IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO(S).4797/2008 COMMISSIONER OF INCOME TAX,PANJI APPELLANT(S) VERSUS V.S.DEMPO COMPANY LTD. PANJI RESPONDENT(S) ORDER In return filed by respondent/assessee for Assessment Year 1989-90 assessee had disclosed that it had sold its loading platform M.V. Priyadarshni for sum of Rs. 1,37,25,000/- on which it had earned some capital gains. On said capital gains assessee had also claimed that it was entitled for exemption under Section 54E of Income Tax Act. Admittedly, asset was purchased in year 1972 and sold sometime in year 1989. Thus, asset is almost 17 years old. Going by definition of long term capital asset contained in Section 2(29B) of Income Tax Act, 1995 (hereinafter referred to as 'the Act'), it was admittedly long-term capital asset. Further Assessing Officer rejected claim for exemption under Section 54E of Act on ground that assessee had claimed Signature Not Verified Digitally signed by ASHWANI KUMAR Date: 2016.09.14 17:17:48 IST depreciation on this asset and, therefore, provisions of Section 50 Reason: were applicable. Though this was upheld by Commissioner of 2 Income Tax (Appeals), Income Tax Appellate Tribunal allowed appeal of assessee herein holding that assessee shall be entitled for exemption under Section 54E of Act. High Court has confirmed view of Commissioner of Income Tax (Appeals) and dismissed appeal of Revenue. While doing so High Court has relied upon its own judgment in case of Commissioner of Income-tax, Mumbai City-II, Mumbai vs. ACE Builders Pvt. Ltd. [(2005) 3 Bom CR 598]. High Court has observed that Section 50 of Act which is special provision for computing capital gains in case of depreciable assets is not only restricted for purposes of Section 48 or Section 49 of Act as specifically stated therein and said fiction created in sub-section (1) & (2) of Section 50 has limited application only in context of mode of computation of capital gains contained in Sections 48 and 49 and would have nothing to do with exemption that is provided in totally different provision i.e. Section 54E of Act. Section 48 deals with mode of computation and Section 49 relates to cost with reference to certain mode of acquisition. This aspect is analysed in judgment of Bombay High Court in case of Commissioner of Income-tax, Mumbai City-II, Mumbai vs. ACE Builders Pvt. Ltd. (2005) 3 Bom CR 598 in following manner: In our opinion, assessee cannot be denied exemption under Section 54E, because, firstly, there is nothing in Section 50 to suggest that fiction created in Section 50 is not only restricted to Sections 48 and 49 but also applies to other provisions. On contrary, Section 50 makes it 3 explicitly clear that deemed fiction created in sub-section (1) & (2) of Section 50 is restricted only to mode of computation of capital gains contained in Section 48 and 49. Secondly, it is well established in law that fiction created by legislature has to be confined to purpose for which it is created. In this connection, we may refer to decision of Apex Court in case of State Bank of India vs. D. Hanumantha Rao reported in 1998 (6) SCC 183. In that case, Service Rules framed by bank provided for granting extension of service to those appointed prior to 19.07.1969. respondent therein who had joined bank on 1.7.1972 claimed extension of service because he was deemed to be appointed in bank with effect from 26.10.1965 for purpose of seniority, pay and pension on account of his past service in army as Short Service Commissioned Officer. In that context, Apex Court has held that legal fiction created for limited purpose of seniority, pay and pension cannot be extended for other purposes. Applying ratio of said judgment, we are of opinion, that fiction created under Section 50 is confined to computation of capital gains only and cannot be extended beyond that. Thirdly, Section 54E does not make any distinction between depreciable asset and non-depreciable asset and, therefore, exemption available to depreciable asset under Section 54E cannot be denied by referring to fiction created under Section 50. Section 54E specifically provides that where capital gain arising on transfer of long term capital asset is invested or deposited (whole or any part of net consideration) in specified assets, assessee shall not be charged to capital gains. Therefore, exemption under Section 54E of I.T. Act cannot be denied to assessee on account of fiction created in Section 50. We are in agreement with aforesaid view taken by High Court. We are informed that Gujarat High Court as well as Guahati High Court have also taken same view in following cases: 1. Commissioner of Income tax V. vs. Polestar Industries [2013 SCC online Gu 5517] 2. Commissioner of Income Tax vs. Assam Petroleum Industries 4 (P.) Ltd. [(2003) 262 ITR 587]. We are also informed that against aforesaid judgments no appeal has been filed. In view of foregoing, we do not find any merit in instant appeal which is, accordingly, dismissed. ....J. [A.K. SIKRI] .....J. [ROHINTON FALI NARIMAN] NEW DELHI; SEPTEMBER 05, 2016. 5 ITEM NO.303 COURT NO.10 SECTION IIIA SUPREME COURT OF INDIA RECORD OF PROCEEDINGS Civil Appeal No(s). 4797/2008 COMMISSIONER OF INCOME TAX,PANJI Appellant(s) VERSUS V.S.DEMPO CO.LTD. PANJI Respondent(s) Date : 05/09/2016 This appeal was called on for hearing today. CORAM : HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE ROHINTON FALI NARIMAN For Appellant(s) Mr. Y.P. Adhyaru, Sr. Adv. Mr. Arijit Prasad, aDv. Ms. Gargi Khanna, Adv. Ms. Anil Katyari, Adv. For Respondent(s) Mr. Dhruv Mehta, Sr. Adv. Ms. Akanksha Kaushik, Adv. Ms. Anupama Dhurve, Adv. Mr. Abhishek Puri, Adv. Vasvi Jain, Adv. Ms. Shobha,Adv. UPON hearing counsel Court made following ORDER Civil Appeal is dismissed in terms of signed order. Application pending, if any, shall be disposed of accordingly. (Ashwani Thakur) (Tapan Kr. Chakraborty) COURT MASTER COURT MASTER (Signed order is placed on file) Commissioner of Income-tax, Panji v. V. S. Dempo Company Ltd