in respect of which depreciation has been allowed when sold should be assessed to tax as short­term capital asset. The other purpose of section 50 is to provide cost of acquisition and other items of expenditure which are otherwise allowable as deduction in the computation of capital gains and covered by sections 48 and 49 of the Act. Here again section 50 provides an exception for deduction of cost of acquisition and other items of expenditure otherwise allowable in the computation of capital gains under sections 48 and 49 of the Act. In other words, section 50 provides for assessment of a depreciable asset in respect of which de....
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....vious year in which depreciation was allowed last." 20. Mr.Deshpande also attempted to distinguish this judgment by submitting that this view of Kerala High Court firstly is not binding on us. Secondly, there the High Court held that so long as the assessee continued business, the building forming part of the block of assets, will retain its character as such, no matter one or two of the assets in one or two years not used for business purposes disentitles the assessee to claim depreciation for those years. Mr.Deshpande would submit that in the case before us, long before sale, galla no.210 was locked. The plant and machinery in that were shifted to gala no.211 and no depreciation had been claimed thereon. There was, thus, no question of definition of 'block of assets' being applicable. 21. We are unable to agree with Mr.Deshpande for more than one reason. The consistent view taken is that the initial introduction was the material part. We are of the opinion that the Tribunal correctly understood this concept of 'block of assets'. The argument has been and throughout that the expression 'block of assets' means a group of assets falling within the assets enumerated in Section ....
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....s industrial galas together. The assessee claimed depreciation on the galas together and written down value was also shown together. Though depreciation has been allowed in the past on gala no.210 and plant and machinery in gala no.210 was shifted to gala no.211 and no depreciation was claimed thereon subsequently, nonetheless, the depreciation on block of assets stipulated in Section 2(11) is applicable. Both the galas are of the same nature. They form one class of assets. Once the depreciation has been granted on gala no.210 and even if business operations were not carried out therefrom, merely at the convenience of the assessee, it does not cease to be a business asset. The understanding of this provision and the concept, to our mind, conforms with the consistent view taken by the Tribunal earlier, and which has been upheld by this Court. We do not see how the provisions can be construed otherwise. 23. To our mind, the Kerala High Court, with respect, has rightly understood this concept and in the backdrop of the facts which are more or less identical. Section 50 has to be understood with reference to the general scheme of assessment on sale of capital assets. The Kerala High....
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....he term 'block of assets'. The revenue appealed to the High Court and in the case of Ansal Properties (supra), the Tribunal's view was considered and eventually relevant provisions were referred. In conclusion, the Delhi High Court held that the question will have to be answered in favour of assessee and against the revenue. The provisions of Section 50 are applicable. 26. The other decision in the case of Commissioner of Income Tax Vs. Oswal Agro Mills Limited reported in (2011)­197­Taxman 25 (Delhi) also pertains to a unit which was closed. According to the assessee, depreciation was to be allowed as the assets of that unit remained part of the block of assets and remained for passive use which was as good as active use. The assessing officer was not impressed with this argument and disallowed the depreciation. The Commissioner dismissed the appeal of the assessee. On further appeal, the Tribunal allowed the claim on the ground that it was a case of depreciation on block of assets, and the assets of Bhopal unit could not be segregated for the purpose of allowing depreciation and depreciation had to be allowed on entire block of assets. 27. Thus, the view taken by th....