K.V.P. Boominathan, CHENNAI V. ITO, CHENNAI

ITA 2552/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8062 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 31-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: KARUNAKARAN
• Keywords: Capital asset; Depreciation; Capital Gains
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 54F; 201; 48

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.2552/MDS./2016 / ASSESSMENT YEAR : 2013-14 MR.K.V.P.BOOMINATHAN , THIRUVALLUVAR ROAD, KODUGAIYUR, CHENNAI-600 051. VS. THE ITO, CORPORATE WARD 1(2), CHENNAI-34. [PAN AAEPB 7356 G ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : SHRI KARUNAKARAN,ADVOCATE /RESPONDENT BY : SHRI SHIVA SRINIVAS, JCIT D.R / DATE OF HEARING : 26 - 12 - 2016 / DATE OF PRONOUNCEMENT : 25 - 01 - 2017 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1,CHENNAI DATED 27.07.2016 PERTAINING TO ASSESSMENT YEAR 2013-14. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS F OR OUR ADJUDICATION. ITA NO.2552/15 :- 2 -: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 54F WOULD NO T APPLY TO THE CAPITAL GAINS ON DEPRECIABLE ASSET ASSESSED UNDER S ECTION 50 OF THE ACT. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE SEEN THAT THE CAPITAL GAINS FOR DEPRECIABLE ASSETS COMPUTED IN THE MANNER PRESCRIBED U/S 50 SHALL BE CHARGED AS SHORT CAPITAL ASSET BUT IF SUCH CAPITAL GAINS IS INVSESTED IN THE MANNE R PRESCRIBED IN SECTION 54EC/54F, THEN SUCH CAPITAL GAINS SHALL NOT BE CHARGED UNDER SECTION 45 OF THE ACT. 3. THE APPELLANT SUBMITS THAT THE BENEFIT OF SECTIO N 54E 154F WILL BE AVAILABLE TO THE ASSESSEE IRRESPECTIVE OF THE FACT THAT THE COMPUTATION OF CAPITAL GAINS IS DONE U/S 50. THE LE GAL FICTION CREATED BY THE STATUTE IS TO DEEM THE CAPITAL GAIN AS SHORT-TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET AS SHORT-TER M CAPITAL ASSET. THEREFORE, IT CANNOT BE SAID THAT SECTION 50 CONVER TS A LONG-TERM CAPITAL ASSET INTO A SHORT-TERM CAPITAL ASSET. 4. THE APPELLANT THEREFORE SUBMITS THAT HE IS ENTIT LED TO DEDUCTION U/S 54F OF THE ACT ON THE CAPITAL GAINS COMPUTED UNDER SECTION 50 OF THE ACT. 5. THE APPELLANT SUBMITS THAT HE HAS SATISFIED ALL THE CONDITIONS LAID DOWN IN SECTION 54F OF THE ACT TO CLAIM THE EXEMPTI ON AS HE DID NOT OWN MORE THAN ONE RESIDENTIAL HOUSE AND INVESTED TH E SALE CONSIDERATION IN THE NEW RESIDENTIAL HOUSE WITHIN T HE TIME PRESCRIBED UNDER SECTIN5 OF THE ACT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND FILED HIS RETURN OF INCOME DECLARING A TOTAL INCOME OF ` 2,76,620/-. THE ASSESSEE WAS A DIRECTOR OF M/S.BOOMI BOTTLING GAS C OMPANY PVT LTD. THE AO NOTICED THAT THE ASSESSEE IN HIS CAPACITY A S PROPRIETOR OF ITA NO.2552/15 :- 3 -: M/S.BOOMI BOTTLING GAS COMPANY ALONG WITH M/S.BOOMI BOTTLING COMPANY PVT LTD. HAD TRANSFERRED A VACNT LAND ALONG WITH BUILDING AND MACHINERIES THEREON TO ONE M/S.SOUTH INDIA GAS AGEN CIES P. LTD. THE LAND AND BUILDING WAS TRANSFERRED TO M/S.SOUTH INDI A GAS AGENCIES P. LTD. FOR A SALE CONSIDERATION OF ` 1,70,00,000/- IN RESPECT OF LAND AND ` 1,55,00,000/- IN RESPECT OF BUILDING AND PLANT AND MACHINERY. THE SAID PROPERTY WAS SITUATED AT RUDRAVATHY TOWN PANCHAYAT, KUNDAM VILLAGE, DHARAPURAM TALUK, TIRUPPUR DISTRICT-638 THE AO NOT ICED THAT THE APPELLANT HAS CLAIMED EXEMPTION U/S 54F TREATING THE GAIN ARI SING OUT OF THE TRANSFER OF THE CAPITAL ASSET BEING A LONG-TERM CAPITAL GAIN . 3.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE AO OBSERVED THAT THE LAND WAS ORIGINALLY PURCHASED BY M/S BOOMI BOTT LING P LTD ON 28.7.1994 WHICH WAS REGISTERED IN DOCUMENT NO.1829/1994 IN BO OK NO.1 VOLUME NO.1809 PAGE 111-115 IN THE SRC DHARAPURAM. THAT ON 8.11.1994, THE ASSESSEE TOOK THE POSSESSION OF THE LAND BY WAY OF LEASE FOR 30 YEARS TO ESTABLISH A LPG GAS BOTTLING INDUSTRY. THAT THE ASS ESSEE WAS DOING BUSINESS THEREIN AND CLAIMED REGULARLY DEPRECIATION FOR THE BUILDING AS WELL AS THE PLANT & MACHINERY IN HIS RETURNS FILED BEFORE THE A O. THE AO FURTHER OBSERVED THAT SINCE THE APPELLANT HAS TRANSFERRED O NLY HIS SHARE OF BUILDING AND PLANT AND MACHINERY THEREON, THE GAIN ARISING O UT OF THE TRANSFER OF A DEPRECIABLE ASSET HAS TO BE ASSESSED ONLY U/S 50 OF THE ACT. THE AO STATED THAT THE APPELLANT HAD CLAIMED DEPRECIATION FOR THE ABOVE BUILDING AND PLANT & MACHINERY AT THE RATE OF 10% AND 15% RESPECTIVELY AND ACCORDINGLY THE ITA NO.2552/15 :- 4 -: WDV AS ON 31.3.2012 COMES TO RS.10,96,698 AND RS.2, 59,743 RESPECTIVELY. THAT THE GAIN ARISING OUT OF THE TRANSFER OF THE CA PITAL ASSET HAS TO IJ BY TAKING THESE FIGURES OF OPENING BALANCE AS ON 1.4.2 012. THE AO COMPUTED THE SHORT TERM CAPITAL GAINS AS UNDER: STCG FOR BUILDING SALE CONSIDERATION FOR BUILDING RS.1,40,00,000 LESS: COST OF THE BUILDING AS ON 01.04.2012 RS. 10,96,698 (WDV AS PER L.T. RETURN FILED FOR AY 2012-13) CHARGEABLE SHORT TERM CAPITAL GAIN U/S 50 RS.1,29,03,302 STCG FOR PLANT & MACHINERY SALE CONSIDERATION FOR PLANT & MACHINERY RS.15,00,0 00 LESS: COST OF THE P & M AS ON 1.4.2012 (WDV AS PER L.T. RETURN FILED FOR AY 201 2-13) RS.2 ,59,743 CHARGEABLE SHORT TERM CAPITAL GAIN U/S 50 RS.12,4 0,257 THE AO FURTHER STATED THAT EVEN IF IT IS ASSUMED TH AT THE CLAIM OF APPELLANT IN RESPECT OF LONG-TERM CAPITAL GAIN IS ALLOWED, THE C LAIM U/S 54F IN RESPECT OF INVESTMENT IN NEW PROPERTY SHOULD NOT BE ALLOWED ON THE BASIS THAT (I) THE NEW INVESTMENT IS NOT A RESIDENTIAL PROPERTY (II) T HE APPELLANT ALREADY OWNS A RESIDENTIAL HOUSE PROPERTY. 3.2 REGARDING ITEM NO.(I) THE AO STATED THAT AS PE R SALE DEED DATED 31.12.2012 THE ASSESSEE HAS INVESTED ` 1 ,30,00,000 ON A VACANT LAND ALONG WITH INCOMPLETED HOUSE AS PER PAGE NO.4 OF THE DO CUMENT AND THAT THE BALANCE-SHEET FILED ALONG WITH THE RETURN OF INCOME FOR A.Y. 201 3-14 SHOWED INVESTMENT ON LAND AT COST OF ` 1,93,05,900. THAT IT IS INCLUDING THE LAND FOR WHICH THE APPELLANT CLAIMED DEDUCTION U/S 54F THAT THE ASSESSEE HAS NOT INVESTED ANY AMOUNT IN RESIDENTIAL HOUSE PROPER TY. HENCE, THE AO DENIED THE EXEMPTION CLAIMED BY THE ASSESSEE AND AS SESSED THE INCOME AS ITA NO.2552/15 :- 5 -: SHORT TERM CAPITAL GAINS U/S.50 OF THE ACT. AGGRIEV ED, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). 4. ON APPEAL, LD.CIT(A) OBSERVED THAT SPECIAI PRO VISION FOR COMPUTATION OF CAPITAL GAINS IN CASE OF DEPRECIABLE ASSETS IS P ROVIDED FOR IN S.50 OF THE L.T.ACT, STARTS WITH THE NON-OBSTANTE CLAUSE THAT NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE (42A) OF S.2, WHERE THE DEPRECI ATION HAS BEEN ALLOWED UNDER THIS ACT THE PROVISIONS OF S.48 & 49 SHALL BE SUBJECT TO THE FOLLOWING MODIFICATIONS SUCH EXCESS SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING FROM THE TRANSFER OF SHORT TERM CAPITAL ASSETS. SE C.2(42A) DEFINES SHORT- TERM CAPITAL ASSETS AND SEEKS TO MEAN A CAPITAL AS SET HELD BY AN ASSESSEE FOR NOT MORE THAN 36 MONTHS IMMEDIATELY PRECEDING T HE DATE OF TRANSFER. SEC.2(42B) PROVIDES SHORT-TERM CAPITAL GAIN MEANS CAPITAL GAINS ARISING FROM TRANSFER OF A SHORT-TERM CAPITAL ASSET. SEC.54 F PROVIDES FOR NOT CHARIJ.OF QPI GAINS ON TRANSFER OF CERTAIN CAPITAL ASSETS AND SQUARELY APPLIES TO TRANSFER OF ALL LONG-TERM CAPITAL ASSETS. 4.1 ACCORDING TO CIT(A), SEC.50 PROVIDES BY WAY O F CREATING A FICTION WHEREBY ALL GAINS ARISING FROM TRANSFER OF DEPRECIA BLE ASSETS WOULD CONSTITUTE SHORT-TERM CAPITAL GAINS ARISING FROM TR ANSFER OF SHORT-TERM CAPITAL ASSETS. THEREFORE A CONJUNCTIVE READING OF S.50 ALO NG WITH S.2(42B) WHICH DEFINES SHORT-TERM CAPITAL GAIN DOES VALIDATE THE P ROPOSITION THAT GAINS ARISING FROM THE SALE OF DEPRECIABLE ASSETS WOULD C ONSTITUTE SHORT-TERM CAPITAL GAINS. THE JURISDICTIONAL HIGH COURT IN CIT V. BHARANI PICTURES 129 ITR 244 (MAD) HAVE HELD THAT STATUTORY FICTION INTRODUC ED IN ONE ENACTMENT CANNOT BE INCORPORATED IN ALL OTHER ACTS. THEY ARE ONLY FOR A DEFINITE PURPOSE ITA NO.2552/15 :- 6 -: FOR WHICH THEY ARE CREATED. HAVING HELD THE SAME TO BE SHORT-TERM CAPITAL GAINS ARISING FROM SHORT-TERM CAPITAL ASSETS OBVIOU SLY THE PROVISIONS OF S.54F WOULD NOT APPLY. THE HONBLE SUPREME COURT IN THE C ASE OF ORISSA STATE WAREHOUSING CORPORATION V. CIT 237 ITR 589 HAVE LAI D DOWN THAT A FISCAL STATUTE IS TO BE INTERPRETED ON THE BASIS OF THE LA NGUAGE USED THEREIN AND NOT DE HORS THE SAME. NO WORDS OUGHT TO BE ADDED AN D ONLY THE LANGUAGE USED OUGHT TO BE CONSIDERED SO AS TO ASCERTAIN THE PROPER MEANING AND INTENT OF THE LEGISLATION. HENCE, THE LD.CIT(A) CO NFIRMED THE ACTION OF THE LD. ASSESSING OFFICER. AGAINST THIS, THE ASSESSEE I S IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE CAME FOR CONSIDERATION BEFORE THE HONBL E SUPREME COURT IN THE CASE OF CIT VS. V.S.DEMPO COMKPANY LTD REPORTED IN [2016] 74 TAXMANN.COM 15(SC) WHEREIN THEY HAVE APPROVED THE J UDGEMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. ACE BUILDERS (P.) LTD., IN 281 ITR 210 WHEREIN HELD THAT:- IN OUR OPINION, THE ASSESSEE CANNOT BE DENIED EXEM PTION UNDER SECTION 54E, BECAUSE, FIRSTLY, THERE IS NOTHING IN SECTION 50 TO SUGGEST THAT THE FICTION CREATED IN SECTION 50 IS N OT ONLY RESTRICTED TO SECTIONS 48 AND 49 BUT ALSO APPLIES TO OTHER PROVIS IONS. ON THE CONTRARY, SECTION 50 MAKES IT EXPLICITLY CLEAR THAT THE DEEMED FICTION CREATED IN SUB-SECTIONS (1) AND (2) OF SECTION 50 I S RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CAPITAL GAINS CONTAINED IN SECTIONS 48 AND 49. SECONDLY, IT IS WELL ESTABLISHED IN LAW THA T A FICTION CREATED BY THE LEGISLATURE HAS TO BE CONFINED TO THE PURPOS E FOR WHICH IT IS CREATED. IN THIS CONNECTION, WE MAY REFER TO THE DE CISION OF THE APEX COURT IN THE CASE OF STATE BANK OF INDIA V. D. HANUMANTHA RAO REPORTED IN [1998] 6 SCC 183. IN THAT CASE, THE SER VICE RULES ITA NO.2552/15 :- 7 -: FRAMED BY THE BANK PROVIDED FOR GRANTING EXTENSION OF SERVICE TO THOSE APPOINTED PRIOR TO JULY 19, 1969. THE RESPOND ENT THEREIN WHO HAD JOINED THE BANK ON JULY 1, 1972, CLAIMED EXTENS ION OF SERVICE BECAUSE HE WAS DEEMED TO BE APPOINTED IN THE BANK W ITH EFFECT FROM OCTOBER 26, 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 COU RT HAS HELD THAT THE LEGAL FICTION CREATED FOR THE LIMITED PURPOSE O F SENIORITY, PAY AND PENSION CANNOT BE EXTENDED FOR OTHER PURPOSES. APPL YING THE RATIO OF THE SAID JUDGMENT, WE ARE OF THE OPINION, THAT T HE FICTION CREATED UNDER SECTION 50 IS CONFINED TO THE COMPUTATION OF CAPITAL GAINS ONLY AND CANNOT BE EXTENDED BEYOND THAT. THIRDLY, SECTIO N 54E DOES NOT MAKE ANY DISTINCTION BETWEEN DEPRECIABLE ASSET AND NON- DEPRECIABLE ASSET AND, THEREFORE, THE EXEMPTION AVA ILABLE TO THE DEPRECIABLE ASSET UNDER SECTION 54E CANNOT BE DENIE D BY REFERRING TO THE FICTION CREATED UNDER SECTION 50. SECTION 54 E SPECIFICALLY PROVIDES THAT WHERE CAPITAL GAIN ARISING ON TRANSFE R OF A LONG-TERM CAPITAL ASSET IS INVESTED OR DEPOSITED (WHOLE OR AN Y PART OF THE NET CONSIDERATION) IN THE SPECIFIED ASSETS, THE ASSESSE E SHALL NOT BE CHARGED TO CAPITAL GAINS. THEREFORE, THE EXEMPTION UNDER SECTION 54E OF THE INCOME-TAX ACT CANNOT BE DENIED TO THE A SSESSEE ON ACCOUNT OF THE FICTION CREATED IN SECTION 50. FURHTER, THEY HAVE ALSO APPROVED THE GUJARAT HIGH C OURT IN THE CASE OF CIT VS. POESTAR INDUSTIES IN [2014] 41 TAXMANN.COM 237(GUJ.) AND CIT VS. ASSAM PEROLEUM INDUSTRIES (P.) LTD. IN [200 3] 262 ITR 587(GAU.). 5.1 IN VIEW OF THE ABOVE, WE ARE OF THE OPINION TH AT THE FICTION CREATED UNDER SUB-SECTION (1) & (2) OF SEC.50 OF TH E ACT IS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CAPITAL GAINS IN SEC.48 & SEC.49 OF ITA NO.2552/15 :- 8 -: THE ACT AND DOES NOT APPLY TO OTHER PROVISIONS. AS SUCH CAPITAL GAINS ON SALE OF BUILDING AND PLANT & MAHCINERY ON TRANSF ER OF THE SAME TO BE COMPUTED AS LONG TERM CAPITAL GAINS, THOUGH IT I S A DEPRECIABLE ASSET. ACCORDINGLY, WE REMIT THE ISSUE TO THE FILE OF CIT(A) TO CONSIDER IT ACCORDINGLY. THEREAFTER, LD.CIT(A) TO EXAMINE WH ETHER THE ASSESSEE IS FULFILLED THE CONDITION LAID DOWN U/S.54F OF THE ACT SO AS TO GRANT THE SAID DEDUCTION AND DECIDE ACCORDINGLY. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 25TH JANUARY, 2017, AT CHENNAI . SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 25 TH JANUARY, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF