TaxTMI 
TaxTMI 
2024 (10) TMI 477
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....Act. Assessee paid the tax on such capital gain at the rate of 20% as prescribed u/s 112 of the Act plus applicable surcharge. In response to the show cause notice by the AO as to why rate of 30% should not be applied which is applicable on short term capital gain, the assessee submitted that its claim was based on decision of ITAT Mumbai, Bench in the case of Ace Builders Pvt. Ltd vs. ACIT (76 ITD 389). However, the Ld. AO rejected the assessee's contention after holding as under:- 12.3 A plain reading of the provisions of section 50 shows that the provisions are applicable in respect of an asset forming part of block of assets on which depreciation has been claimed under this act. The gain resulting on account of transfer of such asset will be short term capital gain disregarding the provisions of Section 2(42A) of the I.T. Act, 1961 and the provisions of section 48 and 49 shall be subject to modifications as enumerated in clause 1 of section 50 of 1.T. Act, 1961. Since the instant case the assessee company has transferred immovable properties which formed part of block of assets on which the depreciation has been claimed by the assessee company, the capital gains on tra....
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....ded in the appellant's own case for A. Yrs 2001-02 and 2002-03 as has been pointed out by the appellant itself in its letter dated 07.02.2011. Following the same, the issue for the current year is decided against the appellant. As regards the appellant's reliance on the decision in the case of Manali Investment, I find that it is not the contention of the appellant that the relevant facts in its case were similar to those in the case of Manali Investment. In the case of Manali Investment, the block of assets ceased to exists whereas it is not the contention of the appellant that the relevant block of assets that extinguished as a result of sale. The decision in the case of Manali Investment is, therefore, not applicable in the instant case. The appeal on this ground is, therefore, not allowed. 4. It has been pointed out that, the Tribunal in assessee's own case for the assessment year 2001-02, had decided this issue against the assessee after holding as under:- 20. We have heard the rival contentions. Section 50 of the Act, reads as follows:- SECTION 50 769 [Special provision for computation of capital gains in case of depreciable assets. ....
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....owing modifications:- (1) The written down value, as defined in clause (6) of section 43, of the asset, as adjusted, shall be taken as the cost of acquisition of the asset. (2) Where under any provision of section 49 read with sub-section (2) of section 55, the fair market value of the asset on the *[1st day of April, 1974,] is to be taken into account at the option of the assessee, then, the cost of acquisition of the asset shall, at the option of the assessee, be the fair market value of the asset on the said date, as reduced by the amount of depreciation, if any, allowed to the assessee after the said date, and as adjusted.". 21. On plain reading of the above section shows that the excess in question shall be deemed to be the capital gains arising from the transfer of a short term capital asset. Both the section 54EC and section 74, do not speak about short term capital gain or long term capital gain. These sections deal with capita gains / loss arising from transfer of long term capital assets. Section 112, also deals with income arising from transfer of long term capital assets. Section 112(b)(i) and (ii) specifically mentions "long term capital gain....
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....Ace Builders Pvt. Ltd (supra), wherein the Hon'ble High Court has categorically held that deeming fiction of section 50 of the Act is restricted only to section 48 & 49 for the computation of capital gains and does not extend to other provisions or exemption provisions. Since the decision of the Tribunal in assessee's own case was contradictory to various decisions of the Tribunal following the decision of the Hon'ble High Court, therefore, reference was made to the special bench to decide the aforesaid issue. 6. Before us the Ld. Counsel for the assessee submitted now the issue that, section 50 is limited to the scope of only computation of capital gains of section 48 and 49 and does not extend to the other provisions of the Act, has been settled by series of the judgments of Hon'ble jurisdictional High Court and other High Courts. Ld. Counsel relied upon the following judgments in her support of her arguments:- Sr. No Particulars 1. Decision of the Bombay High Court in the case of CIT vs Ace Builders Pvt Ltd reported in [2005] 144 taxman 855. 2. Decision of the Mumbai Bench of the Income-Tax appellate Tribunal in the case of DCIT vs Voltas Ltd. Dated 06 Octob....
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.... heavily relied upon the judgment of Hon'ble Supreme Court in the case of CIT vs. Dempo Company Ltd., 387 ITR 354 (SC),wherein the following decisions of the Hon'ble High Court have been approved; i) CIT v. Ace Builders (P). Ltd [2006] 281 ITR 210 (Bom); ii) CIT v. Polestar Industries [2014] 221 Taxman 423 (Guj); and iii) CIT v. Assam Petroleum Industries (P.) Ltd [2003] 262 ITR 587 (Gau). Thus, she submitted that once it has been categorically held that section 50 creates a deeming fiction only for the mode of computation of capital gains under sections 48 and 49 and not for other provisions, therefore, the rate of tax provided in section 112 of the Act which is applicable for transfer of a long term capital asset should be applied, even though the same is taxed as short term capital gain u/s 50 of the Act. Ld Counsel further submitted that, deeming fiction is about treatment of an asset appearing in the block of asset, is to be computed in the manner provided in section 50 and excess is to be taxed as capital gain arising from transfer of short term capital assets. Thus, asset forming part of block of asset, for the limited purpose is to be taxed (ev....
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....he assets covered by section 50 are depreciable assets forming part of block of assets as per section 2(11). Once the capital asset that has been transferred is found to form of a block of assets in respect of which depreciation has been allowed, the surplus if any computed under section 50 will be treated as STCG. Use of asset is important for the purposes of depreciation, but not for application of section 50. Once it is brought to use, it enters the block and once it enters the block, its identity gets submerged in block identity so that it is not necessary or possible to infer that any particular asset in the block is being used or not, as long as block is used. 11. Hon'ble Apex Court also held that the description of the asset by the appellant in the balance sheet as an investment asset is meaningless and is only to avoid payment to tax on STCG on sale of building. So long as the appellant 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 disentitlement the appellant for depreciation for these years. 12. The decision in Sakt....
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.... 14. Finally, he concluded that the decision of the Hon'ble Jurisdictional High Court in the case of Ace Builders in para 26, following points are relevant:- "1. Section 50 is enacted with the object of denying multiple benefits to the owners of depreciable assets. 2. Restriction is limited to the computation of capital gain and not to the exemption provisions. 3. In other words, where the long-term capital asset has availed depreciation, then capital gain has to be computed in the manner prescribed u/s 50 and the capital gain tax will be charged as if such capital gain has arisen out of short-term capital asset. Therefore, it is clear that excess earned from transfer of any depreciable assets will be treated as STCG and taxed as per rate applicable to STCG." 15. In rejoinder, ld. Counsel for the assessee submitted that the decision of Shakti Metal Depot (supra) is not applicable and she gave the following facts for distinguishing the case: 1.1. The appellant used a flat for business purposes and claimed depreciation on the same for 21 years from the year of its acquisition. 1.2. Thereafter, the appellant discontinued the claim of de....
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....the main issue to be adjudicated by this special bench is, whether the capital gains under section 50, arising out of sale of a long term capital assets is chargeable at the rate applicable to the short term capital gains or the rates applicable to the long term capital gains u/s 112 of the Act. Interestingly, this tribunal in the earlier year in the case of the assessee on same issue has quoted the judgment of Hon'ble Jurisdictional High Court in CIT v. Ace Builders (P). Ltd (supra), to decide against the assessee. Accordingly, we have to decide this referred question in light of this judgement and other judgments and also the true purport of section 50. 17. Section 50 is a special provision for computation of capital gains in the case of depreciable assets. Section reads as under:- 50. 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 sections 48 and 49 shall be subject to the following modifications: (1) where the full value of the consid....
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....er. Ergo, if the capital asset which is an asset forming part of the block of asset, in respect of which depreciation has been allowed, then even if it is held for more than 36 months, the conditions of the 36 months will not be applicable and still it will be chargeable as capital gains arising from transfer of a short term capital asset. 19. The 'long term capital asset' and 'long term capital gain' has been defined in section 2 (29AA) and 29B which reads as under:- (29AA). "long term capital asset" means a capital asset which is not a short term capital asset; (29B). "long term capital gain" means capital gain arising from the transfer of a long term capital asset; Thus, capital gain arising from transfer of a long term capital asset is taxed as a long term capital gain and long term capital assets means which is held for more than 36 months. So taxability is on transfer of long term capital asset. 20. Normally capital gain is required to be computed according to the provisions contain in sections 48 & 49 of the Act. But section 50 by deeming fiction amends the mode of computation of capital gain and cost with reference to certain modes of acquisiti....
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.... is held for a long term period, that is, beyond specified time limit as provided in section 2(42A) is transferred, and if there is excess after computation provided in sub clauses (i), (ii) and (iii) of sub section (1), then it is taxed as capital gains arising from transfer of a short term capital asset. Secondly, the deeming provisions has been confined only to the purpose of computation of sections 48 and 49 of the Act and the capital gains then arising is deemed to be from transfer of short term capital assets. The deeming provision does not extend for any other purpose. In other words provisions of section 50 of the Act changes the characteristic of the gain that in some cases a long term to a short term capital gain were assets are held beyond the specific term. However, the section does not change the characteristic of the capital asset held by the assessee, that is, the long term capital asset will remain a long term capital asset for all other purposes, but for the deeming fiction u/s 50 of the Act, capital gains is taxable as if it is gain arising from transfer of a short term capital asset and it does not extend beyond this fiction to convert long term capital asset int....
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....t of such long-term capital gains, had the total income as so reduced been its total income; and (ii) the amount of income-tax calculated on such long-term capital gains at the rate of 20 [twenty] per cent : The aforesaid section deals with tax rate on long term capital gains which clearly provides that, where the total income of the assessee includes any income arising from transfer of long term capital asset which is chargeable under the head Capital Gain, then tax is to be calculated at the rate of 20%. 23. Section 112 deals with the rate on which long term capital gain has to be taxed. The pre-requisite for applicability of 20% rate as per Section 112 of the Act for the domestic companies is that firstly, there must be long term capital asset and secondly, income must arise from transfer of long term capital asset. If the long term capital asset has been held for more than 36 months immediately preceding the date of transfer, then transfer of such long term capital asset has to be taxed at the rate of profit under the Act. In the present case it is not in dispute that the asset has been held for more than 36 months prior to its transfer. Hence, both the condition....
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.... 50(2) is attracted. The effect of Section 50(2) is that where the consideration received on transfer of all the depreciable assets in the block exceeds the written down value of the block, then the excess is taxable as a deemed short term capital gains. In other words, even though the entire block of assets transferred are long term capital assets and the consideration received on such transfer exceeds the written down value, the said excess is liable to be treated as capital gain arising out of a short term capital asset and taxed accordingly. 23. The question required to be considered in the present case is, whether the deeming fiction created under Section 50 is restricted to section 50 only or is it applicable to section 54E of the Income Tax Act as well? In other words, the question is, where the long term capital gain arises on transfer of a depreciable long term capital asset, whether the assessee can be denied exemption under section 54E merely because, section 50 provides that the computation of such capital gains should be done as if arising from the transfer of short term capital asset? 24. Section 54E of the Income Tax Act grants exemption from paymen....
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....ested or deposited (whole or any part of the net consideration) in the specified assets, the assessee shall not be charged to capital gains. Therefore, the exemption under section 54E of the I.T. Act cannot be denied to the assessee on account of the fiction created in section 50. 26. It is true that section 50 is enacted with the object of denying multiple benefits to the owners of depreciable assets. However, that restriction is limited to the computation of capital gains and not to the exemption provisions. In other words, where the long term capital asset has availed depreciation, then the capital gain has to be computed in the manner prescribed under Section 50 and the capital gains tax will be charged as if such capital gain has arisen out of a short term capital asset but if such capital gain is invested in the manner prescribed in Section 54E, then the capital gain shall not be charged under Section 45 of the Income Tax Act. To put it simply, the benefit of section 54E will be available to the assessee irrespective of the fact that the computation of capital gains is done either under sections 48 & 49 or under section 50. The contention of the revenue that by amend....
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....Hon'ble High Court has held that section 50 does not convert a 'long term capital asset' to a 'short term capital asset', then the rate of tax is applicable for the transfer of a long term capital asset has to be in accordance with section 112 of the Act. The deeming fiction of section 50 cannot be imported u/s 112 of the Act. Thus, our analysis is in line with the judgement of the Jurisdictional High Court. 27. In another decision the Hon'ble Bombay High Court in the case of CIT vs. Parrys (Eastern) Pvt. Ltd, reported in 384 ITR 264, wherein following question of law was admitted for consideration of Hon'ble High Court; 1) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in law in holding that capital gain arising from transfer of depreciable assets was liable to be set off against brought forward Long Term Capital Loss without appreciating that under section 50 of the Income Tax Act, 1961 such capital gain is treated as Short Term Capital Gain? (2) Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in law in holding that capital gain arising from transfer of depreciab....
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....50 and concept of a long term capital asset. 29. Again in another judgment Hon'ble Bombay High Court in CIT vs Pursarth Trading Co. Pvt Ltd in Income Tax appeal no. 123 of 2013 judgment an order dated 13.03.2013, the Hon'ble High Court upheld the set off of a long term capital loss against gain arising from the depreciable assets u/s 50 of the Act. This principle was reiterated in CIT vs. Manali Investment reported in [2013] taxman 113, wherein following question of law was admitted for adjudication. "Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in holding that the assessee is entitled to set-off under Section 74 in respect of capital gain arising on transfer of capital assets on which depreciation has been allowed in the first year itself and which is deemed as short term capital gain under Section 50 of the Income Tax Act relying upon the judgment of this Court in the case of CIT V/s. Ace Builders (P.) Limited(281 ITR 210) even though the said decision was rendered in the context of eligibility of deduction under Section 54E". The Hon'ble High Court again followed the principle laid in case of CIT vs Ace Builders Pv....
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....9;ble Apex Court reiterated and affirmed the judgment of Hon'ble Bombay High Court in the case of Ace Builders (P.) Ltd. (supra). In the said appeal before Supreme Court, in the income-tax return filed by the respondent/assessee for the A.Y. 1989-90, the assessee had disclosed that it had sold its loading platform M.V. Priyadarshni for a sum of Rs. 1,37,25,000/- on which it had earned some capital gains. On the said capital gains the assessee had also claimed that it was entitled for exemption under Section 54E of the Act. Admittedly, the asset was purchased in the year 1972 and sold sometime in the year 1989. Thus, the asset was almost 17 years old. Going by the definition of long term capital asset contained in Section 2(29B) of the Act, it was admittedly a long- term capital asset. Further the Assessing Officer rejected the claim for exemption under Section 54E of the Act on the ground that the assessee had claimed depreciation on this asset and, therefore, provisions of Section 50 were applicable. Though this was upheld by the CIT (Appeals), the ITAT allowed the appeal of the assessee herein holding that the assessee shall be entitled for exemption under Section 54E of the ....
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....he army as Short Service Commissioned Officer. In that context, the Apex Court has held that the legal fiction created for the limited purpose of seniority, pay and pension cannot be extended for other purposes. Applying the ratio of the said judgment, we are of the opinion that the fiction created under Section 50 is confined to the computation of capital gains only and cannot be extended beyond that. Thirdly, Section 54E does not make any distinction between depreciable asset and non-depreciable asset and, therefore, the exemption available to the depreciable asset under Section 54E cannot be denied by referring to the fiction created under Section 50. Section 54E specifically provides that where capital gain arising on transfer of a long term capital asset is invested or deposited (whole or any part of the net consideration) in the specified assets, the assessee shall not be charged to capital gains. Therefore, the exemption under Section 54E of the I.T. Act cannot be denied to the assessee on account of the fiction created Section in 50." 32. Their Lordships dismissing the appeal filed by the Revenue held that, "we are in agreement with the aforesaid view taken by the Bombay....
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....or to its sale and re-classified the asset as an investment. The brief facts in that case were, the assessee-firm purchased a flat for business purposes in the financial year ending on 31-3-1974. Since then it was used as the branch office of the assessee and on the capitalised cost of the building the assessee was allowed depreciation until the assessment year 1995-96. However, the assessee discontinued claiming depreciation for the flat for the assessment years 1996-97 and 1997-98. The flat was sold during the assessment year 1998-99 and profit arising on such sale was claimed by the assessee as long-term capital gain. The Assessing Officer, however, held that profit arising on transfer of depreciable asset was assessable as short-term capital gain under section 50. He rejected the assessee's contention that it stopped using the flat for business purposes after the assessment year 1995-96 and thereafter, the flat was treated as an investment and was so shown in the balance sheet. On appeal, the Commissioner (Appeals) concurred with the Assessing Officer. However, on second appeal, the Tribunal, solely relying on the entry in the balance sheet of the assessee wherein the flat ....
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....o the provisions provided in sub-sections (1) and (2) of section 50. Section 50A also deals with assessment of depreciable asset that too as short-term capital gains and it actually supplements section 50. In our view, the purpose of section 50A is to enable the assessee to claim deduction of the written down value of the asset in respect of which depreciation was claimed in any year as defined under section 43(6) of the Act towards cost of acquisition within the meaning of sections 48 and 49 of the Act. The condition for computation of short-term capital gains in the way it is stated in section 50A is that assessee should have been allowed depreciation in respect of a depreciable asset sold in any previous year which obvious means that for the purpose of assessment of profit on the sale of a depreciable asset, the assessee need not have claimed depreciation continuously for the entire period up to the date of sale of the asset, in other words, our view, the building which was acquired by the assessee in 1974 and in respect of which depreciation was allowed to it as a business asset for 21 years, that is up to the assessment year 1995-96, still continued to be part of the business ....
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.... years not used for business purposes disentitles the assessee for depreciation for those years. In our view instead of selling the building, if the assessee started using the building after two years for business purposes the assessee can continue to claim depreciation based on the written down value available as on the date of ending of the previous year in which deprecation was allowed last." (emphasis supplied) 3. The reasoning by the High Court in view of the facts on record commends to us. 4. The High Court has, therefore, rightly restored the findings and addition made in the assessment order. Hence, we find no merits in this appeal and it is dismissed. 37. The ratio of the aforesaid decision is that once depreciable asset forming part of block of assets within the meaning Section 2(11) of the Act it does not cease to be part of block of assets and description of the asset by the assessee in the balance sheet as an investment is meaningless to avoid payment of tax on short term capital on sale of building. As long as assessee continues business, the building forming part of the block of asset will retain its character, no matter one of the assets in one ....
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.... not decide. (see Mittal Engineering Works P. Ltd. v. Collector of Central Excise [1997] 106 STC 201 (SC) ; (1997) 1 SCC 203. Therefore, it is only the ratio decidendi, i.e., the principle of law that decides the dispute which can be relied upon as precedent and not any obiter dictum or casual observations. (See Girnar Traders v. State of Maharashtra (2007) 7 SCC 555 and Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. (2005) 127 Comp Cas 97 (SC) ; (2005) 7 SCC 234." (ii). Apex Court's decision in the case of CIT v/s. Sun Engineering Works (P.) Ltd. reported in 198 ITR 297 (1992) where in it has been held that: "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court. A decision of the Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case, the Cour....
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....o the contrary contained in this Act is equivalent to saying that the Act shall be no impediment to the measure [See: Law Lexicon words notwithstanding anything in this Act to the contrary]. Use of such expression is another way of saying that the provision in which the non-obstante clause occurs usually would prevail over the other provisions in the Act. Thus, the non- obstante clauses are not always to be regarded as repealing clauses nor as clauses which expressly or completely supersede any other provision of the law, but merely as clauses which remove all obstructions which might arise out of the provisions of any other law in the way of the operation of the principle enacting provision to which the non-obstante clause is attached. [See: Bipathumma v. Mariam Bibi 1966 1 MYSLJ 162] 48. A non obstante clause has two parts the non obstante clause and the enacting part. The purpose of enacting a non obstante clause is that in case of a conflict between the two parts, the enacting part will have full sway in spite of the contrary provisions contained in the non obstante clause. Therefore, the object and purpose of the enacting part should be first ascertained and then the ....
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....n the judgment of this court in case of CIT vs. ACE Builders Pvt. Ltd, reported in [2006] 281 ITR 210. The said judgment has been approved by the Apex Court in the case of CIT. Panji vs. VS.Dempo Company Ltd. reported in [2016] 74. Taxmann.com 15 (SC). As the issue raised in the present appeal is already covered by the above referred judgment, no substantial question of law arises." 43. Ergo, this precise issue decided by the tribunal has been approved by the Hon'ble Bombay High Court following its earlier judgment of CIT vs. Ace Builders Pvt. Ltd. (supra) which in turn has been approved by the Hon'ble Supreme Court in the case of CIT vs. Dempo Company Ltd reported in (2016) 74 Taxmann.com 15 (SC) which we have also analysed in the earlier part of the order. Hence the issue, that the rate of tax of 20% as prescribed u/s 112 of the Act is applicable on the transfer of an asset forming part of block of asset (which was held for more than 36 months) which is deem to be taxed as short term capital gain u/s 50, has been approved by the Hon'ble Jurisdictional High Court. 44. Accordingly, we hold that capital gains arising out of the depreciable asset u/s 50 even though deem to be c....
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....dent ITAT for constitution of Special Bench. On such reference, on 21-10-2020, the Hon'ble President ITAT constituted a Special Bench u/s. 255(3) of the Act for the captioned assessment year comprising of Learned Members , i) Shri Shamim Yahya, Ld.AM, ii) Shri Shaktijit Dey, Ld.JM and iii) Shri Vikas Awasthy, Ld.JM, for deciding the following question: "Whether on the given facts and circumstances of the case and in law, the Tribunal is right in holding that the capital gains u/s. 50 arising out of the sale of long term capital asset is chargeable at the rate applicable to the Short Term Capital Gain or rate applicable to Long Term Capital Gain u/s. 112 of the Act." 2. The Special Bench so constituted, in its order dated 15-06-2021 observed that the Hon'ble Bombay High Court in the case of Rathi Brothers Madras Ltd., (Income Tax Appeal No. 871/2015) vide order dated 13-02-2018, admitted substantial question of law involving identical issue for adjudication. The Special Bench deliberated on whether it could proceed to adjudicate the issue, given that the same was pending for adjudication before the jurisdictional High Court. In this context, the Special Bench acknowledge....
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....e assessee claimed depreciation on three residential properties i.e. flats, which formed part of block of assets, but in the assessment year under consideration, the assessee transferred/sold those properties. While computing the "total income" for the purpose of filing return of income for the year under consideration, the assessee determined excess of sale consideration over the written down value (WDV) of the properties as Short Term Capital Gain(STCG) in terms of section 50 of the Act, which amounted to Rs. 2,95,55,888/-. Against said "STCG", the assessee further adjusted loss amounting to Rs. 32,95,306/- under the head "Capital Gain", which was carried forward from earlier assessment years and arrived at balance amount of Rs. 2,62,60,582/- as STCG for including to total income. However, before the Assessing Officer, the assessee sought to have this "STGC" subjected to a concessional tax rate of 20% invoking section 112(1) of the Act. The assessee's argument was that under the provisions of section 112(1) of the Act, the gain arising from transfer of "long term capital asset" is eligible for concessional tax rate of 20% and the three residential properties, though depreciable a....
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....tant case, in the total income computed by the assessee, income arising from transfer of depreciable asset has been shown under the head "capital gain" as "short term capital gain". It is noteworthy that the assessee has not disputed application of section 50 of the Act for transfer of depreciable asset constituting three residential flats. The crux of dispute is the assessee's request for application of concessional tax rate of 20% provided under section 112(1) on gain from transfer of those residential properties. The assessee is claiming that deeming fiction of treating the capital gain arising from transfer of depreciable asset is limited to section 50 itself and for the purpose of section 112(1) of the Act, the assessee argues that the properties having been held for more than 36 months, qualify as "long term capital assets" and gain arising from their transfer should be taxed at concessional rate of 20%. Thus, the sole issue in dispute is whether section 112(1) of the Act is applicable on the income arising from transfer of depreciable assets consisting of three residential flats, notwithstanding that said excess on transfer of those properties is deemed to be short term capi....
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....business and profession", "income from capital gains", "income from other sources", income as per section 60 to 66 of the Act and residual income or headless assessed by the AO under provisions 68 to 69D of the Act. 8.2. The First Part of the section 112(1) specifies that the "income" arising from transfer of long-term capital asset, which is chargeable under the head "capital gains", which means said income, whether classified as long-term capital gain or short-term capital gain, must necessarily be chargeable as under the head "capital gain" and forms part of "total income". Thus for invoking section 112(1), the first condition is that income arising from transfer of a "long-term capital asset" should be part of the "total income". 8.3. Now, we come to the second part of section 112(1) which is relevant to the assessee i.e. in case of a domestic company, which is subsection 112(1)(b) of the Act 8.4. The Second Part of section 112(1) specifies the tax which is payable on the "total income". The section 112(1)(b)(i) of this part addresses to tax liability on the total income, excluding the portion attributable to the "long-term capital gain". The section 112(1)(b)(ii) of t....
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.... 10,090,861 6. Donations 123,601 7. Interest payable to Small Scale Industries 1,228,979 427,648,317 563,470,748 Less: Allowance/Admissible 1. Depreciation under Section 32: - As per Clause 14 of Form No. 3CD 367,538,537 - As per Note 1 135,317 367,673,854 563,470,748 Rs. Rs. B/f 367,673,854 563,470,748 2. Sum duty, etc. offered for disallowance under section 43B in earlier years, but paid/reversed during the "Previous year" as per Clause 21(i)(A) and 21(ii)(A) of Form No. 3CD: - Paid 2,095,510 - Reversed 20,666 3. Book profit on sale of fixed assets credited to Profit and Loss Account 32,264,095 4. Interest under Section 36(1)(iii) - capitalized in Books 27,587,550 5. Reversal of interest payable to Small Scale Industries 1,545,634 6. Reversal of excess provi....
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....ciation to be carried forward for set off in subsequent assessment year/s 298,593,421 Annexure A-1 Statement showing computation of short term capital gains under Section 50: Sale consideration on transfer of following residential properties: Rs. Rs. Flat no. 5 in Kismet Apt. 20,500,000 Flat no. 32 in Queens View 3,000,000 Flat no. A-171 in Twin Towers 17,000,000 40,500,000 Less: Expenses incurred in connection with the transfer of above residential properties: 1)Brokerage 637,875 2) Transfer fees 387,500 3) Legal fees 950,235 (1,975,610) 38,524,390 Less: Written Down Value as on 1/4/99 of 'Residential buildings' (8,968,502) Short term capital gains under Section 50 29,555,888 Less: Loss under the head 'capital gains' brought forward from A.Y. 1997-98 (3,295,306) Income from short term capital gains 26,260,582 8.7. Once the said excess on transfer of residential properties is admittedly part of the "total income" in the cha....
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....will be rendered otiose, because, if the excess or surplus arising from transfer of depreciable asset, held for more than 36 months, has to be held as "long-term capital gain" invoking section 112(1) of the Act, then, there is no purpose of keeping the section 50 in the statute. The entire purpose of introducing the deeming fiction of treating the surplus arising from transfer of the depreciable asset, irrespective of the holding period whether it is more than 36 month or less than 36 month, is not to grant benefit of concessional rate of long-term capital gain to the depreciable capital asset which has been exploited for business purpose and depreciation has already been claimed as revenue expenditure. The legislature has introduced section 50 with the objective to provide a level playing field for both, the depreciable capital asset forming part of the business and the other capital assets which may or may not be part of the business of an assessee. Once an assessee introduce a depreciable capital asset as part of the business, the assessee is entitled for benefit of depreciation on the same, and thus the value of the asset to the extent of the depreciation is already allowed to ....
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....et. This item is identical to the item allowed under mode of computation provided in section 48 of the Act while computing gain arising from other than depreciable capital assets. The second item is the opening written down value (WDV) of the block of asset out of the depreciable asset, which has been sold. The WDV is the residual value of the depreciable assets remained after claim of deprecation. Thus, in my view, the intent of the legislature was to not allow multiple benefit of deduction for cost of acquisition in respect of which depreciation has already been availed by the assessee and therefore, deduction is allowed for the remaining cost of the asset (i.e. WDV) only for computing capital gain on depreciable asset. The third item is the actual cost of any asset falling in same block of asset acquired during the year. So if an assessee purchase or acquire new depreciable capital asset under same block of asset against sale of old depreciable asset, the assessee may reduce his tax liability under capital gain. This is kind of an incentive to an assessee for investment in new assets for continuing the business activity. In the case of CIT Vs Ace Builders (supra), also it is hel....
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.... decisions also the coordinate benches have relied on the decision of the Hon'ble Bombay High Court in the case of CIT Vs Ace Builders (supra). Further, Pune bench of Tribunal in ITA No. 707/Pun/2013 in the case of Rathi Brother Madras Limited in order dated 30.10.2014, relying on Ace Builders (supra) decided the issue against the assessee. The appeal of the assessee against the said decision is pending before the Hon'ble Bombay High Court as noted by the Special Bench constituted of earlier members. The relevant finding of the Tribunal (supra) is reproduced as under: "5.3 It is clear from the language used by the legislature that if the long term capital gain is computed then it will suffer the tax @20% as against the normal rate of income-tax. Moreover, in the Ace Builders Pvt. Ltd., (supra), their Lordships have explained that if the capital gain is computed as provided u/s. 50 then the capital gains tax will be charged as if such capital gain has arisen out of short term capital asset. We have to interpret the judgment or decision as a whole and we cannot interpret in the piecemeal to understand the ratio decidendi." 5.4. The Ld. Counsel has also relied on the....
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....ould apply on transfer of those residential properties, which were part of block of assets in earlier years and depreciation was availed but in the year under consideration the property was not put to business use. But in the instant case, the invoking of section 50 on excess or surplus arising on transfer of depreciable residential properties is not in dispute, hence said decision is not relevant to the facts of case. 9.4. Thus, in all the cases referred, the root or foundational decision which has been consistently followed is in the case of CIT Vs Ace Builders (supra). The finding of very same decision has been interpreted differently in the two sets of decisions of Tribunal. For ready reference, the question of law raised before the Hon'ble High Court is reproduced as under: "Whether on the facts and in the circumstances of the case, sthe Tribunal was right in law in holding that the assessee is entitled to deduction under section 54E in respect of the capital gain arising on the transfer of a capital asset on which depreciation has been allowed and which is deemed as short-term capital gain under section 50 of the Income-tax Act, 1961." 9.5. The Hon'ble high Cou....
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....ection 54E is allowed to the assessee on gain arising from transfer of depreciable asset also. The learned JM in para 24 of the order has also reproduced the relevant part of said decision of Hon'ble High Court, where in it is held that deeming fiction created under section 50 of the Act for treating surplus arising on transfer of the depreciable asset as short-term capital gain cannot be stretched while considering exemption provisions under section 54 E of the Act. The assessee is relying on above part of the decision which says that deeming fiction under section 50 is limited for the purpose of considering the excess arising on transfer of the depreciable asset as short-term capital gain and can't be extended to section 112 of the Act, therefore for application of the tax rate of section 112, the gain has to be considered as arising from transfer of a long-term capital asset. The learned JM has endorsed this view of the assessee in his order. However the coordinate bench of the Tribunal in the case of the assessee for assessment year 2001-02 to 2005-06, has relied on the paragraph 26 of the decision in the case of CIT Vs Ace Builders (supra), wherein it is held that section 50 i....
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....e in respect of transfer of long term capital asset, the Hon'ble Bombay High Court rejected the contention of the Revenue that capital asset transferred would also be deemed to be a short term capital asset by virtue of Section 50 of the Act. Thus, the Hon'ble High Court extended the scope of beneficial provisions contained in Section 54E of the Act even to a depreciable asset held for more than 36 months. Once the capital gain is deemed to be a short term capital gain, the provisions contained in Section 112 of the Act would not get attracted. The Section 112 was introduced by way of Finance Act. 1992 and was specifically designated for taxation of "long term capital gain". Clause 53 of the Notes to Clause to Finance Bill, 1992 clearly stated that section 112 was enacted for taxation of long term capital gain exclusively and other type of income would be taxable at normal rate of taxation. The relevant part of Finance Bill, 1992 , is reproduced as under: "Clause 53 seeks to insert a new section 112 in Chapter XII of Income-tax Act. The new section provides for taxation of long term capital gains at a flat rate of twenty per cent in the case of individuals and Hin....