Sudha S. Trivedi v. Income-tax Officer, Ward--11(3)(3)
[Citation -2006-LL-0421-11]

Citation 2006-LL-0421-11
Appellant Name Sudha S. Trivedi
Respondent Name Income-tax Officer, Ward--11(3)(3)
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 21/04/2006
Assessment Year 2002-03
Judgment View Judgment
Keyword Tags actual cost • benefit of exemption • block of asset • bona fide belief • business premises • capital account • capital asset • capital gain • computation of capital gain • condition precedent • cost of acquisition • cut-off date • denial of exemption • land acquisition • long-term capital • long-term capital asset • long-term capital gain • long-term specified asset • private limited company • rectification order • rented premises • short-term capital asset • short-term capital gain • succeeding year • plant
Bot Summary: The learned counsel for the assessee contended that the assessee was entertaining a bona fide belief that the relief will be allowed by the learned first appellate authority in the rectification proceedings which was erroneously denied despite the judgment of the Hon'ble jurisdictional High Court on the same point. 5 to s. 32 would be attracted since the building which was sold by the assessee was falling within the block of assets and the resultant capital gain would be covered under s. 50 taxable as short-term capital gain. If s. 50 is not applicable then it will have to be seen the life of the asset in the hands of the assessee for determining the nature of the capital asset, that is, it is short-term or long-term capital asset. The requirement of s. 54EC is that the assessee has, at any time within the period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset....... So what is relevant for claiming exemption under s. 54EC is that the whole or any part of the capital gain should be invested in the long-term specified assets. From the balance sheet of the assessee for the next year it is amply clear that the investment in the bond was made by the assessee. The sale proceeds were invested in the UTI capital gain scheme for claiming deduction under s. 54E of the Act, which was denied by the AO on the ground that s. 50(2) was applicable as the assessee had availed depreciation on the transferred long-term capital asset and the capital gain arising on transfer of such a long-term capital asset was to be considered as short-term capital gain within the meaning of s. 50 of the Act and hence the benefit under s. 54E was not available. Turning to our case we note that the building transferred by the assessee was held by her for a period more than 36 months, which is a condition precedent for classifying any asset under long- term capital asset as per s. 2(29A) of the Act.


These two appeals by assessee one against order passed by learned CIT(A) against assessment framed by AO under s. 143(3) and other against rectification order passed by learned first appellate authority under s. 154 relate to asst. yr. 2002-03. Since common issues are involved in these appeals, we are therefore proceeding to dispose them of by this consolidated order for sake of convenience. ITA No. 6186/Mum/2007 is against order passed by learned CIT(A) o n 8th Dec., 2006 pursuant to assessment order passed on 24th March, 2005 under s. 143(3) of IT Act, 1961. This appeal is late by 214 days. assessee has filed affidavit asserting that appeal filed before learned CIT(A) against assessment order dt. 24th March, 2005 was dismissed without correctly appreciating judgment of Hon'ble jurisdictional High Court in case of CIT vs. Ace Builders (P) Ltd. (2005) 195 CTR (Bom) 1: (2006) 281 ITR 210 (Bom). Petition under s. 154 was filed before learned CIT(A) for rectification of his order, which also came to be rejected by first appellate authority. assessee filed appeal in time before Tribunal against order by learned CIT(A) rejecting rectification application. Later on she was advised to file appeal against original order of CIT(A) also as that constituted very basis of assessee's grievance. Immediately thereafter present appeal was presented which was late by 214 days. learned counsel for assessee contended that assessee was entertaining bona fide belief that relief will be allowed by learned first appellate authority in rectification proceedings which was erroneously denied despite judgment of Hon'ble jurisdictional High Court on same point. He relied on judgment of Hon'ble Supreme Court in case of Collector, Land Acquisition vs. MST. Katiji & Ors. (1987) 62 CTR (SC) 23: (1987) 167 ITR 471 (SC) to contend that there was sufficient cause for delay in filing appeal before Tribunal and such delay be condoned. learned Departmental Representative opposed condonation petition. After considering rival submissions and perusing relevant material o n record it is noted that original appeal against order passed by learned CIT(A) under s. 154 was filed in time by assessee on presumption that there was no necessity for filing appeal against original order of first appellate authority. As soon as assessee was advised by her counsel for filing appeal against original order of learned CIT(A) also, she swung into action and filed this appeal. In our considered opinion there is just and sufficient cause for not filing present appeal in time. We, therefore, condone delay in light of aforesaid judgment of Hon'ble Supreme Court and admit this appeal for hearing on merits. assessee has assailed denial of exemption under s. 54EC of Act. facts apropos this issue are that assessee is doctor by profession following cash system of accounting. She sold her business premises during year for consideration of Rs. 6 lakhs declaring capital gain of Rs. 3,90,000. Exemption under s. 54EC was claimed simultaneously. AO observed that assessee had never filed balance sheet and capital account along with returns of income in any year prior to assessment year under consideration. She was show caused as to why claim for long-term capital gain and resultant exemption under s. 54EC on transfer of building (being used as dispensary) be not disallowed and such gain be brought to tax as short-term capital gain under s. 50 of Act. assessee replied that dispensary was not covered by s. 50 of Act as she had never claimed depreciation on said building. AO considered definition of "block of asset" as given in s. 2(11) to mean group of assets falling within class of assets, being buildings, machinery, plant or furniture, in respect of which same percentage of depreciation is prescribed. Then he referred to Expln. 5 to s. 32 as per which depreciation was to be allowed in computing total income whether or not any such claim was made. He, therefore, came to conclusion that even if no depreciation was allowed to assessee in earlier years, mandate of Expln. 5 to s. 32 would be attracted since building which was sold by assessee was falling within "block of assets" and resultant capital gain would be covered under s. 50 taxable as short-term capital gain. Accordingly said exemption under s. 54EC was denied and capital gain was computed at Rs. 5.85 lakhs. In first appeal learned CIT(A) echoed assessment order by observing that building which was sold by assessee was used by her for carrying on profession. He further held that judgment of Hon'ble jurisdictional High Court in case of Ace Builders (P) Ltd. (1991) 187 ITR 222 (Bom) (sic), cited before him was not applicable because in that case assessee was public limited company. He then went on to observe that assessee had not made any investment in instruments like UTI etc. nutshell of order of learned CIT(A) was that assessee remained unsuccessful. We have heard rival submissions and perused relevant material on record. It is borne out from facts recorded by lower authorities that building in which assessee was running her dispensary, was earlier rented premises, which was converted into ownership in year 1988 by paying sum of Rs. 15,000. Subsequently addition to said building was made at Rs. 2,10,000. It is further undisputed that assessee had not claimed depreciation on this building in past. Eventually it was sold in previous year relevant to assessment year under consideration for consideration of Rs. 6,00,000 which resulted into capital gain of Rs. 3,90,000. said sum of Rs. 6,00,000 was invested in Rural Electrification Corporation Bond (REC for short). Now question before us is whether assessee is entitled to exemption under s. 54EC of Act. Sec. 54EC provides that where capital gain arises from transfer of long-term capital asset and assessee has at any time within period of six months after date of such transfer, invested whole or any part of capital gains in long-term specified asset, capital gain shall be dealt with in accordance with provisions of this section, that is to say, if cost of long-term specified asset is not less than capital gain arising from transfer of original asset, whole of such capital gain shall not be charged under s. 45 of Act. AO has not disputed that assessee had made investment in REC Bonds. copy of such bond certificate is available at p. 10 of paper book which depicts that investment was made on 19th June, 2002. objection of AO against allowing of exemption under this section was that capital asset transferred by assessee was short-term capital asset as per s. 50 of Act and hence provisions of s. 54EC will not apply. In order to appreciate this controversy it is apt to consider language of s. 50 which opens with words: "Notwithstanding anything contained in cl. (42A) of s. 2, where capital asset is asset forming part of block of assets in respect of which depreciation has been allowed under this Act or under Indian IT Act, 1922, provisions of ss. 48 and 49 shall be subject to following modifications.....". Clause (2) further states that where any block of assets ceases to exist as such, for reason that all assets in that block are transferred during previous year, cost of acquisition of block of asset shall be WDV of block of asset at beginning of previous year, as increased by actual cost of any asset falling within that block of assets, acquired by assessee during previous year and income received or accruing as result of such transfer or transfers shall be deemed to be capital gain arising from transfer of short-term capital assets." From language of s. 50 it is clearly proved that where capital asset forming part of block of assets, in respect of which depreciation has been allowed, is transferred and block of assets ceases to exist, then resultant capital gain shall be deemed to be from transfer of short-term capital asset. It is no doubt true that block of assets as defined in s. 2(11) clearly means group of assets falling within block of assets comprising inter alia, buildings in respect of which percentage of depreciation is prescribed. Thus it is manifest that for entering into block of assets actual claim of depreciation is not relevant. If capital asset is of nature which fits into categories of assets prescribed and in respect of which depreciation rate is prescribed, then it will fall within definition of "block of asset". Adverting to facts of instant case we observe that assessee sold her building in which she was carrying on her profession. building as such is capital asset on which depreciation rate has been prescribed, hence such building will fall within definition of "block of asset". next question for our determination is that whether provisions of s. 50 apply to building transferred by assessee or not. This section provides that where capital asset is asset forming part of block of assets in respect of which depreciation has been allowed then provisions of ss. 48 and 49 shall be subjected to modifications as stated in cls. (1) and (2) of this section. Hence it clearly transpires that in order to be covered within provisions of this section, not only capital asset transferred by assessee should be asset forming part of block of assets but should also be such "in respect of which depreciation has been allowed under this Act". twin conditions should be simultaneously satisfied so as to fall within ambit of this section, viz. falling of capital asset in block of asset and actual allowing of depreciation on such asset. AO has opined, on strength of Expln. 5 to s. 32, that depreciation has been allowed to assessee on building transferred by her. Here it would be relevant to note said provision, which is as under: "Explanation 5: For removal of doubts it is hereby declared that provisions of this sub-section shall apply whether or not assessee has claimed deduction in respect of depreciation in computing his total income ". It is on basis of this Explanation AO has come to conclusion that depreciation is deemed to be allowed to assessee irrespective of fact whether she had claimed it or not. claim of assessee that she had not claimed depreciation has not been otherwise refuted by AO. Now we have to consider as to whether or not Expln. 5 is attracted to facts of instant case. This Explanation was inserted by Finance Act, 2001 w.e.f. 1st April, 2002. It is, therefore, clear that from asst. yr. 2002-03 deduction in respect of depreciation shall be granted automatically notwithstanding fact that assessee had not claimed this deduction. assessment year before us is 2002-03 and this Explanation has also been inserted on and or asst. yr. 2002-03. At this juncture it is relevant to consider facts leading to insertion of this Explanation. issue was argued before Courts that where assessee has not claimed depreciation or not furnished requisite particulars then should depreciation be mandatorily granted by AO. There was cleavage of opinion amongst Hon'ble High Courts on this point. When matter was finally taken up by Hon'ble Supreme Court in case of CIT vs. Mahendra Mills (2000) 159 CTR (SC) 381: (2000) 243 ITR 56 (SC) it was held that if assessee does not claim depreciation and does not furnish particulars for claiming depreciation, depreciation cannot be thrust upon him. sum n d substance of this judgment is that AO has no authority for allowing depreciation under s. 32 when assessee has not claimed it in computing income under s. 29 of Act. It was pursuant to this judgment that Expln. 5 was inserted to s. 32 w.e.f. asst. yr. 2002-03 making it mandatory to allow deduction in respect of depreciation whether or not assessee claims it. Thus we can bifurcate such cases into two categories viz, firstly upto asst. yr. 2001-02 when judgment of Hon'ble Supreme Court in Mahendra Mills (supra) will apply and no depreciation can be allowed unless claimed by assessee. second category would be from asst. yr. 2002-03 onwards in which Expln. 5 to s. 32 will hold good and depreciation will be mandatorily allowed irrespective of fact that whether or not assessee had claimed it. granting of depreciation has thus become mandatory from asst. yr. 2002-03 which means that if assessee has not claimed depreciation in asst. yr. 2002- 03 or onwards same will be automatically allowed by virtue of this Explanation. cut-off date for compulsory granting of depreciation is asst. yr. 2002-03. This Explanation will not be applicable for asst. yr. 2001-02 and earlier years. Hence from asst. yr. 2002-03, Expln. 5 to s. 32 will apply only if assessee had not claimed depreciation. If however asset is sold in previous year relevant to asst. yr. 2002-03 and there is no other asset in that block, as is case before us, then there cannot be any question of allowing depreciation on asset sold and as such application of Expln. 5 will be ruled out. As instant assessee had not claimed depreciation on this building in any of earlier years denial of exemption under s. 54EC on ground that Expln. 5 to s. 32 applies, in our considered opinion, is out of place. position would have been different if we had been dealing with asst. yr. 2003-04 in which case depreciation for asst. yr. 2002-03 would have been mandatorily allowed and both conditions of s. 50 viz., capital asset forms part of block of assets and in respect of which depreciation has been allowed, would have been satisfied. Since second condition being, 'in respect of which depreciation has been allowed under this Act', is wanting, provisions of s. 50 treating capital gains arising from transfer of such capital asset as short- term capital gain, will not be applicable. Thus very foundation of edifice of authorities below by which s. 50 has been invoked for taking away of claim of exemption under s. 54EC, does not exist. If s. 50 is not applicable then it will have to be seen life of asset in hands of assessee for determining nature of capital asset, that is, it is short-term or long-term capital asset. It is apparent from orders of authorities below that such building was held by assessee for around 14 years before its transfer. Resultantly it will be considered as long-term capital asset and provisions of s. 54EC will not be ousted. Be that as it may, we will also view case of assessee from angle of authorities below. It has been held by learned CIT(A) that by virtue of application of s. 50, capital gain on building transferred by assessee becomes short-term capital gain and hence s. 54EC will not apply as this benefit of exemption extends only in respect of transfer of long-term capital assets. learned CIT(A) has jettisoned claim of assessee on two grounds. Firstly there is no investment in instruments like UTI etc. and secondly, judgment of Hon'ble Bombay High Court in case of Ace Builders (P) Ltd. (supra) does not apply. Copy of bond certificate issued by REC has been placed on record, which shows names of holders as assessee and her husband Shri Sureshkumar Trivedi. This bond certificate has been named as bond certificate REC 54EC bonds. It is further mentioned on certificate that "benefits under s. 54EC of IT Act, 1961 for long-term capital gains". From this, there can be hardly any doubt that bond purchased by assessee is otherwise eligible for exemption under s. 54EC. view canvassed by learned first appellate authority on this score, is therefore, erroneous. At this stage it will be relevant to mention that learned Departmental Representative argued before us that even if it is considered that REC Bond is eligible for benefit under s. 54EC, then also assessee should be allowed benefit at 50 per cent of investment because names of holders in this certificate include assessee and her husband. It was submitted that inclusion of name of assessee's husband in this bond certificate was clear indicator of his having contributed 50 per cent of investment. We are not convinced with submissions of learned Departmental Representative, for reason that balance sheet filed by assessee for succeeding year in which investment was made in bond, clearly reflects amount of year in which investment was made in bond, clearly reflects amount of Rs. 6,00,000 mentioned against "REC Ltd Bond". copy of this balance sheet dt. 31st March, 2003 is available at p. 9 of paper book. It, therefore, shows that assessee had made entire investment of Rs. 6,00,000 at her own out of sale proceeds of building, though certificate was obtained in joint names along with her husband. requirement of s. 54EC is that "the assessee has, at any time within period of six months after date of such transfer, invested whole or any part of capital gains in long-term specified asset......". So what is relevant for claiming exemption under s. 54EC is that whole or any part of capital gain should be invested in long-term specified assets. If amount of capital gain is invested by assessee, requirement of section is fulfilled. It is wholly extraneous that name of another person is also introduced as co-holder. From balance sheet of assessee for next year it is amply clear that investment in bond was made by assessee. For these reasons we are not inclined to accept view point of learned Departmental Representative as well as learned CIT(A) on this issue. second aspect which weighed against assessee before learned CIT(A) was that judgment of Hon'ble jurisdictional High Court in case of Ace Builders (P) Ltd. (supra) is not attracted to facts of instant case. learned CIT(A) has referred to case of CIT vs. Ace Builders (P) Ltd. and citation has been mentioned as 187 ITR 222 (Bom). There appears to be some typographical error for reason that at mentioned citation no such case is available. On contrary correct citation of this case is (2005) 195 CTR (Bom) 1: (2006) 281 ITR 210 (Bom). Let us examine facts of that case to determine whether it is applicable to case under consideration. Ace Builders (P) Ltd. was partner in firm called M/s D. Manekji and Associates which was dissolved in year 1984 and assessee was allotted flat against balance standing to its credit in capital account with firm. assessee showed said flat as capital asset in its books of account and claimed depreciation thereon from year to year. When this flat was sold for consideration of Rs. 5,20,000 its WDV was Rs. 1,42,515. sale proceeds were invested in UTI capital gain scheme for claiming deduction under s. 54E of Act, which was denied by AO on ground that s. 50(2) was applicable as assessee had availed depreciation on transferred long-term capital asset and capital gain arising on transfer of such long-term capital asset was to be considered as short-term capital gain within meaning of s. 50 of Act and hence benefit under s. 54E was not available. Eventually when matter came before Hon'ble High Court it came to conclusion that fiction created in sub-ss. (1) and (2) of s. 50 is restricted only to mode of computation of capital gain contained in ss. 48 and 49 and does not apply to other provisions. assessee was held to be entitled to exemption under s. 54E in respect of capital gain arising on transfer of long-term capital asset on which depreciation was allowed. Coming back to facts of instant case we find that learned CIT(A) has simply chosen not to follow mandate of judgment of Hon'ble jurisdictional High Court by mentioning that appellant in that case was public limited company and hence facts were different. It is not factual position de hors real controversy in each and every case which must be identical for applying ratio decidendi of judgment. What is material to consider is logic and reasoning of judgment. If factual scenario qua point decided is same, then non-matching of irrelevant considerations cannot be ground to bid farewell to ratio of judgment. It becomes duty of subordinate authorities to consider and apply judgment if relevant factual matrix is mutatis mutandis similar. fact that in case before Hon'ble High Court assessee was private limited company and hence to hold that decision of case will not apply to individuals or firms etc., is misconception. If overall factual position qua controversy is matching with case already decided by Hon'ble jurisdictional High Court, then it is not open to lower authorities to depart from same on frivolous reasoning. Turning to our case we note that building transferred by assessee was held by her for period more than 36 months, which is condition precedent for classifying any asset under "long- term capital asset" as per s. 2(29A) of Act. Sec. 54EC is independent provision not controlled by s. 50. If capital asset is held for more than 36 months, benefit of s. 54EC cannot be snatched away because s. 50 is restricted only to mode of computation of capital gain contained in ss. 48 and 49 and this fiction cannot be extended beyond that for denying benefit otherwise available to assessee under s.54EC of Act, if other requisite conditions of section are satisfied. Our view is also fortified by CIT vs. Assam Petroleum Industries (P) Ltd. (2003) 185 CTR (Gau) 71: (2003) 262 ITR 587 (Gau). We, therefore, overturn impugned order and direct that exemption under this section be allowed to assessee because of her having made investment in eligible bonds out of sale proceeds from transfer of long-term capital asset. other appeal by assessee is against order passed in learned CIT(A) rejecting her request for rectification of order under s. 154. In view of our decision on former appeal supra, assessee's contention in this appeal also merits acceptance ex consequenti. We, therefore, set aside impugned orders and accept assessee's claim. In result, both appeals are allowed. *** Sudha S. Trivedi v. Income-tax Officer, Ward--11(3)(3)
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