M/s Chakrabarty Medical Centre, Pune V. TRO, Ahmednagar

ITA 2277/PUN/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0549 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T VIJAYA B REDDY
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Cost of acquisition
• Section: 32

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , , ' # BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.2277/PN/2012 '% % / ASSESSMENT YEAR : 2008-09 M/S. CHAKRABARTY MEDICAL CENTRE, C/O. DR. MRINMAY J.CHAKBARTY, F-602, MAESTROS, SALUNKHE VIHAR ROAD, WANOWRIE, PUNE 411 040 PAN NO.AABFC5809Q . / APPELLANT V/S TRO, AHMEDNAGAR RANGE, AHMEDNAGAR . / RESPONDENT / ASSESSEE BY : SHRI SUNIL PATHAK / DEPARTMENT BY : SHRI T.VIJAYA B. REDDY / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30-09-2012 OF THE CIT(A)-I, PUNE RELATING TO ASSESS MENT YEAR 2008-09. 2. THIS APPEAL WAS EARLIER DECIDED BY THE TRIBUNAL VIDE ORD ER DATED 30-01-2015. SUBSEQUENTLY, THE ASSESSEE FILED A MISCELLANEOUS APPLICATION STATING THAT GROUND OF APPEAL NO.3 FILED BY THE ASSESSEE WAS NOT ADJUDICATED. THE TRIBUNAL VIDE / DATE OF HEARING :30.12.2015 / DATE OF PRONOUNCEMENT:30.12.2015 2 ITA NO.2277/PN/2012 M.A.NO.15/PN/2014 ORDER DATED 26-06-2015 ALLOWED THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE BY RECALLING T HE ORDER OF THE TRIBUNAL FOR THE LIMITED PURPOSE OF ADJUDICATING REVISED GROUND OF APPEAL NO.3. HENCE, THIS APPEAL RELATES TO ADJUDICATION OF GROUND OF APPEAL NO.3 FILED BY THE ASSESSEE WHICH READS AS UNDER : 3. WITHOUT PREJUDICE, THE LD.CIT(A) FAILED TO APPR ECIATE THAT THE PROPORTIONATE CAPITAL GAINS ON SALE OF LAND WAS TAXABL E AS LONG TERM CAPITAL GAINS. 3. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBM ITTED THAT THE ASSESSEE WAS A PARTNERSHIP FIRM ENGAGED IN THE BUSIN ESS OF RUNNING A HOSPITAL. THE FIRM HAS SOLD HOSPITAL BUILDING AND LAN D FOR A CONSIDERATION OF RS.1,90,00,000/-. THE ASSESSEE DECLAR ED THE CAPITAL GAIN IN THE HANDS OF THE PARTNERS ON THE GROUND THAT ALTHOUGH THE SAID PROPERTY WAS SHOWN IN THE BALANCE SHE ET OF THE ASSESSEE FIRM, THE OWNERSHIP OF THE SAID PROPERTY WAS WITH THE PARTNERS WHO HAVE INTRODUCED THE SAID PROPERTY TOWARD S THEIR CAPITAL CONTRIBUTION WHEN THE ASSESSEE FIRM WAS FORMED W.E.F 01-04-1992. HOWEVER, ACCORDING TO THE AO, IT IS THE ASSE SSEE FIRM WHO HAS TO OFFER THE SHORT TERM CAPITAL GAIN TO TAX WHICH HAS BEEN UPHELD BY THE CIT(A) AS WELL AS THE TRIBUNAL. 4. HE SUBMITTED THAT AN ALTERNATE GROUND WAS TAKEN BE FORE THE TRIBUNAL THAT FOR THE PURPOSE OF DETERMINING THE CAPITAL GA IN, LAND AND BUILDING HAS TO BE SEPARATED FOR COMPUTATION OF CAPITA L GAIN SINCE THERE IS NO DEPRECIATION ON LAND WHEREAS DEPRECIATIO N IS ALLOWABLE ON THE BUILDING. REFERRING TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CITI BANK N.A. REPORTED IN 261 ITR 570 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN LAND AND BUILDING ARE TWO 3 ITA NO.2277/PN/2012 SEPARATE AND DISTINCT ASSETS AND THEREFORE PROFIT ARISING FROM SALE OF LAND WAS REQUIRED TO BE CONSIDERED AS LONG TERM CAPITAL G AIN WHEREAS PROFITS ARISING FROM SALE OF BUILDING WAS REQUIRED TO BE CONSIDERED AS SHORT TERM CAPITAL GAIN. HE ACCORDINGLY S UBMITTED THAT THE AO MAY BE DIRECTED TO RECOMPUTE THE LONG TER M CAPITAL GAIN AND SHORT TERM CAPITAL GAIN IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT. 5. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND SUBMITTED THAT HE HAS NO OBJECTION IF THE MATTER IS SET ASIDE TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE IN THE LIGH T OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CITI B ANK N.A. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE PA PER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE THE CAPITAL GAIN ON SALE OF THE BUILDING HAS BEEN TAXED IN THE HANDS O F THE ASSESSEE FIRM. THE ONLY DISPUTE IS REGARDING THE COMPUT ATION OF CAPITAL GAIN. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE LAND HAS TO BE SEPARATED FROM THE BUILDING FOR COMPUTATION OF CAPITA L GAIN. ACCORDING TO HIM WHILE BUILDING IS DEPRECIABLE ASSET THERE IS NO DEPRECIATION ON LAND. THEREFORE, WHILE GAINS ATTRIBUTABLE TO SALE OF LAND HAS TO BE ASSESSED AS LONG TERM CAPITAL GAIN, THE PR OFIT ON SALE ATTRIBUTABLE TO THE BUILDING HAS TO BE ASSESSED AS SHORT TERM CAPITAL GAIN. 7. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF C IT VS. CITI BANK N.A. (SUPRA) HAS OBSERVED AS UNDER : 4 ITA NO.2277/PN/2012 FINDINGS : SECTION 32 OF THE INCOME-TAX ACT, INTER ALIA, LAYS DOWN THAT IN RESPECT OF DEPRECIATION OF BUILDINGS, MACHINERY, PLANT OR FURNI TURE OWNED BY THE ASSESSEE AND USED FOR THE PURPOSES OF BUSINESS OR PROFESSION, T HE ASSESSEE IS ENTITLED TO DEDUCTION. IN THIS CASE, WE ARE CO NCERNED WITH THE ASSESSMENT YEAR 1979-80. UNDER SECTION 32(1)(II), TH E ASSESSEE WAS ENTITLED TO DEDUCTION FOR DEPRECIATION IN CASE OF BUILDINGS, MACHINERY, PLANT OR FURNITURE, ETC. THAT DEDUCTION WAS TO CONSIST OF A CERTAIN PERCENTAGE ON THE WRITTEN DOWN VALUE. THERE FORE, UNDER SECTION 32, THE ASSESSEE WAS ENTITLED TO DEPRECIATION ONL Y IN RESPECT OF THE BUILDINGS AND NOT THE LAND. IN THE CASE OF CIT V . ALPS THEATRE [1967] 65 ITR 377 (SC), IT HAS BEEN HELD THAT DEPRECIATION UNDER THE INCOME- TAX ACT WAS NOT ALLOWABLE ON THE COST OF THE LAND ON WHICH THE BUILDING IS ERECTED BUT ONLY ON THE COST OF THE SUPERSTRUCTURE. IN THAT MATTER, THE ASSESSEE CARRIED ON THE BUSINESS AS EXHIBITOR OF FILMS. THE INCOME-TAX OFFICER INITIATED PROCEEDINGS UNDER SECTION 34(1)(B) OF THE INDIAN INCOME-TAX ACT, 1922, ON THE GROUND THAT IN THE ORI GINAL ASSESSMENT DEPRECIATION WAS WRONGLY ALLOWED ON THE ENTIRE COST O F RS. 85,091 SHOWN AS COST OF THE BUILDING WHICH INCLUDED RS. 12,00 0 AS COST OF LAND. BY ORDER DATED FEBRUARY 22, 1959, THE INCOME-TAX OF FICER RECOMPUTED THE DEPRECIATION EXCLUDING THE COST OF LAND. BEING A GGRIEVED, THE ASSESSEE APPEALED TO THE APPELLATE ASSISTANT COMMISSIONER ( AAC), WHO UPHELD THE ORDER OF THE INCOME-TAX OFFICER. THE ASSESSEE CARRIED THE MATTER IN APPEAL TO THE TRIBUNAL WHICH CAME TO THE CONCLUSION THAT IT IS NOT POSSIBLE TO CONCEIVE OF A BUILDING WITHOUT A BOTTOM. THAT, THE WORD 'BUILDING' INCLUDED THE LAND UPON WHICH THE SUP ERSTRUCTURE WAS CONSTRUCTED AND, THEREFORE, IT WAS WRONG ON THE PART OF THE DEPARTMENT TO EXCLUDE THE VALUE OF THE LAND UPON WHICH THE SUPE RSTRUCTURE WAS CONSTRUCTED. THIS FINDING OF THE TRIBUNAL HAS BEEN RE VERSED BY THE SUPREME COURT WHICH TOOK THE VIEW THAT DEPRECIATION UNDER SECTION 10(2)(VI) WAS NOT ALLOWABLE ON THE COST OF THE LAND O N WHICH THE BUILDING WAS ERECTED. THAT, DEPRECIATION WAS ALLOWAB LE ONLY ON THE COST OF THE SUPERSTRUCTURE. HENCE, THE ASSESSEE FAILED. T HEREFORE, DEPRECIATION UNDER SECTION 32(1) OF THE INCOME-TAX A CT, 1961, WAS ALLOWABLE ONLY ON THE COST OF THE SUPERSTRUCTURE AND N OT ON THE COST OF THE LAND. SECTION 50 OF THE INCOME-TAX ACT, 1961, A S IT STOOD AT THE RELEVANT TIME, RELATES TO SPECIAL PROVISION FOR COMPU TING COST OF ACQUISITION IN THE CASE OF DEPRECIABLE ASSETS. SINCE LA ND IS NOT A DEPRECIABLE ASSET, SECTION 50 WILL NOT APPLY TO THE SI TE ON WHICH THE BUILDING IS ERECTED. SECTION 50, THEREFORE, PROVIDES FOR DETERMINATION OF THE COST OF ACQUISITION OF A DEPRECIABLE ASSET WHICH I N THE PRESENT CASE IS A SUPERSTRUCTURE ON THE SITE. SECTION 50 REFERS TO TH E PROVISIONS OF SECTION 48 WHICH IN TERM DEALS WITH MODE OF COMPUTATI ON AND DEDUCTIONS IN RESPECT OF THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS'. SECTION 48 STATES THAT SUCH INCOME SHAL L BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATI ON RECEIVED, THE EXPENDITURE INCURRED WHOLLY IN CONNECTION WITH SUCH TRANSFER AND THE COST OF ACQUISITION OF THE CAPITAL ASSET AS ALSO THE COST OF IMPROVEMENT THERETO. SECTION 43(6) DEFINES THE EXPRESSION 'WRITTEN DOWN VALUE' TO MEAN THE ACTUAL COST TO THE ASSESSEE LESS DEPRECIATION AC TUALLY ALLOWED TO HIM UNDER THE ACT IN THE CASE OF ASSET ACQUIRED BEF ORE THE PREVIOUS YEAR. THEREFORE, ONE HAS TO READ SECTION 50 WHICH PRO VIDES FOR DETERMINATION OF COST OF THE ACQUISITION OF THE ASSET A LONG WITH SECTION 43(6) AND SECTION 48 OF THE ACT. THEREFORE, TO SUM U P, SECTION 48 READ WITH SECTION 50 PROVIDES FOR COMPUTATION OF INCOME CH ARGEABLE UNDER THE HEAD 'CAPITAL GAINS' WHEREAS, SECTION 45 IS THE CHA RGING SECTION AND IT STATES, INTER ALIA, THAT ANY PROFITS OR GAINS A RISING FROM THE 5 ITA NO.2277/PN/2012 TRANSFER OF A CAPITAL ASSET SHALL BE CHARGEABLE TO INCO ME-TAX UNDER THE HEAD 'CAPITAL GAINS'. IT IS WELL-SETTLED THAT IN THE M ATTER OF CAPITAL GAINS, THE CHARGING SECTION 45 AND THE COMPUTATION PROVISIONS UNDER SECTIONS 48 AND 50, CONSTITUTE ONE INTEGRATED CODE. THAT, THE CHARACTER OF COMPUTATION PROVISIONS BEAR DIRECT RELATIONSHIP TO THE NATURE OF T HE CHARGE UNDER SECTION 45 OF THE INCOME-TAX ACT. THIS POINT IS IMPORT ANT TO DECIDE THE POINT AT ISSUE IN THIS CASE BECAUSE, WITHOUT THE COMPUT ATION PROVISIONS, THE CHARGE BY ITSELF UNDER SECTION 45 CANNOT STAND. H ENCE, BIFURCATION IS NECESSARY BETWEEN THE SITE AND THE BUILDING FOR THE PURPOSES OF CAPITAL GAINS. THEREFORE, PROFITS ARISING FROM THE SALE OF SITE ARE REQUIRED TO BE TREATED SEPARATELY FROM PROFITS ARISING FROM THE SALE OF BUILDING. NOW, IN THE PRESENT CASE, THE ASSESSEE RECEIVE D RS. 14,00,000 FOR LAND UNDER THE ABOVE CONVEYANCE AS AGAINST THE CO ST OF RS. 9,20,530 RESULTING IN THE CAPITAL GAIN OF RS. 4,79,470. ACCORD ING TO THE DEPARTMENT, THIS WORKING IS CORRECT (SEE PAGE 82 OF TH E PAPER BOOK). HOWEVER, ACCORDING TO THE DEPARTMENT, SINCE THE LAND WAS A PART OF THE SUPERSTRUCTURE, THE SAID AMOUNT OF RS. 4,79,470 WAS NOT A LONG-TERM CAPITAL GAIN BUT IT WAS TO BE TREATED AS SHORT-TERM CA PITAL GAIN. THIS IS THE ONLY ISSUE WHICH ARISES IN THIS CASE. AS STATED ABOVE, THIS VIEW OF THE DEPARTMENT IS ERRONEOUS FOR TWO REASONS. FIRSTLY, UN DER SECTION 32(1), NO DEPRECIATION IS ADMISSIBLE FOR LAND (SEE JUDG MENT OF THE SUPREME COURT IN THE CASE OF ALPS THEATRE [1967] 65 I TR 377). SECONDLY, THE DEPARTMENT CAN ASSESS THE COMPANY TO SHORT -TERM CAPITAL GAINS ONLY QUA DEPRECIABLE ASSETS WHICH IN THE PRESENT CASE IS THE SUPERSTRUCTURE ERECTED ON THE SITE (SEE SECTION 41(2 ) OF THE INCOME-TAX ACT AS IT STOOD AT THE RELEVANT TIME). FOR BOTH THE ABOVE REASONS, WE HOLD THAT IN THE PRESENT CASE, ON THE SALE O F LAND CARRIED TO THE BUILDING VIDE CONVEYANCE DATED AUGUST 7, 1978, T HE GAIN WHICH ACCRUED TO THE ASSESSEE WAS LONG-TERM CAPITAL GAIN AND T HE DEPARTMENT WAS WRONG IN TREATING SUCH GAIN AS SHORT-TERM CAPITAL G AIN. OUR VIEW IS SUPPORTED BY THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF CIT V. DR. D. L. RAMACHANDRA RAO [1999] 236 ITR 51, WHI CH HAS TAKEN THE VIEW THAT IF THE LANDS ARE HELD BY THE ASSESSEE FOR A P ERIOD MORE THAN THE PERIOD PRESCRIBED UNDER SECTION 2(42A) OF THE INC OME-TAX ACT, 1961, VIZ., 36 MONTHS, THEN, IT IS NOT POSSIBLE TO SAY T HAT BY CONSTRUCTION OF THE BUILDING THEREON, THE LAND WHICH WAS A LONG TERM CAPITAL ASSET CEASES TO BE SUCH LONG-TERM CAPITAL ASSET. THIS IS BECAUSE, THE LAND IS AN INDEPENDENT AND IDENTIFIABLE CAPITAL ASSET, AND IT CONTINUES TO REMAIN SO EVEN AFTER CONSTRUCTION OF THE BUILDING THEREON. WE RESPECTFULLY AGREE WITH THE VIEW TAKEN BY THE MAD RAS HIGH COURT IN THE ABOVE JUDGMENT. 8. ALTHOUGH THE ABOVE DECISION OF THE HONBLE BOMBAY HIG H COURT WAS AVAILABLE AT THE TIME OF THE ASSESSMENT PROCEE DINGS, HOWEVER, NEITHER THE ASSESSEE HAS BROUGHT THE SAME TO THE NOTICE OF THE AO NOR THE AO HAS CONSIDERED THE ABOVE DECISION. T HEREFORE, WE, IN THE INTEREST OF JUSTICE, DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ALTERNATE GROUND RAISED BY THE ASSESSEE IN ACCORDANCE WITH LAW AFTER GIVING DUE 6 ITA NO.2277/PN/2012 OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE ABOVE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30-12-2015. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; # DATED : 30 TH DECEMBER, 2015. LRH'K ( )'+ , / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. CIT (A) - I , PUNE 4. 5. 6. CIT-I, PUNE ' *, *, IQ.KS / DR, ITAT, B PUNE; / GUARD FILE. / BY ORDER , // TRUE COPY // ' //TRUE COPY// / * / SR. PRIVATE SECRETARY *, IQ.KS / ITAT, PUNE