SKF INDIA LTD ( SINCE MAY 19,2004 NAME HAS BEEN CHANGED FORM SKF BEARING INIDA LTD), MUMBAI V. ADDL CIT RG 4(3), MUMBAI

ITA 6461/MUM/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59858 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 20-02-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 16-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DHANESH BAFNA; CHIRAG DOSHI
• Keywords: Capital asset; Depreciation; Cost of acquisition; Fair market value
• Section: 37(1)

Judgement Text

SKF INDIA LTD ITA NO. 6461/MUM/2009 (ASST YEAR 2005-06) IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI H H H H BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI RAJENDRA SINGH, AM RAJENDRA SINGH, AM RAJENDRA SINGH, AM RAJENDRA SINGH, AM, & , &, & , & SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ITA NO. ITA NO. ITA NO. ITA NO. 6461/MUM/2009 6461/MUM/2009 6461/MUM/2009 6461/MUM/2009 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2005 2005 2005 2005- -- -06 0606 06) )) ) SKF INDIA LTD (SINCE MAY 19 (SINCE MAY 19 (SINCE MAY 19 (SINCE MAY 19 TH THTH TH 2004, NAME HAS BEEN CHANGED FROM 2004, NAME HAS BEEN CHANGED FROM 2004, NAME HAS BEEN CHANGED FROM 2004, NAME HAS BEEN CHANGED FROM SKF BEARING INDIA LTD) SKF BEARING INDIA LTD) SKF BEARING INDIA LTD) SKF BEARING INDIA LTD) M G MEMORIAL BLDG N S ROAD, MUMBAI VS THE ADDL COMMR OF INCOME TAX RANGE 4(3), MUMBAI (APPELLANT (APPELLANT (APPELLANT (APPELLANT ) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO. AAACS0684H AAACS0684H AAACS0684H AAACS0684H ASSESSEE BY SH DHANESH BAFNA & CHIRAG DOSHI REVENUE BY SHRI GOLI SRINIVWAS RAO DT.OF HEARING 20 TH FEB 2012 DT OF PRONOUNCEMENT 24 TH , FEB 2012 ORDER ORDER ORDER ORDER PER PER PER PER VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO, , , , JM JMJM JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 16 TH OCT 2009 OF THE CIT(A) FOR THE AY 2005-06. 2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CLT (A)ERRED IN UPHOLDING ADDITION TO TOTAL INCOME ON A CCOUNT OF ADJUSTMENT FOR PROPORTIONATE ELEMENT OF CENVAT, UNDER SECTION 1 45A, TO THE EXTENT OF RS. 10,59,593. IT IS PRAYED THAT THE ADDITION TO TOTAL INCOME OF R S. 10,59,593 BE DELETED FROM THE INCOME OF THE APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS LEGALLY ERRED IN CONFIRMING DISALLOWANCE OF RS. 99,200, BEI NG ANNUAL MEMBERSHIP FEES PAID TO. THE CLUBS. SKF INDIA LTD ITA NO. 6461/MUM/2009 (ASST YEAR 2005-06) 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS LEGALLY ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSES SING OFFICER THAT THE CAPITAL GAINS OF RS. 2,67,28,939 UNDER SECTION 50 O F INCOME-TAX ACT, 1961, ARISING ON SALE OF LONG-TERM CAPITAL ASSET, IS CHAR GEABLE TO TAX AT THE RATE APPLICABLE TO SHORT TERM CAPITAL GAINS INSTEAD OF T HE RATE APPLICABLE TO LONG TERM CAPITAL GAINS. 3 AT THE TIME OF HEARING, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS NOT PRESSED THE GROUND NO.1 AND THE SA ME MAY BE DISMISSED AS NOT PRESSED. THE LD DR HAS NO OBJECTION, IF THE GRO UND NO.1 IS DISMISSED AS NOT PRESSED. ACCORDINGLY, WE DISMISSED THE GROUND NO.1 BEING NOT PRESSED. 4 GROUND NO.2 IS REGARDING DISALLOWANCE OF RS. 99,2 00/- BEING ANNUAL MEMBERSHIP FESS PAID TO THE CLUBS. 5 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THIS ISSUE HAS BEEN CONSIDERED AND D ECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AYS 1990-91 AND 1991-92 WHEREBY THE TRIBUNAL VIDE ORDER DATED 16 TH JULY 2003 HAS DECIDED THIS ISSUE IN PARA 35 AS UND ER: GROUNDS OF APPEAL NO.3 OF BOTH THE YEARS RELATES T O DISALLOWANCE IN RESPECT OF SUBSCRIPTION AND PAYMENT TO CLUB AND ASS OCIATION AMOUNTING TO RS. 1,91,266/- AND RS. 88,356/- FOR THE AYS 1990-91 AND 1991-92 RESPECTIVELY. BOTH THE PARTIES ADMITTED THAT THIS I SSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF OTIS ELEVATOR REPORTED IN 195 ITR 682 (BOM). THE REFORE, WE FIND NO MERIT IN THIS GROUND AND THE SAME IS DISMISSED. 5.1 WE FURTHER NOTE THAT FOR THE AY 1999-00 THIS IS SUE WAS AGAIN CONSIDERED AND DECIDED BY THE TRIBUNAL IN PARA 3.2 AS UNDER: 3.2 WE FIND THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF OTIS ELEVATORS CO LTD VS CIT REPORTED IN 195 ITR 682 (BOM) WHEREIN IT HAS BEEN HELD THAT CLUB MEMBERSHIP FEE IS AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE ACT. SKF INDIA LTD ITA NO. 6461/MUM/2009 (ASST YEAR 2005-06) 3 SINCE THE CIT(A) HAS FOLLOWED THE DECISION OF THE J URISDICTIONAL HIGH COURT AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 5.2 THUS, IT IS CLEAR THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF OTIS ELEVATORS CO LTD REPORTED IN 195 ITR 682(BOM), WHICH HAS BEEN F OLLOWED BY THE TRIBUNAL IN ASSESSEES OWN CASED FOR THE EARLIER ASSESSMENT YEA RS. ACCORDINGLY, RESPECTFULLY FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL, WE DEC IDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 6 GROUND NO.3 IS REGARDING CAPITAL GAIN CHARGING TO TAX BY APPLYING PROVISIONS OF SEC.50 OF THE I T ACT. 7 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL. THE LD AR HAS FAI RLY CONCEDED THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE TRIBUNAL AGA INST THE ASSESSEE FOR THE AYS 2001-02 TO 2004-05. 8 WE NOTE THAT FOR THE AY 2001-02, THE TRIBUNAL VID E ORDER DATED 29 TH DEC 2012 HAS DECIDED THE ISSUE AGAINST THE ASSESSEE IN PARAS 20 TO 22 AS UNDER: 20. WE HAVE HEARD THE RIVAL CONTENTIONS. SECTION 5 0 OF THE ACT, READS AS FOLLOWS: - SECTION 50 SECTION 50 SECTION 50 SECTION 50 769 [SPECIE! PROVISION FOR COMPUTATION OF CAPITAL G AINS IN CASE OF DEPRECIABLE ASSETS. NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE (42A) OF SECTION 2, WHERE THE CAPITAL ASSET IS AN ASSET FORMING PART OF A BLOCK OF ASSETS IN RESPECT OF WHICH DEPRECIATION HAS BEEN ALLOWED U NDER THIS ACT OR UNDER THE INDIAN INCOME-TAX ACT,, 1922 (11 OF .1922 ), THE PROVISIONS SKF INDIA LTD ITA NO. 6461/MUM/2009 (ASST YEAR 2005-06) 4 OF SECTIONS 48 AND 49 SHALL BE SUBJECT TO THE FOLLO WING MODIFICATIONS: (1) WHERE THE FULL VALUE OF THE CONSIDERATION RECEI VED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE ASSET TOGETHER WITH THE FULL VALUE OF SUCH CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF ANY OTHER CAPITAL ASSET FALLING WITHIN THE BLOCK OF ASSETS DURING THE PREVIOUS YEAR, EXCEEDS THE AGGREGATE OF THE FOLLOWI NG AMOUNTS, NAMELY: (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER OR TRANSFERS; (II) THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR; AND (III) THE ACTUAL COST OF ANY ASSET FALLING WITHIN THE BLOCK OF ASS ETC ACQUIRED DURING THE PREVIOUS YEAR, SUCH EXCESS SHAL L BE DEEMED TO BE THE CAPITAL GAINS ARISING FROM THE TRANSFER OF S HORT-TERM CAPITAL ASSETS: (2) WHERE ANY BLOCK OF ASSETS CEASES TO EXIST AS SU CH, FOR THE REASON THAT ALL THE ASSETS IN THAT BLOCK ARE TRANSFERRED D URING THE PREVIOUS YEAR, THE COST OF ACQUISITION OF THE BLOCK OF ASSET S SHALL BE THE WRITTEN DAWN VALUE OF THE BLACK OF ASSETS AT THE BE GINNING OF THE PREVIOUS YEAR, AS INCREASED BY THE ACTUAL COST OF A NY ASSET FALLING WITHIN THAT BLOCK OF ASSETS ACQUIRED BY THE ASSESSE E DURING THE PREVIOUS YEAR AND THE INCOME RECEIVED OR ACCRUING A S A RESULT OF SUCH TRANSFER OR TRANSFERS SHALL BE DEEMED TO BE TH E CAPITAL GAINS ARISING FROM THE TRANS FAR OF SHORT-TERM CAPITAL AS SETS. 769. SUBS. BY TAXATION LAWS (AMENDMENT AND MISC. PR OVISIONS) ACT, 1986, S, 9 (W. E. F 1.4.1986). PRIOR TO THAT, IT STOOD AS UNDER: 50. SPECIAL PROVISION FOR COMPUTING COST OF ACQUISITION IN THE CASE OF DEPRECIABLE ASSETS. - WHERE THE CAPITAL ASSET I S AN ASSET IN RESPECT OF WHICH A DEDUCTION ON ACCOUNT OF DEPRECIA TION HAS BEEN OBTAINED BY THE ASSESSEE IN ANY PREVIOUS YEAR EITHE R UNDER THIS ACT OR UNDER THE INDIAN INCOME-TAX ACT, 1922 (11 OF 192 2), OR ANY ACT REPEALED BY THAT ACT OR UNDER EXECUTIVE ORDERS ISSU ED WHEN THE INDIAN INCOME-TAX ACT, 1886 (2 OF WAS IN FORCE, THE PROVISIONS OF SECTIONS 48 AND 49 SHALL BE SUBJECT TO THE FOLLOWIN G MODIFICATIONS: (1) THE WRITTEN DOWN VALUE, AS DEFINED IN CLAUSE (6) OF SECTION 43, OF THE ASSET, AS ADJUSTED, SHALL BE TAKEN AS THE COST OF ACQUISITION OF THE ASSET. SKF INDIA LTD ITA NO. 6461/MUM/2009 (ASST YEAR 2005-06) 5 (2) WHERE UNDER ANY PROVISION OF SECTION 49 READ WI TH SUB-SECTION (2) OF SECTION 55, THE FAIR MARKET VALUE OF THE ASS ET ON THE [1ST DAY OF APRIL, 1974,] IS TO BE TAKEN INTO ACCOUNT AT THE OPTION OF THE ASSESSEE, THEN, THE COST OF ACQUISITION OF THE ASSET SHALL, A T THE OPTION OF THE ASSESSEE, BE THE FAIR MARKET VALUE OF THE ASSET ON THE SAID DATE, AS REDUCED BY THE AMOUNT OF DEPRECIATION , IF ANY, ALLOWED TO THE ASSESSEE AFTER THE SAID DATE, AND AS ADJUSTE D. . 21 ON PLAIN READING OF THE ABOVE SECTION SHOWS THAT THE EXCESS IN QUESTION SHALL BE DEEMED TO BE THE CAPITAL GAINS AR ISING FROM THE TRANSFER OF A SHORT TERM CAPITAL ASSET. BOTH THE SE CTION 54EC AND SECTION 74, DO NOT SPEAK ABOUT SHORT TERM CAPITAL G AIN OR LONG TERM CAPITAL GAIN. THESE SECTIONS DEAL WITH CAPITA GAINS / LOSS ARISING FROM TRANSFER OF LONG TERM CAPITAL ASSETS. SECTION 112, ALSO DEALS WITH INCOME ARISING FROM TRANSFER OF LONG TERM CAPITAL A SSETS. SECTION 112(B)(I) AND (II) SPECIFICALLY MENTIONS LONG TERM CAPITAL GAIN. WHEN SECTION 50 DEEMS THAT INCOME EARNED FROM A DEP RECIABLE ASSET HAS TO BE DEEMED AS SHORT TERM CAPITAL GAIN, THE QUESTION OF APPLYING THE RATE OF TAX SPECIFIED IN SECTION 112(1 ) DOES NOT ARISE. THIS S WHAT THE HONHLE JURISDICTIONAL HIGH COURT S TATED AT PARA-26 OF ITS JUDGMENT N THE CASE OF ACE BUILDERS (SUPRA). WE EXTRACT THE SAME FOR READY REFERENCE: 26. IT IS TRUE THAT S. 50 IS ENACTED WITH THE OBJECT OF DENYING MULTIPLE BENEFITS TO THE OWNERS OF DEPRECIABLE ASSE T, HOWEVER, THAT RESTRICTION IS LIMITED TO THE COMPUTA TION OF CAPITAL GAINS AND NOT TO THE EXEMPTION PROVISIONS. IN OTHER WORDS, WHERE THE LONG TERM CAPITAL ASSET HAS AVAILE D DEPRECIATION, THEN THE CAPITAL GAIN HAS TO BE COMPU TED IN THE MANNER PRESCRIBED UNDER SECTION 50 AND THE CAPITAL GAINS TAX WILL BE CHARGED AS IF SUCH CAPITAL GAIN AHS ARISEN OUT OF A SHORT TERM CAPITAL ASSET, BUT IF SUCH CAPITAL GAIN IS INVESTED IN THE MANNER PRESCRIBED IN S. 54E, THEN THE CAPITAL GAIN SHALL NOT BE CHARGED UNDER SECTION 45 OF THE ACT. TO PUT IS SIMPLY, THE BENEFIT OF S. 54E WILL BE AVAILABLE TO THE ASSE SSEE IRRESPECTIVE OF THE FACT THAT THE COMPUTATION OF CA PITAL GAINS IS DONE EITHER UNDER SECTION 48 AND 49 OR UNDER SEC TION 50. THE CONTENTION OF THE REVENUE THAT BY AMENDMENT TO S.50, THE LONG TERM CAPITAL ASSET HAS BEEN CONVERTED INTO A SHORT TERM CAPITAL ASSET IS ALSO WITHOUT ANY MERIT. AS ST ATED HEREINABOVE. THE LEGAL FICTION CREATED BY THE STATU TE IS TO DEEM THE CAPITAL GAIN AS SHORT TERM CAPITAL GAIN AN D NOT TO DEEM THE ASSET AS SHORT TERM CAPITAL ASSET, THEREFO RE, IT CANNOT HE SAID THAT S. 50 CONVERTS LONG TERM CAPITAL ASSET INTO A SHORT TERM CAPITAL ASSET. [EMPHASIS OWN] 22. RESPECTFULLY FOLLOWING THE AFORESAID 3UDGRNENT OF THE HONBLE JURISDICTIONAL HIGH COURT, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. SKF INDIA LTD ITA NO. 6461/MUM/2009 (ASST YEAR 2005-06) 6 9 ACCORDINGLY, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSES OWN CASE FOR THE AY 2001-02, WE DEICIDE THIS ISSUE AGAINST THE ASSESSEE. 10 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS ORDER PRONOUNCED ON THIS ORDER PRONOUNCED ON THIS ORDER PRONOUNCED ON THIS 24 24 24 24 TH THTH TH , , , , DAY OF FEB 2012 DAY OF FEB 2012 DAY OF FEB 2012 DAY OF FEB 2012 SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - ( (( ( RAJENDRA SINGH RAJENDRA SINGH RAJENDRA SINGH RAJENDRA SINGH ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 24 TH , FEB 2012 RAJ* RAJ* RAJ* RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI