ITO 2(3)(2), MUMBAI V. SHIVGOPAL TRADING COMPANY P. LTD, MUMBAI

ITA 2479/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87912 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Tax effect
• Section: 50C; 54

Judgement Text

, , , , , ,, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.2479/MUM/2013 ASSESSMENT YEAR: 2009-10 THE INCOME TAX OFFICER, 2(3)(2), ROOM NO.518A, AAYKAR BHAWAN, M.K. RAOD, NEW MARINE LINES MUMBAI-400020 / VS. M/S SHIVGOPAL TRADING COMPANY PVT. LTD. 706, KAILAS CORPORATE LOUNGE, OPP. KAILAS COMPLEX, HIRANANDANI, VIKHROLI, LINK ROAD, MUMBAI - 400079 ( # / REVENUE) ( $%& /ASSESSEE) P.A. NO.AACCS2167F CO. NO.02/MUM/2015 ARISING OUT OF ITA NO.2479/MUM2013 ASSESSMENT YEAR: 2009-10 M/S SHIVGOPAL TRADING COMPANY PVT. LTD. 706, KAILAS CORPORATE LOUNGE, OPP. KAILAS COMPLEX, HIRANANDANI, VIKHROLI, LINK ROAD, MUMBAI-400079 / VS. THE INCOME TAX OFFICER, 2(3)(2), ROOM NO.518A, AAYKAR BHAWAN, M.K. RAOD, NEW MARINE LINES MUMBAI-400020 $%& /ASSESSEE) ( # / REVENUE) ( P.A. NO.AACCS2167F # ' ( ' ( ' ( ' ( / REVENUE BY : SHRI NEIL PHILIP - DR $%& ' ( ' ( ' ( ' ( / // / ASSESSEE BY) SHRI VIMAL PUNMIYA ' &) / / / / DATE OF HEARING : 13/01/2015 M/S SHIVGOPAL TRADING COMPANY PVT. LTD . 2 *+, ' &) / DATE OF PRONOUNCEMENT : 13 /0 1/2015 DATE OF ORDER : - - - - ' &) / 15 /01/2015 - - - - / / / / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) : THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER AND THE ASSESSEE HAS PREFERRED CROSS OBJECTION AGAINST THE ORDER DATED 31/03/2013 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW: 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE DEDUCTION U/S 54EC ON THE INVESTMENT OF SHORT TERM CAPITAL GAIN ARISING FROM THE SALE OF DEPRECIABLE ASSET, BY RELYING ON THE DECISION OF TH E HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S ACE BUILDE RS (P) LTD 144 TAXMAN 855 (BOM), IGNORING THAT THE DECISION IN THAT CASE WAS NOT ACCEPTED ON MERIT AND SLP WAS NOT FILED DUE TO LOW TAX EFFECT . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE DEDUCTION U/S 54EC ON THE INVESTMENT OF SHORT TERM CAPITAL GAIN ARISING FROM THE SALE OF DEPRECIABLE ASSET, IGNORING THAT THOUGH THE ASSET S OLD IS A LONG TERM CAPITAL ASSET, THE GAIN ARISING IS DEEMED TO BE SHORT TERM CAPITAL GAIN AS PER PROVISIONS OF SECTIO N 50 AND THERE IS NO PROVISION IN THE INCOME TAX ACT FOR ALL OWING THE BENEFIT OF SECTION 54EC ON SHORT TERM CAPITAL GAIN. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, M/S SHIVGOPAL TRADING COMPANY PVT. LTD . 3 THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE DEDUCT ION U/S 54EC TREATING THE TRANSFER AS LONG TERM CAPITAL GAI N, IGNORING THE FACT THAT THE GAIN HAS TO BE TREATED AS SHORT T ERM CAPITAL GAIN IN VIEW OF THE NON-OBSTANTE CLAUSE IN SECTION 50C OF THE INCOME TAX ACT . 2. AT THE TIME OF HEARING, LD. DR, SHRI NEIL PHILIP , DEFENDED THE ASSESSMENT ORDER BY CONTENDING THAT DEEMING PROVISI ON OVERRIDES OTHER PROVISIONS OF THE ACT. IT WAS ALSO SUBMITTED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) GRANTE D RELIEF TO THE ASSESSEE ALLOWING DEDUCTION U/S 54EC OF THE ACT ON THE INVESTMENT OF SHORT TERM CAPITAL GAIN ARISING FROM THE SALE OF DEPRECIABLE ASSET, PLACING RELIANCE UPON THE DECISI ON IN CIT VS ACE BUILDERS PVT. LTD. (144 TAXMAN 855)(BOM.) IGNO RING THE FACT THAT THE DEPARTMENT HAS NOT PREFERRED SLP ON MERIT DUE TO LOWER TAX EFFECT. 2.1. ON THE OTHER HAND, THE LD. COUNSEL FOR THE A SSESSEE SHRI VIMAL PUNAMIYA, DEFENDED THE CONCLUSION ARRIVED AT I N THE IMPUGNED ORDER BY CONTENDING THAT THE IMPUGNED ISSU E IS COVERED BY THE AFORESAID DECISION IN THE CASE OF AC E BUILDERS PVT. LTD. FROM HONBLE JURISDICTIONAL HIGH COURT. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPANY DECLARED INCOME OF RS.3,060/- IN H IS RETURN FILED ON 31 ST OCTOBER, 2009. THE ASSESSEE SOLD A FLAT AT MAKER TOWER, CUFFE PARADE, MUMBAI. THE ASSESSEE OFFERED CAPITAL GAIN OF RS.92,47,752/- AND CLAIMED DEDUCTION U/S 54EC OF THE ACT, INVESTING RS.1,00,00,000/- (RS.50 LAKH BEFORE 31/03 /2009 AND REMAINING RS.50 LAKH AFTER 31/03/2009 IN THE BONDS PRESCRIBED U/S 54EC OF THE ACT). THE ASSESSING OFFICER REJECTE D THE CLAIM OF M/S SHIVGOPAL TRADING COMPANY PVT. LTD . 4 THE ASSESSEE BY DISALLOWING THE EXEMPTION U/S 54EC OF THE ACT AND COMPUTED THE TAXABLE CAPITAL GAIN AMOUNTING TO RS.92,47,752/-. 2.3. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCO ME TAX (APPEALS), THE CLAIM OF THE ASSESSEE WAS EXAMINED A ND BY PLACING RELIANCE UPON THE DECISION FROM HONBLE JURISDICTIO NAL HIGH COURT IN CIT VS ACE BUILDERS PVT. LTD. (2005) 144 TAXMAN 855 (BOM.) AND ALLOWED THE CLAIM OF THE ASSESSEE. BEFORE, WE PROCEED FURTHER, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION FROM THE AFORESAID ORDER DATED 07/03/2005. DEEMED FICTION CREATED IN SS.(1) AND SS.(2) OF S.5 0 IS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CAPIT AL GAINS CONTAINED IN S.48 AND S.49 AND DOES NOT APPLY TO OT HER PROVISIONS. A FICTION CREATED BY THE LEGISLATURE H AS TO BE CONFINED TO THE PURPOSE FOR WHICH IT IS CREATED. F URTHER, S.54E DOES NOT MAKE ANY DISTINCTION BETWEEN DEPRECI ABLE ASSETS AND NON-DEPRECIABLE ASSETS. EXEMPTION AVAIL ABLE U/S 54E CANNOT BE DENIED BY REFERRING TO THE FICTIO N CREATED U/S 50. BENEFIT OF S.54E IS AVAILABLE TO THE ASSES SEE IRRESPECTIVE OF THE FACT THAT THE COMPUTATION OF CA PITAL GAINS IS DONE EITHER U/S 48 AND U/S 49 OR U/S 50. LEGAL FICTION CREATED BY THE STATURE IS TO DEEM THE CAPITAL GAIN AS SHORT TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET AS SHOR T TERM CAPITAL ASSET. THEREFORE, IT CANNOT BE SAID THAT S. 50 CONVERTS LONG TERM CAPITAL ASSET INTO A SHORT TERM CAPITAL A SSET. ACCORDINGLY, THE TRIBUNAL WAS JUSTIFIED IN ALLOWING EXEMPTION U/S 54E IN RESPECT OF THE CAPITAL GAINS A RISING ON THE TRANSFER OF A CAPITAL ASSET ON WHICH DEPRECIATI ON HAD BEEN ALLOWED. M/S SHIVGOPAL TRADING COMPANY PVT. LTD . 5 2.4. IF THE AFORESAID CONCLUSION BY THE HONBLE JUR ISDICTIONAL HIGH COURT IS APPLIED TO THE FACTS OF THE CASE. TH E ASSESSEE SOLD THE FLAT FOR RS.2,81,00,000/- AND PURCHASED THE NEW FLAT WITHIN PRESCRIBED TIME LIMIT FOR RS.1,69,21,367/-, THUS, THE NET CAPITAL GAIN WAS RS.92,47,752/-. THE ASSESSEE INVESTED RS.1,00,00,000/- IN PURCHASING THE NEW PROPERTY AND MAKING INVESTMENT U/S 54EC OF THE ACT, THUS, THE TAX PAYAB LE UNDER THE CAPITAL GAINS REMAINS NIL. THE ASSESSEE INVESTED RS .50 LAKH U/S 54EC IN NATIONAL HIGHWAY AUTHORITY OF INDIA BONDS A ND REMAINING RS.50 LAKH IN BONDS OF RURAL ELECTRIFICAT ION CORPORATION LTD. SECTION 50 AND SECTION 54EC ARE IN DEPENDENT PROVISIONS. SECTION 54E DOES NOT MAKE ANY DISTINCT ION BETWEEN DEPRECIABLE ASSET AND NON-DEPRECIABLE ASSET, THEREF ORE, EXEMPTION AVAILABLE TO DEPRECIABLE ASSET U/S 54E CA NNOT BE DENIED BY REFERRING TO FICTION CREATED U/S 50 OF TH E ACT. IN THE PRESENT FACTS, WE NOTE THAT THE ASSESSEE HAS FULFIL LED THE CONDITIONS SET OUT IN SECTION 54E OF THE ACT TO AVA IL EXEMPTION WHICH WAS DENIED BY THE ASSESSING OFFICER, IN VIEW OF FICTION CREATED U/S 50. SECTION 50 OF THE ACT MAKES IT EXP LICITLY CLEAR THAT THE DEEMING FICTION CREATED IN SUB SECTION (1) AND (2) OF SECTION 50 IS RESTRICTED ONLY TO THE MODE OF COMPUT ATION OF CAPITAL GAINS CONTAINED IN SECTION 48 AND 49 AND CA NNOT BE EXTENDED BEYOND THAT. EVEN OTHERWISE, IT IS WELL E STABLISHED IN LAW THAT A FICTION CREATED BY THE LEGISLATURE HAS T O BE CONFINED TO THE PURPOSE FOR IT WAS CREATED. SECTION 54E DOES NOT MAKE ANY DISTINCTION BETWEEN DEPRECIABLE AND NON-DEPRECIABLE ASSET, CONSEQUENTLY, THE EXEMPTION AVAILABLE U/S 54E CANNO T BE DENIED TAKING RESORT TO SECTION 50 OF THE ACT. SECTION 54 E OF THE ACT SPECIFICALLY PROVIDE THAT WHERE CAPITAL GAIN ARISIN G ON TRANSFER OF LONG TERM CAPITAL ASSET IS INVESTED OR DEPOSITED IN THE MANNER M/S SHIVGOPAL TRADING COMPANY PVT. LTD . 6 PRESCRIBED BY THE GOVERNMENT AT THE RELEVANT TIME I N THE SPECIFIED ASSET, THE ASSESSEE SHALL NOT BE CHARGED TO CAPITAL GAIN TAX. OUR VIEW IS SQUARELY COVERED BY THE DECISION F ROM HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ACE BUILDE RS (P.) LTD. (2005) 144 TAXMAN 855 (BOM.). THE RATIO LAID DOWN IN ADITYA MEDISALES LTD. (2013) 38 TAXMAN.COM 244 (GUJ.) ALSO SUPPORTS OUR VIEW. IDENTICAL RATIO WAS LAID DOWN IN CIT VS C. JAICHANDAR AND SHRI RAM INDUBAL I.C.(A) NOS.419 AND 533 OF 20 14 ORDER DATED 15/09/2014 FROM HONBLE MADRAS HIGH COURT. W E ARE ALSO FORTIFIED BY THE DECISION IN MS. LEELAWATI M. SAYANI VS ITO (2014) 49 TAXMAN.COM 579 (MUM. TRIBUNAL) AND ASPI G INWALA, SHREE RAM ENGINEERING & MFG. INDUSTRIES VS ACIT (20 12) 20 TAXMAN.COM 75 (AHD.), MRS RATI ANIL VIRWANI (ITA NO.817/MUM/2013) ORDER DATED 10/12/2014 AND DR. (MR S.) SUDHA S.TRIVEDI VS ITO (ITA NO.6040 & 6186/MUM/2007 ) ORDER DATED 20/02/2009. IN VIEW OF THESE FACTS AND JUDIC IAL PRONOUNCEMENTS DISCUSSED HEREINABOVE, WE FIND NO IN FIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INC OME TAX (APPEALS), THUS, APPEAL OF THE REVENUE IS DISMISSED . 3. NOW WE SHALL DEAL WITH THE CROSS OBJECTION PREFE RRED BY THE ASSESSEE. SO FAR AS, THE GROUND OF THE ASSESSEE IS THAT FULL RELIEF U/S 54EC OF THE ACT WAS NOT GRANTED TO THE ASSESSEE , THE LD. COUNSEL CONTENDED THAT UNTIL ASSESSMENT YEAR 2014-1 5, THE ASSESSEE CAN CLAIM EXEMPTION UP TO RS.10,00,000/- I N THE CAPITAL GAIN BONDS U/S 54EC WHICH IS SPREAD OVER A PERIOD OF TWO FINANCIAL YEARS AT RS.50 LAKH EACH. HOWEVER, SUCH INVESTMENT SHOULD BE MADE WITHIN A PERIOD OF SIX MONTH FROM TH E DATE OF TRANSFER, THUS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RS.42,47,752/- ON ACCOUNT M/S SHIVGOPAL TRADING COMPANY PVT. LTD . 7 RESTRICTED EXEMPTION AVAILABLE TO ONLY RS.50 LAKH U /S 54EC OF THE ACT. THE CRUX OF ARGUMENT IS THAT RESTRICTION WAS IMPOSED WITH EFFECT FROM 01/04/2015 VIDE FINANCE (NO.2) ACT , 2014. ON THE OTHER HAND, THE LD. DR, DEFENDED THE CONCLUSION ARRIVED AT BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TO THI S LIMITED ISSUE. 3.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. WITHOUT GOING INTO M UCH DELIBERATION, WE FIND THAT THE HONBLE MADRAS HIGH COURT IN A LATER DECISION IN CIT VS C. JAICHANDER & SRIRAM IND UBAL (T.C.(A). NO. 419 AND 533 OF 2014) ORDER DATED 15/09/2014 ALS O CONSIDERED THE AMENDMENT MADE BY FINANCE (NO.2) ACT , 2014. WE FIND THAT ON A PLAIN READING OF THE PROVISION, T HE HONBLE HIGH COURT HELD THAT SECTION 54EC (1) OF THE ACT RESTRIC T THE TIME LIMIT FOR THE PERIOD OF INVESTMENT AFTER THE PROPERTY WAS SOLD TO SIX MONTH AND THERE WAS NO CAP ON THE INVESTMENT TO BE MADE IN BONDS, MEANING THEREBY, AS PER THE MANDATE OF SECTI ON 54EC(1) OF THE ACT, THE TIME LIMIT FOR INVESTMENT IS SIX MO NTH AND THE BENEFIT THAT FLOWS FROM THE FIRST PROVISO IS THAT I F THE ASSESSEE MAKES THE INVESTMENT OF RS.50 LAKH IN ANY FINANCIAL YEAR, IT WOULD HAVE BENEFIT OF SECTION 54EC (1) OF THE ACT. HOWEVER, THE AMBIGUITY, IF ANY, WAS REMOVED BY THE LEGISLATURE W ITH EFFECT FROM 01/04/2015. IDENTICAL RATIO WAS LAID DOWN IN MS. L EELAWATI M. SIYANI VS ITO (ITA NO.6619/MUM/2013). THUS, THE AS SESSING OFFICER IS DIRECTED TO EXAMINE THE CLAIM OF THE ASS ESSEE AND ALLOW THE EXEMPTION UP TO RS.1 CRORE IF THE INVESTMENT IS FOUND TO BE MADE WITHIN SIX MONTH IN TWO DIFFERENT FINANCIAL YE ARS. ACCORDINGLY, THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. M/S SHIVGOPAL TRADING COMPANY PVT. LTD . 8 FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STAT ISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSI ON OF THE HEARING ON 13/01/2015. - ' *+, . / 13/01/2015 + ' 5 SD/- (SANJAY ARORA) SD/- (JOGINDER SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; . DATED : 15/01/201 5 F{X~{T? P.S/. .. - ' 7&8 98,& - ' 7&8 98,& - ' 7&8 98,& - ' 7&8 98,&/ COPY OF THE ORDER FORWARDED TO : 1. :; / THE APPELLANT 2. 7<:; / THE RESPONDENT. 3. = ( ) / THE CIT, MUMBAI. 4. = / CIT(A)- , MUMBAI 5. 8?5 7& , , / DR, ITAT, MUMBAI 6. 5@$ A / GUARD FILE. - - - - / BY ORDER, <8& 7& //TRUE COPY// B BB B/ // /C # C # C # C # (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI