PERVIS NAVROJI SETHNA, MUMBAI V. I.T.O.23(1)(4), MUMBAI

ITA 2595/MUM/2012

• Counselvise Citation: 259519914 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 17-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A
• Assessee Lawyers: DR K SIVARAM; SANJAY R PARIKH IZRFKHZ DH LS
• Keywords: Capital asset; Depreciation; Cost of acquisition

Judgement Text

PERVIS NAVROJI SETHNA - 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH JKTSUNZ FLAG YS[KK LNL; ,OA JH LAT; XXZ U;KF;D L NL; DS LE{K BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO.2595/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2008-09 PERVISH NAVROJI SETHNA A-1401, LAKE CASTLE, HIRANANDANI, POWAI, MUMBAI 400 076. CUKE@ VS. INCOME TAX OFFICER 23(1)(4) MUMBAI. VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY DR. K. SIVARAM & SHRI SANJAY R. PARIKH IZR;FKHZ DH VKSJ LS @ RESPONDENT BY SHRI R.A PANT VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 23.1.2012 OF CIT(A) FOR THE ASSESSMENT YEAR 2008-09. THE FIRST D ISPUTE IS REGARDING NATURE OF RENTAL INCOME RECEIVED BY THE ASSESSEE FROM LETTING OUT OF THE HOUSE PROPERTY. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WAS OWN ER OF THE FACTORY PREMISES AT 29, KANJUR VILLAGE ROAD, KANJUR (E) MUMBAI-42. THE FACTORY HAD BEEN BUILT ON LAND ADMEASURING ABOUT 8,00,000 SQ. FT. PURCHASED I N 1968. THE ASSESSEE WAS CARRYING ON THE BUSINESS IN THE NAME AND STYLE OF M /S CHINA DCOR. THE BUSINESS LQUOKBZ DH RKJH[K@ DATE OF HEARING 30-7-2013 ?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT 07-8-2013 PERVIS NAVROJI SETHNA - 2 - OF THE ASSESSEE WAS DISCONTINUED DURING THE ASSESSM ENT YEAR 2005-06 DUE TO ILL HEALTH OF THE ASSESSEE AND FACTORY PREMISES WERE LE T OUT BY THE ASSESSEE ON RENT. THE RENTAL INCOME HAD BEEN OFFERED BY THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSEE DURING THE ASSESSMENT YEAR 2008-09 SOLD THE SAID FACTORY BUILDING AND LAND FOR TOTAL CONSIDERATION O F RS. 3,22,20,000/-. OF WHICH RS. 1,87,20,000/- RELATED TO LAND AND RS. 1,35,00,0 00/- RELATED TO FACTORY BUILDING. THE ASSESSEE COMPUTED THE LONG TERM CAPIT AL GAIN IN RESPECT OF SALE OF LAND AFTER DEDUCTING THE INDEXED COST OF ACQUISITIO N AT RS. 48,14,800/-. THE ASSESSEE HAD INVESTED A SUM OF RS. 50,00,000/- IN R EC CAPITAL BONDS AND, THEREFORE, THE SAID CAPITAL GAIN WAS CLAIMED AS EXE MPT. THE ASSESSEE HAD ALSO PURCHASED FIVE SHOPS FOR A TOTAL CONSIDERATION OF R S. 1,42,82,720/-. THE ASSESSEE CLAIMED EXEMPTION IN RESPECT OF SALE OF BUILDING ON THE GROUND THAT THE SALE CONSIDERATION HAD BEEN INVESTED IN COMMERCIAL ASSET S LIKE SHOPS. THE AO HOWEVER DID NOT ACCEPT THE COMPUTATION MADE BY THE ASSESSEE . IT WAS OBSERVED BY HIM THAT THE ENTIRE BUILDING HAD BEEN TREATED AS A CAPITAL A SSET INCOME FROM WHICH HAD BEEN DECLARED BY THE ASSESSEE UNDER THE HEAD INCOM E FROM HOUSE PROPERTY. THE ASSESSEE HAD NOT TREATED THE BUILDING AS A BUSINESS ASSET SINCE ASSESSMENT YEAR 2005-06. THE AO, THEREFORE, REJECTED THE CLAIM OF T HE ASSESSEE OF SHOWING THE PROPERTY AS BUSINESS ASSET. HE CONSIDERED THE ENTIR E SALE CONSIDERATION TOWARDS SALE OF LAND AND BUILDING TREATING BOTH AS LONG TER M CAPITAL ASSET MARKET VALUE OF WHICH AS ON 1.4.1981 WAS 38,97,000/-. HE DETERMINED THE COST OF ACQUISITION AT RS. 21472470/- AND THE LONG TERM CAPITAL GAIN WAS C OMPUTED AT RS. 10727530/- AND AFTER ALLOWING DEDUCTION U/S 54EC, THE LONG TER M CAPITAL GAIN WAS ASSESSED AT RS. 5727530/-. 2.1 THE ASSESSEE DISPUTED THE DECISION OF AO AND SU BMITTED BEFORE CIT(A) THAT IT HAD CORRECTLY COMPUTED THE CAPITAL GAIN SEPARATE LY IN RESPECT OF LAND AND BUILDING. IT WAS POINTED OUT THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE BUILDING AND, THEREFORE THE ASSET BEING A DEPRECIAB LE ASSET, THE CAPITAL GAIN HAD TO BE COMPUTED U/S 50. SINCE THE ASSESSEE HAD PURCHASE D SHOPS FOR RS. 1,42,82,720/- WHICH WAS HIGHER THAN THE SALE CONSID ERATION IN RESPECT OF BUILDING, THE ASSESSEE WAS NOT LIABLE TO CAPITAL GAIN U/S 50 OF THE INCOME TAX ACT. THE ASSESSEE ALSO SUBMITTED THAT THE AO HAD NOT ALLOWED DEDUCTION OF EXPENSES PERVIS NAVROJI SETHNA - 3 - RELATING TO TRANSFER AMOUNTING TO RS. 6,20,000/- WH ICH RELATED TO BROKERAGE, LEGAL FEES ETC. 2.2. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE, OBSERVED THAT THE LAND AND BUILDING WERE BUSINESS ASSETS WHICH WERE L ET OUT. ON THE BUILDING, DEPRECIATION HAD BEEN CLAIMED. CIT(A), THEREFORE HE LD THAT RENTAL INCOME HAD TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND NOT AS IN COME FROM HOUSE PROPERTY. CIT(A) ALSO OBSERVED THAT THE BUILDING WAS A DEPRE CIABLE ASSET ON WHICH DEPRECIATION HAD BEEN GRANTED EARLIER AND, THEREFOR E, EVEN IF THE ASSESSEE DID NOT CLAIM DEPRECIATION IN THE SUBSEQUENT PERIOD WHEN TH E BUILDING HAD BEEN LET OUT, SECTION 50 WAS APPLICABLE IN CASE OF THE ASSESSEE. HE REFERRED TO THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN CASE OF CHHABRIA TRUST ( 87 ITD 181) IN WHICH IT HAS BEEN HELD THAT IN CASE THE DEPRECIATION HAD BEEN AL LOWED IN THE EARLIER YEARS IN RESPECT OF AN ASSET, THE CAPITAL GAIN HAS TO BE COM PUTED U/S 50 OF THE INCOME TAX ACT EVEN IF NO DEPRECIATION HAD BEEN CLAIMED AND AL LOWED IN THE YEAR UNDER CONSIDERATION. CIT(A) ALSO REFERRED TO THE DECISION OF TRIBUNAL IN CASE OF NAROTAMDAS BHAU VS. ACIT (15 SOT 629) FOR THE SAID PROPOSITION. CIT(A) ACCORDINGLY HELD THAT SECTION 50 WOULD BE APPLICABL E IN CASE OF THE ASSESSEE EVEN THOUGH THE ASSESSEE HAD NOT CARRIED ON THE BUSINESS FROM ASSESSMENT YEAR 2005- 06. CIT(A) ACCORDINGLY HELD THAT THE CAPITAL GAIN I N RESPECT OF SALE OF BUILDING HAS TO BE COMPUTED AS SHORT TERM CAPITAL GAIN U/S 50 OF THE INCOME TAX ACT AND THE ASSESSEE WILL BE ELIGIBLE FOR DEDUCTION ON ACCOUNT OF PURCHASE OF SHOPS FOR RS. 1,42,82,720/-. CIT(A) ALSO HELD THAT THE ASSESSEE W ILL BE ENTITLED FOR EXEMPTION U/S 54EC IN RESPECT OF REC CAPITAL BONDS IN RESPECT OF LONG TERM CAPITAL GAIN. CIT(A) FURTHER HELD THAT THE ASSESSEE HAD TO BE ALLOWED DE DUCTION ON ACCOUNT OF EXPENSES INCURRED IN CONNECTION WITH TRANSFER AMOUNTING TO R S. 6,20,000/-. AGGRIEVED BY THE DECISION OF CITA() THE ASSESSEE IS IN APPEAL BE FORE TRIBUNAL. 3 WE FIRST TAKE UP THE DISPUTE REGARDING THE ORDER OF CIT(A) HOLDING THAT THE RENTAL INCOME HAS TO BE ASSESSED AS INCOME FROM OTH ER SOURCES AND THE DIRECTION TO THE AO TO RE-OPEN THE ASSESSMENTS OF EARLIER YEA RS. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE BUSINESS OF THE ASSESSE E HAD BEEN CLOSED AND THE ASSET CONSISTING OF LAND AND BUILDING HAD BEEN LET OUT BY THE ASSESSEE FOR WHICH PERVIS NAVROJI SETHNA - 4 - THERE IS A SPECIFIC HEAD I.E. INCOME FROM HOUSE P ROPERTY. THEREFORE, THE RENTAL INCOME HAD BEEN RIGHTLY OFFERED BY THE ASSESSEE AND ALSO ACCEPTED BY THE AO AS INCOME FROM HOUSE PROPERTY. CIT(A) WAS THEREFORE NO T CORRECT IN HOLDING THAT INCOME HAS TO BE ASSESSED AS INCOME FROM OTHER SOUR CES AND IN DIRECTING THE AO TO REOPEN THE ASSESSMENTS. LEARNED DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 3.1 WE HAVE PERUSED THE RECORDS AND CONSIDERED MATT ER CAREFULLY. THE DISPUTE REGARDING NATURE OF INCOME RECEIVED BY THE ASSESSEE FROM LETTING OUT OF THE BUILDING. THE ASSESSEE WAS EARLIER CARRYING ON THE BUSINESS FROM THE SAID BUILDING AS A FACTORY WHICH WAS CLOSED AND, THERAFTER, LET O UT THE BUILDING AND INCOME HAD BEEN OFFERED AS INCOME FROM HOUSE PROPERTY. THE CLA IM OF THE ASSESSEE HAS BEEN ACCEPTED IN THE EARLIER YEARS AS HOUSE PROPERTY INC OME U/S 143 (3) OF THE INCOME TAX. THERE IS A SPECIFIC HEAD I.E. INCOME FROM HO USE PROPERTY FOR ASSESSMENT OF RENTAL INCOME FROM PROPERTY AND, THEREFORE, THE SAM E CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) HOLDING THAT THE RENTAL INCOME HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND DIRECTING THE AO TO RE-OPEN THE ASSESSMENT FOR THE EARLIER YEARS. THE GROUND RAISED BY THE ASSESSEE ARE, THEREFORE, ALLOWED. 4. THE SECOND DISPUTE IS REGARDING NOT CONSIDERING THE ADDITION TO BLOCK OF ASSET FOR COMPUTING THE SHORT TERM CAPITAL GAIN IN RESPECT OF SALE OF BUILDING. THIS GROUND AT THE TIME OF HEARING OF THE APPEAL WAS NOT PRESSED BY THE LEARNED AR. THEREFORE, THE GROUND IS DISMISS ED AS NOT PRESSED. 5. THE THIRD DISPUTE IS REGARDING THE ORDER OF CIT( A) HOLDING THAT THE ASSESSEE WAS NOT ENTITLED FOR EXEMPTION U/S 54EC IN RESPECT OF SHORT TERM CAPITAL GAIN COMPUTED U/S 50 OF THE INCOME TAX ACT . THE LEARNED AR FOR THE ASSESSEE ARGUED THAT THE ASSESSEE WAS ENTITLED FOR EXEMPTION U/S 54EC IN RESPECT OF CAPITAL GAIN COMPUTED U/S 50 OF THE I T ACT. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE HIGH COURT OF BOM BAY IN CASE OF ACE PERVIS NAVROJI SETHNA - 5 - BUILDERS P. LTD. (281 ITR 210. LEARNED DR ON THE OT HER HAND PLACED RELIANCE ON THE ORDER OF CIT(A). 5.1 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXEMPTION U/S 54EC IN RESPECT OF SHORT TERM CAPITAL GAIN COMPUTED U/S 50 OF THE IT A CT. THERE IS NO DISPUTE THAT THE ASSET HAD BEEN HELD FOR MORE THAN THREE YE ARS BUT THE INCOME HAD BEEN COMPUTED AS SHORT TERM CAPITAL GAIN U/S 50. TH E ISSUE WHETHER THE ASSESSEE WILL BE ENTITLED TO EXEMPTION U/S 54EC ETC IN RESPECT OF SUCH SHORT TERM CAPITAL GAIN HAD BEEN CONSIDERED BY THE HONBL E HIGH COURT OF BOMBAY IN CASE OF ACE BUILDERS PVT. LTD. (SUPRA). THE HONBLE HIGH COURT WHILE DEALING WITH THE SIMILAR EXEMPTION U/S 54E HE LD THAT THERE WAS NO DISTINCTION OF DEPRECIABLE AND NON DEPRECIABLE ASSE TS U/S 54E AND, THEREFORE, IT WOULD APPLY EVEN IN RESPECT OF SALE O F DEPRECIABLE ASSETS. THE FACTS IN THE PRESENT CASE ARE IDENTICAL. WE, THEREF ORE, HOLD THAT THE ASSESSEE WILL BE ENTITLED FOR EXEMPTION U/S 54EC EVEN IN RES PECT OF SHORT TERM CAPITAL GAIN COMPUTED U/S 50 OF THE INCOME TAX ACT AS THE ASSETS HAD BEEN HELD BY THE ASSESSEE FOR MORE THAN THREE YEARS. 6. THE FOURTH DISPUTE IS REGARDING NON ALLOCATION O F TRANSFER EXPENSES TOWARDS THE SALE OF BUILDING. THE CIT(A) HELD THAT EXPENSES INCURRED BY THE ASSESSEE IN CONNECTION WITH TRANSFER HAVE TO BE ALL OCATED ONLY TOWARDS LONG TERM CAPITAL GAIN ON SALE OF LAND. THE LEARNED AR F OR THE ASSESSEE ARGUED THAT PART OF THE EXPENSES HAD ALSO BEEN INCURRED FO R SELLING THE BUILDING AND, THEREFORE, PART OF THE EXPENSES MUST BE ALLOCA TED TOWARDS THE COMPUTATION OF CAPITAL GAIN FROM SALE OF BUILDING. THE LEARNED DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDER OF CIT(A). 6.1 WE HAVE PERUSED THE RECORDS AND CONSIDERED MATT ER CAREFULLY. THE DISPUTE IS REGARDING ALLOCATION OF PROPERTY TRANSFE R EXPENSES TOWARDS THE PERVIS NAVROJI SETHNA - 6 - SALE OF BUILDING. THE ASSESSEE HAD SOLD THE LAND AL ONG WITH BUILDING AND THE SALE CONSIDERATION HAD BEEN ALLOCATED TOWARDS THE L AND AND BUILDING SEPARATELY. THE ASSESSEE HAD INCURRED CERTAIN EXPEN SES SUCH AS BROKERAGE, LEGAL FEES ETC. IN CONNECTION WITH TRANSFER OF THE BUILDING ALONG WITH LAND. TOTAL EXPENSES INCURRED WAS RS. 6,20,000/-. CIT(A) HAS ALLOCATED THE ENTIRE EXPENSES TOWARDS THE LONG TERM CAPITAL GAIN FROM TH E SALE OF LAND. THE ASSESSEE HAS HOWEVER CLAIMED THAT PART OF THE EXPEN SES SHOULD ALSO BE ALLOCATED TOWARDS THE BUILDING WHILE COMPUTING THE CAPITAL GAIN U/S 50 OF THE IT ACT. WE FIND THAT SECTION 50 CONTAINS SPECIF IC PROVISION FOR ALLOWING EXPENSES INCURRED WHOLLY AND EXCLUSIVELY IN CONNECT ION WITH TRANSFER OF ASSET. THEREFORE, IN OUR VIEW, PART OF THE EXPENSES HAVE TO BE ALLOCATED TOWARDS THE SALE OF BUILDING. SINCE IT WAS A COMPOS ITE SALE, IN OUR VIEW 50% OF THE EXPENSES HAVE TO BE ALLOCATED TOWARDS TH E SALE OF LAND AND BALANCE 50% TOWARDS THE SALE OF BUILDING. WE ORDER ACCORDINGLY. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7-8- 2013 SD/- SD/- (SANJAY GARG) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED .8.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI