TaxTMI 
TaxTMI 
2025 (3) TMI 1839
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....anks International USA, which is engaged in the business of BPO services. The assessee filed its return of income dated 31.10.2019, declaring total income at Rs. 7,64,34,720/- and deemed income under provisions of MAT at Rs. 8,57,10,001/- after claiming refund of Rs. 11,78,00,500/-. The return was processed u/s. 143(1) of the Act, dated 16.07.2020 and refund of Rs. 12,72,24,541/- has been issued to the assessee. The assessee's case was selected for scrutiny and notices u/s. 143(2) and 142(1) were duly issued and served upon the assessee. It is observed that the assessee has offered business income of Rs. 42,10,975/-, after setting off the brought forward depreciation losses from the 'Income from Business or Profession' declared at Rs. NIL and the assessee has offered income of Rs. 8,57,10,001/-, u/s. 115JB of the Act. Further, the assessee has also offered long term capital gain at Rs. 7,64,34,724/- @ 20% for which the assessee has paid its tax as per the MAT provisions as the same was higher than the tax computed as per the normal provisions of the Act. The ld. AO during the assessment proceedings observed that the assessee has sold its office premises at Andheri which was purchas....
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....spect 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 consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of assets during the previous year, exceeds the aggregate of the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers; (ii) the written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;" 7. From the bare reading of the above provision, it is observed that the capital asset forming part of block of assets, where depreciation is allowable, the full value of consideration receive....
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....he rate of tax is prescribed u/s. 112 of the Act @ 20% would be applicable on such gain even if it is a short term capital gain as per Section 50 of the Act. 10. The learned Departmental Representative (ld. DR for short) on the other hand controverted the said fact and stated that in the above said decision there has also been a divergent view on the said issue. Further, the ld. DR stated that the intent of the provisions of Section 50 is to avoid multiple benefits to the assessee on depreciable assets and that the provision expressly treats the same as short term capital gain. The ld. DR relied on the order of the lower authorities. 11. Upon perusal of the same and on considering the submissions of either sides, it is observed that the special bench in the case of SKF India Ltd. (supra) has decided this issue in favour of the assessee by treating the gain arising out of such transaction to be a short term capital gain as per Section 50 but had applied the rate of long term capital gain @20% as per Section 112 of the Act. Though there has been a dissenting view taken by one of the member constituting the special bench, the majority view has upheld that the rate of tax would b....
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....on only in the context of mode of computation of capital gains contained in Sections 48 and 49 of the Act and would have nothing to do with the exemption that is provided in a totally different provision i.e. Section 54E of the Act. Section 48 of the Act deals with the mode of computation and Section 49 of the Act relates to cost with reference to certain mode of acquisition." Their Lordships observed that, this aspect has been analysed in the judgment of the Bombay High Court in the case of CIT, Mumbai City II, Mumbai vs. ACE Builders Pvt. Ltd. (supra), in the following manner: "In our opinion, the assessee cannot be denied exemption under Section 54E, because, firstly, there is nothing in Section 50 to suggest that the fiction created in Section 50 is not only restricted to Sections 48 and 49 but also applies to other provisions. On the contrary, Section 50 makes it explicitly clear that the deemed fiction created in sub-section (1) & (2) of Section 50 is restricted only to the mode of computation of capital gains contained in Section 48 and 49. Secondly, it is well established in law that a fiction created by the legislature has to be confined to the purpose for which i....
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....ction 54E provides for exemption from capital gain where the capital gain arises from transfer of "long term capital asset" ----------. Thus, even if u/s.50, long term capital asset is taxed as short term capital gain because of the deeming fiction, but that does not lead to convert long term capital asset into short term capital asset for the purpose of other section. Similarly, u/s.112 uses the word "where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head "Capital gains", the tax payable by the assessee on the total income shall be the aggregate of --------------. Thus, wherein the statute had used the word "long term capital asset, it has to be given the same meaning as defined in said provision of the Section. Thus, all these judgments of Jurisdictional High Court as well as Hon'ble Supreme Court in the context of Section 54E which is applicable on capital gain arising of long term capital asset will also apply here. Thus, respectfully following the aforesaid judgments, we hold that, the legal fiction created by the statute is to deem the capital gain as 'short term capital gain' and n....
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....r view section 50 has to be understood with reference to the general scheme of assessment on sale of capital assets. The scheme of the Act is to categorize assets between short-term capital assets and long-term capital assets. Section 2(42A) defines short-term capital asset as an asset held for not more than 36 months. The non obstante clause with which section 50 opens makes it clear that it is an exception to the definition of short-term 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 short term 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 of 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 short-term capital asset. The other purpose of section 50 is to provide cost of acquisition and other items of expen....
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....ter one or 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 depreciation was allowed last." 36. The decision of the Hon'ble High Court was confirmed by the Hon'ble Supreme Court in the following manner: - 2. In our view the High Court justly over-turned the opinion recorded by the Commissioner of Income Tax (Appeals) 11. Aayakar Bhavan North Block, Manachira, Calicut, vide Order dated 23-6-2004 in Appeal NO.ITA57/M/00-01, inter alia, on the following basis- "In other words, in 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 upto the assessment year 1995-96, still continued to be part of the business asset and depreciable asset, no matter the non-user disentitles the assessee for depreciation for tw....
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....only dealt with the controversy raised before it to a limited application u/s.50 / 50A of the Act. It was rendered in view of the background that assessee had reclassified the asset as a non-depreciable asset and held it as such at the time of sale. In contrast, in the present case the asset continued to be depreciable asset and assessee has neither challenged the applicability of Section 50 of the Act nor has it challenged the income determined in accordance with the Section 50. The issue before us is, whether the rate of tax which is to be determined u/s.112 of the Act shall be applicable if asset is a long term capital asset held for more than 36 months and due to deeming fiction, it is treated as short term capital gain for the purpose of Section 50 and such deeming fiction is with regard to applicability of Section 48 & 49. The decision of the Hon'ble Supreme Court cannot be a binding precedent on the issue which was not there at all. It is axiomatic that the decision cannot be relied upon which was not the issue or context in which it was decided and it is only the ratio decidendi, i.e., the principle of law that decides a dispute on a question is a precedence to be followed.....
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....ition of the law on a question when the question did not even fall to be answered in that judgment." 39. One of the arguments also raised by the ld. CIT DR was that, since Section 50 starts with non-obstante clause therefore, other provisions of that will not apply and once the Section itself is treated sale of long term capital asset as short term capital gain, then Section 112 would not apply. As we have already stated that non-obstante clause in Section 50 is only with regard to definition of a short term capital asset, i.e., an asset which is held by the assessee in not more than 36 months, preceding the date of its transfer. Thus, the exclusion prescribed by the non-obstante clause is limited to the purpose of modification of Section 48 & 49. In this regard, the decision of Hon'ble Gujarat High Court in the case of Amar Jewellers Ltd vs/ ACIT (2022) 444 ITR 97 would be relevant to quote wherein the scope of non-obstante clause has been discussed. 46. A non-obstante clause is generally appended to a section with a view to give the enacting part of the section, in case of conflict, an overriding effect over the provision in the same or other Act mentioned in th....
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....hich depreciation has been claimed is more than 36 months, then the gain of transfer of such asset is to be taxed as short term capital gain while computing the income. However, as held by the Hon'ble Jurisdictional High Court in several cases as noted above, Section 50 cannot convert the long term capital asset into a short term capital asset and therefore, the principle laid down by the Hon'ble Jurisdictional High Court in all the above quoted cases acts as a binding precedent. 41. It came to our notice that this Tribunal in the case of M/s. Velvet Holdings Pvt. Ltd. vs. ACIT in ITA No.6810/Mum/2008 vide order dated 26/06/2014 had decided the similar issue, whether the rate of tax should be 20% u/s 112 of the Act which is applicable for long term capital asset on the transfer of asset forming part of block of asset which is taxed as short term capital gain u/s 50. This issue was decided in favour of the assessee following the earlier decision of the Tribunal in the case of Smita Conductors Ltd., in ITA No.4004/Mum/2011 dated 17/09/2013. The ground before the Tribunal was as under:- "The learned Commissioner of Income-tax (Appeals) has erred in law and in facts i....