DCIT, Circle - 3, Kolkata, Kolkata V. M/s. Orient Steel & Industries Ltd., Kolkata

ITA 112/KOL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54477 (ITAT-KOLKATA)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 14-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K ROY
• Assessee Lawyers: N JOSHI
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Depreciation; Cost of acquisition; Valuation report; Capital receipt; Revenue expenditure
• Section: 143(3); 50C; 32; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE . . , ! '# '# '# '# /AND ' $# , ! ) [BEFORE HONBLE SHRI S. V. MEHROTRA, AM & HONBLE S RI MAHAVIR SINGH, JM] #% #% #% #% / I.T.A NO. 112/KOL/2011 $&' '() $&' '() $&' '() $&' '()/ // / ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. ORIENT STEEL & INDUSTRIES LTD. CIRCLE-3, KOLKATA. (PAN-AAACO 3183 F) (+, /APPELLANT ) (-.+,/ RESPONDENT ) FOR THE APPELLANT: SHRI S. K. ROY FOR THE RESPONDENT: SMT. N. JOSHI / / ORDER PER MAHAVIR SINGH, JM ( ' $# ' $# ' $# ' $#, , , , ! ! ! ! ) THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-I, KOLKATA IN APPEAL NO.364/ CIT(A)-I/CIR-3/08-09 DATED 22.09.2010. ASSESSMENT W AS FRAMED BY DCIT, CIRCLE-3, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1962 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE HIS ORDER DATED 31.12.2008 FOR ASSESSMENT YEAR 2006-07. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN HOLDING THAT CONSIDERATION FROM SALE OF LAND IS LONG TERM CAPITA L GAINS AND ALSO HOLDING THAT THIS LONG TERM CAPITAL GAINS IS ALLOWED TO BE EXEMPT IN VIEW OF AS SESSEE MAKING INVESTMENT IN RURAL ELECTRICITY BOND U/S. 54EC OF THE ACT. FOR THIS, R EVENUE HAS RAISED FOLLOWING THREE GROUNDS: 1) THAT IN THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE SALE OF THE LAND RESULTS IN LONG TERM CAPI TAL GAINS TO THE EXTENT OF RS.2,27,93,425/- WITHOUT APPRECIATING THE FACT THAT THE LAND WAS NEV ER SHOWN SEPARATELY IN THE ACCOUNTS AND IT WAS INCLUDED IN THE BLOCK BUILDING. 2)THAT IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE LONG TERM CAPITAL GAINS TO THE EXTENT OF R S.2,25,00,000/- IS NOT TAXABLE AS PER PROVISIONS OF SECTION 54EC FOR MAKING INVESTMENT IN RURAL ELECTRICITY BOND WITHOUT APPRECIATING THAT PROVISION OF SECTION 50 OF THE I. T. ACT, 1965 IS APPLICABLE IN THIS CASE WHEREBY THE SALE OF COMPOSITE DEPRECIABLE ASSETS WA S TO BE TAXED AS SHORT TERM CAPITAL GAINS U/S. 50 OF THE I. T. ACT, 1965. 3) THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN NOT SUSTAINING THE ADDITION AT LEAST TO THE EXTENT OF RS.1,83,12,711/- BEING SHORT TERM CAPITAL GAINS U/S. 50 ( I.E. NET FULL VALUE OF CONSIDERATION RS.2,43,80,000 /- LESS W.D.V RS.56,72,920/- LESS ASSET ACQUIRED RS.3,94,369/-.) 2 ITA 112/K/2011 ORIENT STEEL & IND. LTD. A.Y.06-0 7 3. BRIEF FACTS LEADING TO ABOVE ISSUE ARE THAT ASSE SSEE SOLD ITS LAND ADMEASURING 12883 SQ. YARDS ON WHICH AN OLD SHED AT MALHINA ROAD, FARIDAB AD WAS CONSTRUCTED. THIS LAND WAS PURCHASED BY ASSESSEE IN 1974 FOR TOTAL CONSIDERATI ON OF RS.1,34,883/- AND CONSTRUCTED SHEDS IN THE YEAR 1975 FOR WHICH WRITTEN DOWN VALUE WAS RS.1 4,51,692/-. DURING RELEVANT FY 2005-06, ASSESSEE SOLD THIS PROPERTY FOR A SUM OF RS.2.65 CR . AND PAID STAMP DUTY OF RS.21.20 LACS AS PER AGREEMENT ON SUCH SALE VALUE ON THE BASIS OF VALUAT ION MADE BY REGISTRAR, STAMP DUTY VALUATION, FARIDABAD ON A VALUATION OF RS.2,57,76,0 00/-. THE ASSESSEE OUT OF TOTAL SALE PROCEEDS OF RS.2.65 CR. DEDUCTED STAMP DUTY OF RS.2 1.20 LACS AND WDV OF OLD SHED AT RS.41.51 LACS AND BALANCE AMOUNT OF RS.2,29,28,308/- WAS TRE ATED AS SALE VALUE PERTAINING TO LAND AND CLAIMED THE SAME AS LTCG OF RS.21,27,93,425/-. ASS ESSEE INVESTED THIS LONG TERM CAPITAL GAIN IN RURAL ELECTRICITY BONDS A SUM OF RS.22,50,0 00/- AND CLAIMED EXEMPTION U/S. 54EC OF THE ACT. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT EXEMPTION U/S. 54EC OF THE ACT WAS AVAILABLE ONLY I N CASE WHERE GAIN ARISING OUT OF TRANSFER OF LONG TERM CAPITAL GAIN BUT IN THE CASE OF ASSESSEE WHAT WAS TRANSFERRED WAS A FACTORY SHED AND BUILDING INCLUDING LAND, WHICH IS A BUSINESS AS SET AS DISCLOSED IN THE ACCOUNTS, IN DEPRECIATION SCHEDULE, AS PART OF BLOCK OF ASSET IN FIXED ASSETS AND SHOWN UNDER THE HEAD LAND AND BUILDING. THE ASSESSING OFFICER NOTED THAT ONCE IT IS A BUSINESS ASSET AND PART OF BLOCK OF ASSETS, SALE CONSIDERATION OF LAND CANNOT BE TREATE D AS LONG TERM CAPITAL GAINS ARISING OUT OF SALE OF LONG TERM CAPITAL ASSET AND HELD THAT IT IS TO B E TREATED AS SHORT TERM CAPITAL ASSET IN TERMS OF SECTION 50 OF THE ACT. CONSIDERING THIS, ASSESSING OFFICER TREATED THE GAINS ARISING OUT SALE OF FIXED ASSET BEING FACTORY AND BUILDING AS SHORT TER M CAPITAL GAIN TO THE TUNE OF RS.2,27,93,425/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO TREATED THE SALE OF LAND AS LONG TERM CAPITAL GAINS BY PARA 6 OF HIS APPELLATE ORDER AS U NDER: 6. I HAVE GONE THROUGH THE VALUATION REPORT OF THE VALUER, REGISTRAR, FARIDABAD, THE SALE DEED AND OTHER DOCUMENTS. AS ADMITTED BY THE A .O. LAND AND BUILDING HAD BEEN SEPARATELY SHOWN IN THE ACCOUNTS. THE LAND HAD BEE N HELD FOR MORE THAN 36 MONTHS AND WHEN IT WAS SOLD LONG TERM CAPITAL GAIN WAS INV OLVED. BUILDING BEING A DEPRECIABLE ASSET, PROFIT/LOSS ON ITS SALE WOULD BE SHORT TERM IN NATURE. THE PURCHASER HAS ALSO GIVEN SUCH A SALE CONSIDERATION FOR THE VA LUE OF LAND AND HENCE THE LONG TERM CAPITAL GAINS COMPUTED LON THE SALE OF LAND OF RS.2,27,93,425/- WAS ALLOWED. SINCE, THE ASSESSEE HAD RECEIVED THE CONSIDERATION AND DEPOSITED THE SAME WITHIN THE TIME LIMIT ALLOWED INTO CAPITAL GAINS BOND TO THE E XTENT RS.2,25,00,000/- U/S. 54EC. LONG TERM CAPITAL GAINS TO THAT EXTENT WAS NOT TAXA BLE. AGGRIEVED REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROU GH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT LD. COUNSEL FOR THE ASSESSEE BEFORE US REFERRED TO COMPUTATION OF PROFIT ON SALE OF LAND AND BUILDING, AS PROVIDED IN ASSESSEES PAPER BOOK PAGE1, WHICH READS AS UNDER: 3 ITA 112/K/2011 ORIENT STEEL & IND. LTD. A.Y.06-0 7 ORIENT STEEL & INDUSTRIES LTD. 2, BRABOURNE ROAD, KOLKATA-700 001 COMPUTATION OF PROFIT ON SALE OF LAND & BUILDING ITEM SOLD W.D.V DEPRECIATION CHARGED BOOK VALUE SALE VALUE PROFIT ON SALE LAND BUILDING STAMP DUTY 134883 4040370 0 4175253 0 2588678 0 2588678 134883 1451692 0 1586575 22928308 1451692 2120000 26500000 22793425 0 0 22793425 SHE FURTHER REFERRED TO THE AUDITED ACCOUNTS OF THE ASSESSEE WHEREIN ASSESSEE HAS DISCLOSED CAPITAL RECEIPT BUT NOT CREDITED TO P&L ACCOUNT AND THE RELEVANT CLAUSE 13 (E) OF FORM NO. 3CD, IS AS UNDER: STATEMENT OF PARTICULARS REQUIRED TO BE FURNISHED U NDER SECTION 44AB OF THE INCOME TAX ACT, 1961. PART-B CLAUSE 13(E): CAPITAL RECEIPT IF ANY NOT CREDITED T O PROFIT & LOSS ACCOUNT {REFER CLAUSE 13(E) OF FORM NO. 3CD} ITEMS SOLD GROSS VALUE DEPRECIATION BOOK VALUE AMOUNT CREDITED TO PROFIT & LOSS A/C. AMOUNT NOT CREDITED TO PROFIT & LOSS A/C. WEST BENGAL UNIT VEHICLES 242782 62856 179926 179926 185000 5074 ______ LESS: SALE PRICE OF VEHICLE 5074 179926 CRM UNIT GENERATOR SET 2667693 2534643 133050 MARUTI ZEN 313235 297573 15662 MARUTI 800 201205 140722 52483 201195 201195 LESS: SALE PRICE OF ALL THE ABOVE MACHINES 536801 PROFIT ON SALE OF MACHINERY 335606 335606 LAND 134883 0 134883 BUILDING (WDV) 4040370 2588678 1451692 1586575 1586575 LESS: SALE PRICE OF LAND AND BUILDING 2438 0000 PROFIT ON SALE OF LAND AND BUILDING 22793 425 22793425 _________ 23134105 1787770 LD. COUNSEL CATEGORICALLY STATED THAT LAND ON WHICH ASSESSING OFFICER HAS CHARGED SHORT TERM CAPITAL GAIN IS NOT AT ALL DEPRECIABLE ASSETS AND N O DEPRECIATION IN ANY OF THE YEAR IS CLAIMED BY 4 ITA 112/K/2011 ORIENT STEEL & IND. LTD. A.Y.06-0 7 ASSESSEE. ANY LAND IS NOT DEPRECIABLE ASSET AND NO DEPRECIATION IS ALLOWED IN VIEW OF CLEAR PROVISION OF THE ACT I.E. SECTION 32 OF THE ACT. S HE FURTHER REFERRED TO PAGE 61 OF ASSESSEES PAPER BOOK WHEREIN DEPRECIATION CHART GIVING DETAIL S OF DEPRECIATION IS ENCLOSED. THE RELEVANT STATEMENT DESCRIBING PARTICULARS REQUIRED TO BE FUR NISHES U/S. 44AB OF THE ACT READS AS UNDER: CLAUSE 14: PARTICULAR OF DEPRECIATION ALLOWABLE AS PER INCOME TAX ACT, 1961 BLOCK OF ASSETS RATE OF DEPRECIATION WDV AS ON1.4.05 (IN RS.) ADDITION ABOVE 180 DAYS (IN RS.) ADDITION BELOW 180 DAYS (IN RS.) DEDUCTION (IN RS.) DEPRECIATION ALLOWABLE (IN RS.) WDV AS ON 31.3.06 (IN RS.) PLANT & MACHINERY MOTOR CAR ROLLS BUILDING FURNITURE COMPUTER 15% 15% 100% 10% 10% 60% 19212117 2219195 1137723 5672920 673367 75285 28990607 6039780 0 1992357 394369 0 26560 8453066 2809152 1956063 0 0 10400 28734 4804349 5091380 694366 0 4040370 519149 0 10345265 4723635 375429 3130080 202692 15941 69727 8517504 18246034 3105463 0 1824226 148677 60852 23385252 ACCORDINGLY, IT WAS CLARIFIED BY LD. COUNSEL THAT N O DEPRECIATION OF LAND HAS EVER BEEN CLAIMED BY ASSESSEE AND ALLOWED. LD. COUNSEL REFERRED TO S ECTION 50 OF THE ACT AS SUBSTITUTED BY THE TAXATION LAWS (AMENDMENT & MISCELLANEOUS PROVISIONS ) ACT, 1986 W.E.F. 1 ST APRIL, 1998. 5. WE FIND FROM PROVISIONS OF SECTION 50 OF THE ACT , OPERATIVE FOR AND FROM ASSESSMENT YEAR 1988-89, AS SUBSTITUTED BY THE TAXATION LAWS ( AMENDMENT & MISCELLANEOUS PROVISIONS) ACT, 1986 W.E.F. 1.4.1988, OVERRIDES PROVISIONS CON TAINED IN SECTION 2(42A) OF THE ACT, COINING A DEFINITION OF THE EXPRESSION SHORT TERM CAPITAL ASSET AND TAKES CARE OF A SITUATION WHERE CAPITAL ASSET IS AN ASSET FORMING PART OF BLOCK ASS ETS, IN RESPECT OF WHICH DEPRECIATION HAS BEEN ALLOWED UNDER THE 1961ACT OR UNDER THE 1922 ACT. I N SUCH A SITUATION, PROVISIONS OF SECTIONS 48 AND 49 OF THE ACT ARE TO BE READ SUBJECT TO THE FOLLOWING MODIFICATIONS: (1) WHERE ANY BLOCK OF ASSETS DOES NOT CEASE TO EXI ST. SECTION 50(1) DEALS WITH A CASE 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 C ONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF ANY OTHER CAPITAL ASSET F ALLING WITHIN THE BLOCK OF ASSETS DURING THE PREVIOUS YEAR, EXCEEDS THE AGGREGATE OF THE FOL LOWING AMOUNTS, NAMELY: EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CON NECTION WITH SUCH TRANSFER OR TRANSFERS; THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT T HE BEGINNING OF THE PREVIOUS YEAR; AND THE ACTUAL COST OF ANY ASSET FALLING WITHIN THE BL OCK OF ASSETS ACQUIRED DURING THE PREVIOUS YEAR. IN SUCH A CASE, SUCH EXCESS IS TO BE DEEMED TO BE T HE CAPITAL GAINS ARISING FROM THE TRANSFER OF SHORT-TERM CAPITAL ASSET. 5 ITA 112/K/2011 ORIENT STEEL & IND. LTD. A.Y.06-0 7 (2) WHERE ANY BLOCK OF ASSETS CEASES TO EXIST.SECT ION 50(2) CONCERNS A CASE WHERE ANY BLOCK OF ASSETS CEASES TO EXIST AS SUCH, FOR TH E REASON THAT ALL THE ASSETS IN THAT BLOCK ARE TRANSFERRED DURING THE PREVIOUS YEAR. IN SUCH CIRCUMSTANCES, THE COST OF ACQUISITION OF THE BLOCK OF ASSETS SHA LL BE THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YE AR, AS INCREASED BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK OF ASSETS, ACQU IRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND THE INCOME RECEIVED OR ACCRUING AS A RESULT OF SUC H TRANSFER OR TRANSFERS SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING FROM THE TRA NSFER OF SHORT-TERM CAPITAL ASSETS. BUT IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAS TRANSFERRED FACTORY SHED, BUILDING AND LAND ON WHICH THESE WERE ERECTED AND THIS BEING BUSINESS ASSET DISCLOSED IN THE DEPRECIATION CHART AS PART OF FIXED ASSETS AND SHOWN UNDER LAND AND BUILD ING SEPARATELY. THE PROFIT ARISING ON SUCH TRANSFER OF LAND CANNOT BE TERMED AS SHORT TERM CAP ITAL GAIN IN LIEU OF SECTION 50 OF THE ACT AS SECTION 50 APPLIES TO THE ASSETS WHERE THE CAPITAL ASSET IS AN ASSET FORMING PART OF BLOCK OF ASSET IN RESPECT OF WHICH DEPRECIATION HAS BEEN CLAIMED A ND ALLOWED UNDER THE ACT OF 1961 OR 1922. IN THIS CASE, ON LAND NO DEPRECIATION WAS EVER CLAI MED BY ASSESSEE OR EVER ALLOWED BY REVENUE, THIS DOESNT FALL U/S. 50 OF THE ACT. FROM THE ACC OUNTS OF THE ASSESSEE IT IS CLEAR THAT LAND WAS NEVER PART OF BLOCK OF ASSET ON WHICH DEPRECIATION WAS CLAIMED AND ALLOWED. EVEN OTHERWISE, THE PRINCIPLE LAID DOWN BY HONBLE APEX COURT THAT BUILDING DOES NOT INCLUDE LAND, ON WHICH BUILDING IS ERECTED. HONBLE APEX COURT ALSO HELD THAT LAND CANNOT DEPRECIATE AND IF DEPRECIATION WAS ALLOWED IT WOULD GIVE A WRONG PICT URE OF THE TRUE INCOME. HONBLE APEX COURT IN THE CASE OF CIT VS. ALPS THEATRE (1967) 65 ITR 377, 379 (SC) HELD AS UNDER: THE ANSWER TO THE QUESTION DEPENDS UPON THE TRUE I NTERPRETATION OF SECTION 10(2)(VI), AND IN PARTICULAR WHETHER THE WORD ' BUILDING ' OCCURRI NG IN IT INCLUDES LAND. SECTION 10 DEALS WITH THE PROFITS AND GAINS DERIVED FROM ANY BUSINES S, PROFESSION OR VOCATION. SECTION 10(2) PROVIDES THAT SUCH PROFITS OR GAINS SHALL BE COMPUT ED AFTER MAKING CERTAIN ALLOWANCES. THE OBJECT OF GIVING THESE ALLOWANCES IS TO DETERMI NE THE ASSESSABLE INCOME. THE FIRST THREE ALLOWANCES CONSIST OF ALLOWANCE FOR RENT PAID FOR THE BUSINESS PREMISES, ALLOWANCE FOR CAPITAL REPAIRS AND ALLOWANCE FOR INTEREST IN R ESPECT OF CAPITAL BORROWED. SUB-CLAUSES (IV), (V), (VI), (VIA) AND (VII) OF SECTION 10(2) D EAL WITH ALLOWANCES IN RESPECT OF BUILDINGS, MACHINERY, PLANT OR FURNITURE. THE WORD 'BUILDING' MUST HAVE THE SAME MEANING IN ALL THESE CLAUSES. SUB-CLAUSE (IV) RUNS AS UNDER: 'IN RESPECT OF INSURANCE AGAINST RISK OF DAMAGE OR DESTRUCTION OF BUILDINGS, MACHINERY, PLANT, FURNITURE, STOCKS OR STORES, USED FOR THE PU RPOSES OF THE BUSINESS, PROFESSION OR VOCATION, THE AMOUNT OF ANY PREMIUM PAID. ' 'BUILDING' HERE CLEARLY, IT SEEMS TO US, DOES NOT INCLUDE THE SITE BECAUSE THERE CANNOT BE ANY QUESTION OF DESTRUCTION OF THE SITE. CLAUSE (V) READS: 'IN RESPECT OF CURRENT REPAIRS TO SUCH BUILDINGS, MACHINERY, PLANT OR FURNITURE, THE AMOUNT PAID ON ACCOUNT THEREOF. ' THIS AGAIN CANNOT INCLUDE THE SITE. THEN WE COME T O SUB-CLAUSE (VI), THE RELEVANT PORTION OF WHICH READS AS UNDER: 6 ITA 112/K/2011 ORIENT STEEL & IND. LTD. A.Y.06-0 7 'IN RESPECT OF DEPRECIATION OF SUCH BUILDINGS, MAC HINERY, PLANT OR FURNITURE BEING THE PROPERTY OF THE ASSESSEE, A SUM EQUIVALENT . . . AS MAY IN ANY CASE OR CLASS OF CASES BE PRESCRIBED. ' IT WOULD BE NOTICED THAT THE WORD USED IS DEPRECIA TION AND DEPRECIATION MEANS: A DECREASE IN VALUE OF PROPERTY THOUGH WEAR, DETER IORATION OR OBSOLESCENCE: THE ALLOWANCE MADE FOR THIS IN BOOK-KEEPING, ACCOUNTING, ETC. (W EBSTERS NEW WORLD DICTIONARY). IN THAT SENSE LAND CANNOT DEPRECIATE. THE OTHER WOR DS TO NOTICE ARE SUCH BUILDINGS . WE HAVE NOTICED THAT IN SUB-CLAUSE (IV) AND (V),BUILD ING CLEARLY MEANS STRUCTURES AND DOES NOT INCLUDE SITE. THAT THIS IS THE PROPER MEANING IS A LSO BORNE OUT BY RULE 8 OF THE INDIAN INCOME- TAX RULES, 1922. RULE 8 HAS A SCHEDULE, AND AS FAR AS -BUILDINGS ARE CONCERNED, IT READS AS UNDER: CLASS OF ASSET RATE PERCENTAGE REMARKS BUILDINGS:- (1) FIRST CLASS SUBSTANTIAL BUILDINGS OF SELECTED MATERIAL (2) SECOND CLASS BUILDINGS OF LESS SUBSTANTIAL CONSTRUCTION (3) THIRD CLASS BUILDINGS OF CONSTRUCTION INFERIOR TO THAT OF SECOND CLASS BUILDINGS, BUT NOT INCLUDING PURELY TEMPORARY ERECTIONS . (4) PURELY TEMPORARY ERECTIONS SUCH AS WOODEN STRUCTURES. 2.5 5 7.5 DOUBLE THESE NUMBERS WILL BE TAKEN FOR FACTORY BUILDING, EXCLUDING OFFICES, GODOWNS, OFFICERS AND EMPLOYEES QUARTERS. NO RATE IS PRESCRIBED, RENEWALS WILL BE ALLOWED AS REVENUE EXPENDITURE. THE RATE OF DEPRECIATION IS FIXED ON THE NATURE OF THE STRUCTURE. IF IT IS A FIRST CLASS SUBSTANTIAL BUILDING, THE RATE IS LESS. IN OTHER WORDS, FIRST C LASS BUILDING WOULD DEPRECIATE AT A MUCH LESS RATE THAN SECOND CLASS BUILDING. IT WOULD BE NOTIC ED THAT FOR PURELY TEMPORARY ERECTIONS SUCH AS WOODEN STRUCTURES, NO RATE OF DEPRECIATION IS PR ESCRIBED AND INSTEAD RENEWALS ARE ALLOWED AS REVENUE EXPENDITURE. BUT IF THE CONTENTION OF TH E RESPONDENT IS RIGHT, SOME RATE FOR DEPRECIATION SHOULD HAVE BEEN PRESCRIBED FOR LAND U NDER THE TEMPORARY STRUCTURES. FURTHER, IT WOULD BE DIFFICULT TO APPRECIATE WHY THE LAND UNDER A THIRD CLASS BUILDING SHOULD DEPRECIATE THREE TIMES QUICKER THAN LAND UNDER A FIRST CLASS B UILDING. ONE OTHER CONSIDERATION IS IMPORTANT. THE WHOLE OBJ ECT OF SECTION 10 IS TO ARRIVE AT THE ASSESSABLE INCOME OF A BUSINESS AFTER ALLOWING NECE SSARY EXPENDITURE AND DEDUCTIONS. DEPRECIATION IS ALLOWABLE AS A DEDUCTION BOTH ACCOR DING TO ACCOUNTANCY PRINCIPLES AND ACCORDING TO THE INDIAN INCOME-TAX ACT. WHY? BECAUS E OTHERWISE ONE WOULD NOT HAVE A TRUE PICTURE OF THE REAL INCOME OF THE BUSINESS. BUT LAN D DOES NOT DEPRECIATE, AND IF DEPRECIATION WAS A1LOWED IT WOULD GIVE A WRONG PICTURE OF THE TR UE INCOME. THE HIGH COURT RELIED ON CORPORATION OF THE CITY OF VICTORIA V. BISHOP OF VANCOUVER ISLAND (1921 2 A.C. 384) BUT IN OUR VIEW THIS CASE IS DIST INGUISHABLE AND GIVES NO ASSISTANCE IN DETERMINING THE MEANING OF THE WORD ' BUILDINGS ' I N THE CONTEXT OF SECTION 10(2)(VI). IN THIS CASE THE PRIVY COUNCIL HAD TO CONSTRUE SECTION 197( 1) OF THE MUNICIPAL ACT, BRITISH COLUMBIA, WHICH EXEMPTED FROM MUNICIPAL RATES AND TAXES 'EVER Y BUILDING SET APART AND IN USE FOR THE PUBLIC WORSHIP OF GOD '. THE PRIVY COUNCIL HELD THA T THE ABOVE EXEMPTION APPLIED TO THE LAND UPON WHICH A BUILDING OF THE DESCRIPTION MENTIONED ABOVE WAS ERECTED AS WELL AS TO THE FABRIC. THE PRIVY COUNCIL WAS NOT CONCERNED WITH TH E QUESTION OF DEPRECIATION BUT WITH THE QUESTION OF EXEMPTION FROM MUNICIPAL RATES. 7 ITA 112/K/2011 ORIENT STEEL & IND. LTD. A.Y.06-0 7 6. IN VIEW OF THE ABOVE DECISION OF HONBLE APEX C OURT IT IS CLEAR THAT LAND IS NOT A DEPRECIABLE ASSET AND EVEN AFTER AMENDMENT IN SECTI ON 50C OF THE ACT, THE POSITION IS VERY CLEAR THAT THE EXPRESSION SHORT TERM CAPITAL ASSET WILL B E THE CAPITAL ASSET WHICH IS FORMING PART OF BLOCK OF ASSETS, IN RESPECT OF WHICH DEPRECIATION H AS BEEN CLAIMED AND ALLOWED, UNDER THE ACT AND IN SUCH A SITUATION PROVISIONS OF SECTION 48 AN D 49 OF THE ACT ARE TO BE APPLIED SUBJECT TO THE MODIFICATIONS AS PER SECTION 50 OF THE ACT. AC CORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND NO INTERFERENCE IS CALLED FOR. 7. ONCE IT IS HELD THAT SALE CONSIDERATION OF LAND FALLS UNDER THE HEAD LONG TERM CAPITAL GAINS, THE PROVISIONS OF SECTION 54EC OF THE ACT FO R MAKING INVESTMENT IN RURAL ELECTRICITY BOND WILL APPLY AND CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF ASSESSEE ON THIS ISSUE ALSO. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 9. ORDER PRONOUNCED IN OPEN COURT ON 05.08.2011. SD/- SD/- . . , ! ' '' ' $# $# $# $# , ! (S. V. MEHROTRA (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( 0 0 0 0) )) ) DATED : 5TH AUGUST, 2011 '12 $&34 $5' JD.(SR.P.S.) / 6 -$$7 87(9- COPY OF THE ORDER FORWARDED TO: 1 . +, / APPELLANT DCIT, CIRCLE-3, KOLKATA 2 -.+, / RESPONDENT, M/S. ORIENT STEEL & INDUSTRIES LTD., 2, BRABOURNE ROAD, KOLKATA-700001 3 . $/& ( )/ THE CIT(A), KOLKATA 4. $/& / CIT, KOLKATA 5 . '$? -$& / DR, KOLKATA BENCHES, KOLKATA .7 -$/ TRUE COPY, /&@/ BY ORDER, #4 /ASSTT. REGISTRAR .