ITO 16(1)(3), MUMBAI V. RAJ JIVANDAS SAMPAT, MUMBAI

ITA 7249/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75628 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 06-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AMBRISH MEHTA
• Keywords: Capital asset; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 7249/MUM/2012 ASSESSMENT YEAR: 2009-10 ITO 16(1)(3) 2 ND FLOOR, R. NO. 220 MATRU MANDIR, TARDEO RD. MUMBAI-. 400 007 VS. SHRI RAJ JIVANDAS SAMPAT 51, OCEANIC, RAJABALI PATEL ROAD, BREACH CANDY, MUMBAI-26 (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- ABFPS 0046 L ASSESSEE BY : SHRI AMBRISH MEHTA REVENUE BY : SHRI SANJEEV JAIN DATE OF HEARING : 13.02.2014 DATE OF PRONOUNCEMENT : 21.02.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A)-27, MUMBAI DATED 27.09.2012 FOR THE ASSES SMENT YEAR 2009-10. IN THIS APPEAL, THE REVENUE HAS AGITATED THE DECISION OF TH E LD.CIT(A) IN ALLOWING THE EXEMPTION CLAIMED BY THE ASSESSEE OF RS. 45 LAKHS F OR PURCHASE OF REC BONDS U/S 54EC AGAINST THE SHORT TERM CAPITAL COMPUTED U/S 50 OF THE ACT. 2. THE RELEVANT FACTS ARE THAT THE ASSESSEE, AN IND IVIDUAL CARRYING ON THE BUSINESS OF MANUFACTURING AND TRADING AND PLASTIC P IPES, FOOTINGS WHILE FILING THE RETURN OF INCOME HAD OFFERED SHORT TERM CAPITAL GAI NS OF RS.16,35,193/- ON SALE OF FACTORY BUILDING AFTER SETTING OF OFF BUSINESS LOSS OF RS.54,06,256/-. IN THE ASSESSMENT FRAMED U/S 143(3), THE AO DID NOT ALLOW THE ASSESSEES CLAIM FOR EXEMPTION U/S 54EC OF THE ACT TOWARDS INVESTMENT IN REC BONDS WHILE COMPUTING ITA NO. 7249/MUM/2012 SHRI RAJ JIVANDAS SAMPAT ASSESSMENT YEAR: 2009-10 2 TAXABLE CAPITAL INCOME. ON APPEAL, THE LD.CIT(A) AL LOWED THE CLAIM OF EXEMPTION AND THEREBY DELETED THE ADDITION MADE BY THE AO ON THIS COUNT. AGGRIEVED BY THE IMPUGNED DECISION, THE REVENUE IS IN APPEAL BEFORE US. 3. HAVING HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD, IT IS PERTINENT TO MENTION THAT THE LD.CIT(A) HAS RELIED ON THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ACE BUILDERS P. LTD. 281 ITR 201, THE DELHI HIGH COURT IN THE CASE OF CIT VS. RAJIV SHUKLA 334 ITR 138 AND THE TRIBUNAL IN THE CASE OF DR. SUDHA S. TRIVEDI IN ITA NO. 6040 & 6186/MUM/2007 DATED 20.02.2009. THE BOMBAY HIGH COURT, ON THE ALLOWABILITY OF THE CLAIM FOR EXEMPTION U/S 54EC OF THE ACT, IN THE CASE OF ACE BUILDERS P. LTD. (SUPRA) HAS HELD THAT AS FOLLOWS:- IN OUR OPINION, THE ASSESSEE CANNOT BE DENIED EXEMP TION UNDER SECTION 54D, BECAUSE, FIRSTLY, THERE IS NOTHING IN SECTION 50 TO SUGGEST THAT THE FICTION CREATED IN SECTION 50 IS NOT ONLY RESTRICTED TO SEC TIONS 48 AND 49 BUT ALSO APPLIES TO OTHER PROVISIONS. ON THE CONTRARY, SECTI ON 50 MAKES IT EXPLICITLY CLEAR THAT THE DEEMED FICTION CREATED IN SUB-SECTIO NS (1) AND (2) OF SECTION 50 IS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CA PITAL GAINS CONTAINED IN SECTIONS 48 AND 49. SECONDLY, IT IS WELL ESTABLISHE D IN LAW THAT A FICTION CREATED BY THE LEGISLATURE HAS TO BE CONFINED TO TH E PURPOSE FOR WHICH IT S 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 RA O REPORTED IN (1998) 6 SCC 183. IN THAT CASE, THE SERVICE RULES FRAMED BY THE BANK PROVIDED FOR GRANTING EXTENSION OF SERVICE TO THOSE APPOINTED PR IOR TO JULY 19, 1969. THE RESPONDENT THEREIN WHO HAD JOINED THE BANK ON JULY 1, 1972, CLAIMED EXTENSION OF SERVICE BECAUSE HE WAS DEEMED TO BE AP POINTED IN THE BANK WITH 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 OF SENIORIT Y, PAY AND PENSION CANNOT BE EXTENDED FOR OTHER PURPOSES. APPLYING THE RATIO OF THE SAID JUDGMENT, WE ARE OF THE OPINION, THAT THE FICTION CREATED UNDER SECT ION 50 IS CONFINED TO THE COMPUTATION OF CAPITAL GAINS ONLY AND CANNOT BE EXT ENDED BEYOND THAT. THIRDLY, SECTION 54E DOES NOT MAKE ANY DISTINCTION BETWEEN DEPRECIABLE ASSET AND NON-DEPRECIABLE ASSET AND, THEREFORE, THE EXEMP TION AVAILABLE TO THE DEPRECIABLE ASSET UNDER SECTION 54E CANNOT BE DENIE D BY REFERRING TO THE FICTION CREATED UNDER SECTION 50. SECTION 54E SPECI FICALLY PROVIDES THAT WHERE CAPITAL GAIN ARISING ON TRANSFER OF A LONG TERM CAP ITAL ASSET IS INVESTED OR DEPOSITED (WHOLE OR ANY PART OF THE NET CONSIDERATI ON) IN THE SPECIFIED ASSETS, THE ASSESSEE SHALL NOT BE CHARGED TO CAPITAL GAINS. THEREFORE, THE EXEMPTION UNDER SECTION 54E OF THE INCOME TAX ACT CANNOT BE D ENIED TO THE ASSESSEE ON ACCOUNT OF THE FICTION CREATED IN SECTION 50. IT IS TRUE THAT SECTION 50 IS ENACTED WITH THE OBJECT OF DENYING MULTIPLE BENEFIT S TO THE OWNERS OF DEPRECIABLE ASSETS. HOWEVER, THAT RESTRICTION IS LI MITED 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 , THEN THE CAPITAL GAIN HAS ITA NO. 7249/MUM/2012 SHRI RAJ JIVANDAS SAMPAT ASSESSMENT YEAR: 2009-10 3 TO BE COMPUTED IN THE MANNER PRESCRIBED UNDER SECTI ON 50 AND THE CAPITAL GAINS TAX WILL BE CHARGED AS IF SUCH CAPITAL GAIN H AS ARISEN OUT OF A SHORT-TERM CAPITAL ASSET BUT IF SUCH CAPITAL GAIN IS INVESTED IN THE MANNER PRESCRIBED IN SECTION 54E, THEN THE CAPITAL GAIN SHALL NOT BE CHA RGED UNDER SECTION 45 OF THE INCOME-TAX ACT. TO PUT IT SIMPLY, THE BENEFIT O F SECTION 54E WILL BE AVAILABLE TO THE ASSESSEE IRRESPECTIVE OF THE FACT THAT THE COMPUTATION OF CAPITAL GAINS IS DONE EITHER UNDER SECTIONS 48 AND 49 OR UNDER SECTION 50. THE CONTENTION OF THE REVENUE THAT BY AMENDMENT TO SECT ION 50 THE LONG-TERM CAPITAL ASSET HAS BEEN CONVERTED INTO A SHORT-TERM CAPITAL ASSET IS ALSO WITHOUT ANY MERIT. AS STATED HEREINABOVE, THE LEGAL FICTION CREATED BY THE STATUTE IS TO DEEM THE CAPITAL GAIN AS SHORT-TERM C APITAL GAIN AND NOT TO DEEM THE ASSET AS SHORT TERM CAPITAL ASSET. THEREFORE, I T CANNOT BE SAID THAT SECTION 50 CONVERTS A LONG-TERM CAPITAL ASSET INTO A SHORT TERM CAPITAL ASSET. AS THE FACTS IN ISSUE UNDER CONSIDERATION ARE IDENT ICAL WITH THE FACTS IN ISSUE IN THE CASE OF CIT VS ACE BUILDERS (P) LTD . (SUPRA), WE DO NOT FIND ANY JUSTIFIABLE REASON TO INTERFERE WITH THE DECISION OF THE LD.CIT(A) AS HE HAS CORRECTLY RELIED ON THE SAID RATIO FOR ALLOWING THE CLAIM OF EXEMPTION U/S 54EC OF THE ACT. 4. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF FEBRUARY 2014. SD/- SD/- (SANJAY ARORA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 21.02.2014. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR D BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.