TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 696
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....laring income of Rs.901,66,54,850/-. Since in the year under dispute, the assessee had entered into international transactions with its Associated Enterprises ('AE' for short), the Assessing Officer ('A.O.' for short) made a reference to Transfer Pricing Officer ('TPO' for short) for determining the arm's length price (ALP) of the international transaction. Insofar as, domestic transactions are concerned, A.O. called for and examined various details. Based on the order of the TPO and his own enquiry conducted in course of assessment proceeding, the A.O. framed a draft assessment order. 4. Against the draft assessment order so framed, the assessee raised objections before ld. Dispute Resolution Panel ('ld. DRP' for short). 5. On 10.06.2022, ld. DRP disposed of the objections by issuing direction to the A.O. Based on the directions of ld. DRP, the A.O. ultimately completed the assessment vide order dated 31.07.2022, passed u/s. 143(3) r.w.s. 144C(13) of the Act. Post passing of final assessment order, ld. PCIT called for and examined the assessment records and while doing so, he found that in the year under consideration, the assessee has sold certain depreciable assets which h....
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....facts and circumstances of the case and in law, the capital gains under section 50 of the Act arising out of sale of long term capital asset is chargeable at the rate applicable to short term capital gains or rates applicable to long term capital gains under section 112 of the Act?" 9. While answering the question referred to, ld. Special Bench, as per the majority view, held as under: 16. We have heard both the parties and also perused the various judgments relied upon. As noted above, 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 spe....
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....sub-item (B) of item (ii) of sub-clause (c) of clause (6) of section 43 shall be deemed to be transfer.] 18. The said section starts with non-obstante clause, that is, exception has been carved out to section 2(42A) of the Act, which provides definition for a short term capital asset. The said definition reads as under:- (42A) "short-term capital asset" means a capital asset held by an assessee for not more than [Thirty Six] months immediately preceding the date of its transfer. 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 capi....
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.... assessee shall always be deemed to be the capital gains from the transfer of a short-term capital asset. 21. Section 50 starts with a non-obstante clause and is a deeming provision which should be strictly limited to the purpose mentioned therein. The exclusion prescribed by the non-obstante clause is limited to the purpose of modification of Section 48 & 49 of the Act and such non-obstante clause cannot be applied to any other provisions contained in the Act. Here Section 50, firstly, deems that any capital asset which 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 t....
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....ced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such long-term capital gains shall be computed at the rate of twenty per cent; (b) in the case of a ²¹[domestic] company,- (i) the amount of income-tax payable on the total income as reduced by the amount 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 applicabili....
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....vailed depreciation allowance under section 32, section 50 provides for a special procedure for computation of capital gains in the case of depreciable assets. Section 50(1) deals with the cases where any block of depreciable assets do not cease to exist on account of transfer and Section 50(2) deals with cases where the block of depreciable assets cease to exist in that block on account of transfer during the previous year. In the present case, on transfer of depreciable capital asset the entire block of assets has ceased to exist and, therefore, Section 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....
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....ing 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 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 compute....
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....l asset has been converted into a short term capital asset is without any merit. The legal fiction created is deemed to the capital gain as a short term capital gain and not to deemed that asset as a short term capital asset and therefore cannot be said that section 50 converts the long term capital asset into a short term capital asset. This principle and ratio of the Hon'ble Jurisdictional High Court if is to be followed, then it is clear that the tax rate provided under section 112 which is applicable for a long term capital gains will prevail. Once the 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;....
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....text of set off against the brought forward of long term capital loss, the Hon'ble High Court held that the deeming fiction under section 50 is restricted only to mode of computation of capital gains contained in sections 48 and 49 of the Act and it does not change character of capital assets from of being a long term capital asset or a short term capital asset for purpose u/s 50 of the Act. Thus, the capital gain arisen in terms of section 50 was allowed to be set off against long term capital loss. This judgment again clarifies the interpretation of section 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....
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....IT vs. Cadbury India Ltd reported in [2015] 41 taxmann.com 227). For sake of repetition we are not reproducing the relevant judgment as in all these judgments, Ace Builders have been followed. 31. Now, finally this issue has been set at rest by the Hon'ble Supreme Court in the case of CIT vs. Dempo Company Ltd 387 ITR 354 (SC) wherein Hon'ble Supreme Court had the occasion to examine the eligibility of assessee to claim exemption under section 54E of the Act in respect of capital gains arising on transfer of a capital asset on which depreciation has been allowed. The Hon'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 ....
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....o be confined to the purpose for which it is created. In this connection, we may refer to the decision of the Apex Court in the case of State Bank of India vs. D. Hanumantha Rao reported in 1998 (6) SCC 183. In that case, the Service Rules framed by the bank provided for granting extension of service to those appointed prior to 19.07.1969. The respondent therein who had joined the bank on 1.7.1972 claimed extension of service because he was deemed to be appointed in the bank with effect from 26.10.1965 for the purpose of seniority, pay and pension on account of his past service in the 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....
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....rm capital gain' and not to deem the 'asset' as 'short term capital asset'. Therefore, it cannot be said that section 50 converts long term capital asset into a short term capital asset. This principle of law has been exactly held by the Hon'ble Jurisdictional High Court and approved by the Hon'ble Supreme Court. 34. Now coming to the judgment relied upon by the ld. CIT DR in the case of Shakti Metal (supra), first of all the Hon'ble Kerala High Court had passed the order in the context of asset on which assessee had discontinued the claim of depreciation immediately prior 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- te....
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....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 depreciation has been allowed as short-term capital gains and the deductions available under sections 48 and 49 should be allowed subject to 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....
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.... for depreciation for two years prior to the date of sale. We do not know how a depreciable asset forming part of block of assets within the meaning Section 2(11) of the Act can cease to be part of block of assets. The description of the asset by the assessee in the Balance Sheet as an investment asset in our view is meaningless and is only to avoid payment to tax on short term capital gains on sale of the building. So long as the assessee continued business, the building forming part of the block of assets will retain it's character as such, no matter one of two of the assets in one or two 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 assessmen....
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....ed. In support of this proposition it would be relevant to refer to the following judgments:- (i). Hon'ble Bombay High Court in the case of HDFC Bank Ltd. V. DCIT (2016) 383 ITR 529, wherein it has been held as under: "...One more aspect which needs to be adverted to and that is that a decision would be considered to be a binding precedent only if it deals with or decides an issue which is the subject matter of consideration or decision before a coordinate or subordinate court. It is axiomatic that a decision cannot be relied upon in support of the proposition that it did 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) wh....
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....the non-obstante clause. It is equivalent to saying that inspite of the provisions or Act mentioned in the non- obstante clause, the provision following it will have its full operation or the provisions embraced in the non-obstante clause will not be an impediment for the operation of the enactment or the provision in which the non-obstante clause occurs. (See: Principles of Statutory Interpretation, 9th Edition by Justice G.P. Singh Chapter V, Synopsis IV at pages 318 and 319] 47. Normally the use of the phrase by the Legislature in a statutory provision like notwithstanding anything to 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 ....
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....ppreciating that the tax on capital gain ought to have been charged at 20% and not at the normal tax rate." 42. The Tribunal followed the decision of Smita Conductors Ltd., which in turn was based on a judgment of the Hon'ble Bombay High Court in the case of Ace Builders Pvt. Ltd., This judgment was challenged by the Revenue before the Hon'ble Bombay High Court in ITA No.165 of 2015, judgment and order dated 10th July 2017 observed as under:- "1. Heard the learned counsel for the appellant and the learned counsel for the respondent. It is fairly conceded that the Tribunal has relied upon 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....