DCIT 3(2), MUMBAI V. NIKHIL PRADIP BHATIA, MUMBAI

ITA 5737/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1524 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2005-2006
• Appeal Filed On: 27-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA JHA
• Keywords: Capital asset; Depreciation; Question of law; Benefit of exemption; Capital Gains
• Section: 54EC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, F, MUMBAI BEFORE SHRI R.S.SYAL, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 5737/MUM/2009 (ASSESSMENT YEARS: 2005-06) DCIT 3(2), ROOM NO.608, 6 TH FL, AAYAKAR BHAVAN. MUMBAI-400020 . APPELLANT VS SHRI NIKHIL PRADIP BHATIA 2-10, PUSHPA VIHAR OPP COLABA POST OFFICE, COLABA MUMBAI-400005 PAN: AACPB3965B .. RESPONDENT APPELLANT BY : SHRI VIRENDR A JHA. RESPONDENT BY : SHRI DEEPAK SHAH O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER DATED 20.8.2009 OF CIT(A)-III, MUMBAI FOR THE ASSE SSMENT YEAR 2005-06. 2. THE REVENUE HAS RAISED VARIOUS GROUNDS IN THIS A PPEAL, HOWEVER, THE ONLY ISSUE ARISES FOR OUR CONSIDERATIO N AND ADJUDICATION WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) IS JUSTIFIED IN DIRECTING THE AO T O ALLOW DEDUCTION U/S 54EC OF THE ACT FROM THE SHORT TERM CAPITAL ITA NO. 5737/MUM/2009 (ASSESSMENT YEARS: 2005-06) 2 GAIN SHOWN BY THE ASSESSEE ON SALE OF DEPRECIABLE B USINESS ASSETS.. 3. THE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSE SSEE SOLD A FLAT AT 10, PUSHPAVIHAR FOR AN AMOUNT OF RS.36 L AKHS. THE SAID FLAT WAS ACQUIRED ON 11.08.1993. THE WRITTEN DOWN VALUE OF THE SAID FLAT AS ON 31.03.2002 WAS SHOWN AT RS.1 8,50,556/-. ACCORDINGLY, THE ASSESSEE HAS SHOWN CAPITAL GAINS O F RS.17,49,444/-. THE ASSESSEE CLAIMED EXEMPTION U/S 54EC OF THE ACT AGAINST THE CAPITAL GAIN AS THE ASSESSEE H AS INVESTED THE TOTAL SALE CONSIDERATION OF RS.36 LAKHS IN SPE CIFIED BONDS. THE AO DISALLOWED THE CLAIM OF EXEMPTION U/S 54EC ON THE GROUND THAT THE PROVISIONS OF SECTION 54EC ARE NOT APPLICABLE TO THE DEPRECIABLE ASSETS AND THE PROVISIONS OF SEC TION 50 WOULD PREVAIL. 4. ON APPEAL, THE CIT(A) HAS ALLOWED THE CLAIM OF T HE ASSESSEE. 5. BEING AGGRIEVED BY THE DECISION OF THE CIT(A), THE REVENUE IS IN FURTHER APPEAL BEFORE US. 6. WE HAVE HEARD THE LEARNED DR AS WELL AS THE LEAR NED AR AND CONSIDERED THE RELEVANT RECORD. ON CAREFUL PERU SAL OF THE ITA NO. 5737/MUM/2009 (ASSESSMENT YEARS: 2005-06) 3 IMPUGNED ORDER OF CIT(A), WE NOTE THAT THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V /S ACE BUILDERS REPORTED IN 281 ITR 210. THE RELEVANT POR TION OF THE CIT(A)S ORDER IS REPRODUCED BELOW: I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND THE FINDINGS OF THE AO AND OBSERVE THAT THE JUDGMENT PASSED BY THE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CIT V/S ACE BUILDERS REPORTED IN 281 ITR 210 SQUARELY COVERS THE CASE OF THE APPELLANT. IT IS NOTED THAT THE HON.HIGH COURT HAS SPECIFICALLY CONSIDERED THE PROVISIONS OF SECTION 50 WHILE DISCUSSING THE AVAILABILITY OF SECTION 50E OF THE ACT. THE CONCLUDING EXTRACTS OF THE JUDGMENTS ARE REPRODUCED AS UNDER :- IN OUR OPINION, THE ASSESSEE CANNOT BE DENIED EXEMPTION UNDER SECTION 54E, BECAUSE, FIRSTLY THERE IS NOTHING IN SECTION 50 TO SUGGEST THAT THE FICTION CREATED IN SECTION 50 IS NOT ONLY RESTRICTED TO SECTION 48 AND 49 BUT ALSO APPLIED TO OTHER PROVISIONS. ON THE CONTRARY, SECTION 50 MAKES IT EXPLICITLY CLEAR THAT THE DEEMED FICTION CREATED IN SUB- SECTION (1)(2) OF SECTION 50 IS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CAPITAL GAINS CONTAINED IN SECTION 48 AND 49. SECONDLY, IT IS WELL ESTABLISHED IN LAW THAT A FICTION CREATED BY THE LEGISLATURE HAS TO BE CONFINED TO THE PURPOSE FOR WHICH IT IS CREATED. IN THIS CONNECTION, WE MAY REFER TO THE DECISION OF THE APEX COURT IN THE CASE OF STATE BANK OF INDIA V/S D HANUMANTHA RAO REPORTED IN (1998) 6 SCC 183 THE HONBLE .COURT HAS FURTHER OBSERVED IT IS TRU E THAT SECTION 50 IS ENACTED WITH THE OBJECT OF DENY ING MULTIPLE BENEFIT TO THE OWNERS OF DEPRECIABLE ASSET S. HOWEVER, THAT RESTRICTION IS LIMITED TO THE COMPUTATION OF CAPITAL GAINS AND NOT TO THE EXEMPTION PROVISIONS. IN OTHER WORDS, WHERE THE LONG TERM CAPITAL ASSET HAS AVAILED OF DEPRECIATION , ITA NO. 5737/MUM/2009 (ASSESSMENT YEARS: 2005-06) 4 THEN THE CAPITAL GAIN HAS TO BE COMPUTED IN THE MANNER PRESCRIBED UNDER SECTION 50 AND THE CAPITAL GAINS TAX WILL BE CHARGED AS IF SUCH CAPITAL GAINS HA ARISEN OUT OF A SHORT TERM CAPITAL ASSET BUT IF SUC H CAPITAL GAINS INVESTED IN THE MANNER PRESCRIBED IN SECTION 54E, THEN THE CAPITAL GAIN SHALL NOT BE CHARGED UNDER SECTION 45 OF THE INCOME TAX ACT. TO PUT IT SIMPLY, THE BENEFIT OF SECTION 54E WILL BE AVAILABLE TO THE ASSESSEE IRRESPECTIVE OF THE FACT THAT THE COMPUTATION OF CAPITAL GAINS IS DONE EITHE R UNDER SECTIONS 48 AND 49 OR UNDER SECTION 50. THE CONTENTION OF THE REVENUE THAT BY AMENDMENT TO SECTION 50 THE LONG TERM CAPITAL ASSET HAS BEEN CONVERTED INTO A SHORT TERM CAPITAL ASSET IS ALSO WITHOUT ANY MERIT. AS STATED HEREINABOVE, THE LEGA L FICTION CREATED BY THE STATUTE IS TO DEEM THE CAPIT AL GAIN AS SHORT TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET AS SHORT TERM CAPITAL ASSET.. THEREFORE, IT CANNOT BE SAID THAT SECTION 50 COVERTS A LONG TERM CAPITAL ASST INTO A SHORT TERM CAPITAL ASSET. FOR ALL THE AFORESAID REASONS, WE CONCUR WITH THE DECISION OF THE GAUHATI HIGH COURT IN THE CASE OF CIT V/S ASSAM PETROLEUM INDUSTRIES (P) LTD (203) 262 ITR 587 AND HOLD THAT THE TRIBUNAL WAS JUSTIFI ED IN ALLOWING THE BENEFIT OF EXEMPTION UNDER SECTION 54E OF THE INCOME TAX ACT TO THE ASSESSEE IN RESPECT OF THE CAPITAL GAINS ARISING ON THE TRANSF ER OF A CAPITAL ASSET ON WHICH DEPRECIATION HAS BEEN ALLOWED. ACCORDINGLY, THE APPEAL FAILS. THE SUBSTANTIAL QUESTION OF LAW RAISED BY THE REVENUE IS ANSWERED IN THE AFFIRMATIVE, I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE THE ANALOGY OF THE HON. JURISDICTIONAL HIGH COURT I N THE ABOVE MENTIONED CASE FULLY COVERS THE ISSUE RAISED IN THE GROUNDS BY THE APPELLANT IN THE INSTA NT CASE. THUS, RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF THE HON. JURISDICTIONAL HIGH COURT, I HOLD THAT THE ASSESSEES CLAIM FOR DEDUCTION U/S 54EC SUCCEEDS AND ACCORDINGLY THE ADDITION MADE BY THE AO OF RS.17,49,444/- IN VIEW OF HE PROVISIONS OF SECTION 50 OF THE ACT IS DELETED ITA NO. 5737/MUM/2009 (ASSESSMENT YEARS: 2005-06) 5 SINCE THE ISSUE RAISED IN THIS APPEAL STANDS COVERE D BY THE JURISDICTIONAL HIGH COURT AND NOTHING CONTRARY HAS BEEN BROUGHT BEFORE US, THEREFORE, WE DO NOT FIND ANY ER ROR OR ILLEGALITY IN THE ORDER OF THE CIT(A). THE SAME I S UPHELD. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 18.06.2010 SD SD (R.S.SYAL) (VIJ AY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 18 TH JUNE 2010 SRL:10610 COPY TO: 1. DCIT 3(2), ROOM NO.608, 6 TH FL, AAYAKAR BHAVAN. MUMBAI-400020 2.SHRI NIKHIL PRADIP BHATIA 2-10, PUSHPA VIHAR OPP COLABA POST OFFICE, COLABA MUMBAI-400005. 3. CIT(A)-III, MUMBAI. 4. CIT-III, MUMBAI 5. DR F BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI