ITO 20(1)(3), MUMBAI V. INDUSTRIAL SWITCHGEAR & CONTROL, MUMBAI

ITA 7218/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9000 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 05-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K G KUTTY
• Assessee Lawyers: SAMEER G DALAL
• Keywords: Capital asset; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I , MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. : 7218/MUM/2010 ASSESSMENT YEAR : 2007-08 INCOME TAX OFFICER 20(1)(3) ROOM NO.607, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI-400 012 VS. M/S. INDUSTRIAL SWITCHGEAR & CONTROL S/02, AMARDEEP MAHAL, NANDA PATKAR ROAD, NEHRU ROAD, VILE PARLE (E), MUMBAI-400 057 PAN NO: AAAFI 1126 N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. G. KUTTY RESPO NDENT BY : SHRI SAMEER G. DALAL DATE OF HEARING : 05 .09.2012 DATE OF PRONOUNCEMENT : 14.09.2012 ORDER PER RAJENDRA SINGH, A.M. : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 31.08.2010 OF CIT(A)-31, MUMBAI FOR THE A.Y. 2007-0 8. THE ONLY DISPUTE RAISED BY THE REVENUE IN THIS APPEAL IS REGARDING T HE ALLOWABILITY OF EXEMPTION U/S.54EC OF THE I.T. ACT IN RESPECT OF TH E CAPITAL GAIN RECEIVED BY THE ASSESSEE FROM SALE OF DEPRECIABLE FACTORY PR EMISES. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE DURING THE YEAR HAD SOLD THE FACTORY PREMISES FOR A CONSIDERATION OF RS.1,99 ,00,000/-. THE LONG ITA NO : 7218/MUM/2010 M/S. INDUSTRIAL SWITCHGEAR & CONTROL 2 TERM CAPITAL GAIN WAS COMPUTED AT RS.1,95,02,923/-. THE ASSESSEE CLAIMED THE ENTIRE CAPITAL GAIN AS EXEMPT U/S. 54EC , AS IT HAD MADE INVESTMENT IN RURAL ELECTRIFICATION BONDS FOR RS.1, 95,50,000/-. THE A.O. HOWEVER, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY TH E CAPITAL GAIN SHOULD NOT BE COMPUTED AS SHORT TERM CAPITAL GAIN U/S.50 O F THE I.T. ACT AS IT INVOLVED THE SALE OF A DEPRECIABLE ASSET. THE ASSE SSEE SUBMITTED THAT IT HAD NOT CLAIMED ANY DEPRECIATION ON THE FACTORY BUI LDING TILL THE FACTORY WAS SOLD IN THE F.Y. 2006-07. IT WAS ALSO SUBMITTE D THAT SECTION 50 ONLY DEEMED THE GAIN ARISING FROM TRANSFER OF DEPRECIABL E ASSET AS SHORT TERM CAPITAL GAIN FOR THE PURPOSE OF SECTION 48 ONLY AND IT DID NOT HAVE ANY OVER-RIDING EFFECT ON OTHER SECTIONS SUCH AS 54EC. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF M/S. ACE BUILDERS PVT. LTD. (281 ITR 210). THE A.O. HO WEVER, DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OBSERVED BY HIM THA T IN VIEW OF THE EXPLANATION 5 TO SECTION 32(1) INSERTED W.E.F. 01.0 4.2002, THE DEPRECIATION IS DEEMED TO HAVE BEEN ALLOWED IRRESPE CTIVE OF THE FACT WHETHER ANY CLAIM WAS MADE BY THE ASSESSEE OR NOT. THE A.O. ALSO HELD THAT THE PROVISION OF SECTION 50 WHICH WAS A SPECIF IC PROVISION FOR COMPUTATION OF CAPITAL GAIN FROM SALE OF DEPRECIABL E ASSETS WAS APPLICABLE. HE DISTINGUISHED THE JUDGMENT OF HONB LE HIGH COURT OF BOMBAY IN THE CASE OF M/S. ACE BUILDERS PVT. LTD. V S. CIT (SUPRA) ON THE GROUND THAT THE SAID JUDGMENT HAD NOT BEEN ACCEPTED BY THE DEPARTMENT ITA NO : 7218/MUM/2010 M/S. INDUSTRIAL SWITCHGEAR & CONTROL 3 IN PRINCIPLE. THE A.O., THEREFORE, COMPUTED THE SH ORT TERM CAPITAL GAIN U/S.50 OF THE I.T. ACT AND DENIED THE CLAIM OF EXEM PTION U/S. 54EC. IN APPEAL, THE CIT(A) DID NOT AGREE WITH THE FINDING G IVEN BY THE A.O. AND HELD THAT THE ASSESSEE WAS ENTITLED TO EXEMPTION U/ S.54EC IN VIEW OF THE JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY IN THE CAS E OF M/S. ACE BUILDERS PVT. LTD. VS. CIT (SUPRA). THE CIT(A) ACC ORDINGLY DIRECTED THE A.O. TO ALLOW THE CLAIM OF THE ASSESSEE AGGRIEVED B Y WHICH THE REVENUE IS IN APPEAL BEFORE US. 3. BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT O F HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF M/S. ACE BUILDERS PVT. LTD . VS. CIT (SUPRA). THE LD. DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF T HE A.O. AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THE ASSESSMENT OR DER. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE ALLOWABILI TY OF EXEMPTION U/S.54EC IN RESPECT OF CAPITAL GAIN SHOWN BY THE AS SESSEE FROM SALE OF DEPRECIABLE FACTORY BUILDING. THE A.O. HELD THAT T HE FACTORY BUILDING BEING DEPRECIABLE, THE CAPITAL GAIN HAS TO BE COMPU TED AS SHORT TERM CAPITAL GAIN UNDER THE PROVISIONS OF SECTION 50. T HE CIT(A) HOWEVER, HAS HELD THAT THE ASSESSEE WAS ENTITLED TO THE EXEMPTIO N U/S.54EC AS THE ENTIRE CAPITAL GAIN HAD BEEN INVESTED IN THE RURAL ELECTRIFICATION BONDS. ITA NO : 7218/MUM/2010 M/S. INDUSTRIAL SWITCHGEAR & CONTROL 4 ON CAREFUL CONSIDERATION OF ALL THE ASPECTS OF THE MATTER WE SEE NO INFIRMITY IN THE ORDER OF THE CIT(A) WHICH IS IN CO NFORMITY WITH THE JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY IN THE CAS E OF M/S. ACE BUILDERS PVT. LTD. VS. CIT (SUPRA). THE HONBLE HI GH COURT IN THE SAID CASE NOTED THAT THE FICTION CREATED BY SECTION 50 W AS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CAPITAL GAIN U/S.48 & 49 . THE HONBLE HIGH COURT ALSO OBSERVED THAT THE FICTION CREATED BY THE LEGISLATURE HAS TO BE CONFINED TO THE PURPOSE FOR WHICH IT WAS CREATED. THUS THE RESTRICTION PROVIDED BY SECTION 50 WAS LIMITED TO THE COMPUTATI ON OF CAPITAL GAIN AND NOT TO THE EXEMPTION PROVISION. THEREFORE, IN CASE THE ASSESSEE HAD SOLD THE LONG TERM CAPITAL ASSETS WHICH WERE DEPRECIABLE , THE CAPITAL GAIN SHALL BE CHARGED TO TAX U/S.50 OF THE ACT. BUT IN CASE THE CAPITAL GAIN HAS BEEN INVESTED IN SPECIFIC MODE OF INVESTMENT, T HE SAME WOULD BE EXEMPT. THE HONBLE HIGH COURT ALSO OBSERVED THAT S ECTION 50 ONLY DEEMED THE CAPITAL GAIN AS SHORT TERM CAPITAL GAIN AND DOES NOT CONVERT THE LONG TERM CAPITAL ASSET INTO SHORT TERM CAPITAL ASSET. IT WAS ACCORDINGLY HELD THAT THE ASSESSEE WOULD BE ENTITLE D TO EXEMPTION U/S.54E. IN THE PRESENT CASE ALSO, THERE IS NO DIS PUTE THAT THE ASSET SOLD BY THE ASSESSEE WAS A LONG TERM CAPITAL ASSET AND T HE CAPITAL GAIN HAD BEEN INVESTED IN THE RURAL ELECTRIFICATION BONDS AN D, THEREFORE, THE ASSESSEE WOULD BE ENTITLED TO EXEMPTION U/S.54EC. THE ORDER OF THE ITA NO : 7218/MUM/2010 M/S. INDUSTRIAL SWITCHGEAR & CONTROL 5 CIT(A) ALLOWING THE EXEMPTION WHICH IS IN CONFORMIT Y WITH THE JUDGMENT OF JURISDICTIONAL HIGH COURT IS, THEREFORE, UPHELD. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THIS 14 TH DAY OF SEPTEMBER, 2012. SD/- - SD/- ( VIJAY PAL RAO ) ( RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 14.09.2012 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI