IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI A.D. JAIN, JM & SHRI VIKRAM SINGH YADAV, AM ITA No. 271/JP/2016 Assessment Years : 2012-13 I.T.O., cuke M/s Ankur Mining Pvt. Ltd., Ward 2(2), Vs. 309, city Pulse, Narayan Singh Jaipur. Circle, Jaipur. PAN/GIR No.: AACCA 9684 R Appellant Respondent Revenue by: Shri R.A. Verma (Addl.CIT) Assessee by : Shri P.C. Parwal (CA) s Date of Hearing : 14/09/2016 Date of Pronouncement : 15/09/2016 ORDER PER: A.D. JAIN, J.M. This is appeal filed by Revenue against order of ld. CIT(A)-1, Jaipur dated 25/01/2016 for assessment year 2012-13, contending that ld. CIT(A) has erred in allowing deduction amounting to Rs. 50,00,000/- U/s 54EC of Income Tax Act, 1961 (in short Act ). 2. facts of case are that assessee company purchased flat, i.e. flat No. 1, L-16, Kailash colony, New Delhi, on 13/5/1996. On this 2 ITA 271/JP/2016_ ITO Vs M/s Ankur Mining Pvt. Ltd. flat, assessee claimed depreciation. Written Down Value (WDV) of flat as on 31/3/2011 was Rs. 52,708/-. During year, assessee sold flat, on 03/2/2012, for Rs. 60 lacs. It declared long term capital gain of Rs. 8,14,664/- and claimed deduction of Rs. 50.00 lacs U/s 54EC of Act. Assessing Officer held that assessee had classified flat as building, on which, depreciation had been claimed on entire consideration; that assessee was not having any right in land, except right in common area and, therefore, flat comprised only of building on which depreciation had been claimed; that thus, on sale of flat, short term capital gain had arisen U/s 50 of Act, on which deduction U/s 54EC was also not allowable. As it was case of transfer of depreciable asset. Assessing Officer, accordingly, assessed income from sale of flat as short term capital gain, at Rs. 58,14,664/-. 3. Vide impugned order, ld. CIT(A) deleted disallowance, holding as follows:- (i) I have carefully perused submissions of appellant, assessment order and material placed on record. It is noted from assessment order that AO did not allow benefit u/s 54EC of Act in making investment in 3 ITA 271/JP/2016_ ITO Vs M/s Ankur Mining Pvt. Ltd. Rural Electrification Bonds to appellant by holding that since capital gain was short term and exemption u/s 54EC of Act is available only for long term capital assets. (ii) During appellate proceedings, it was submitted by appellant that land portion comprised in flat has resulted in long term capital gain and therefore deduction u/s 50EC is allowable to it in respect of such long term capital gain. Alternatively, it was submitted that deeming fiction created in section 50 of Income tax Act, 1961 is restricted only to mode of computation of capital gains as contained in section 48 & 49 of Act and does not apply to other provision of Act. If asset is held for more than 36 months, irrespective of fact that depreciation has been allowed on it, benefit as specified in section 54EC or 54F is to be allowed. Exemption referred to in section 54EC cannot be denied simply referring to section 50 of Act. Treating depreciable assets as short term capital assets u/s 50 is only with reference to mode of computation specified in section 50 but not to other provision. So far as other provisions are concerned, if asset is held for more than 36 month, it is long term capital asset and all benefits or exemptions available to long term capital assets are available to such assets also. Deeming fiction is not to be applied with reference to extended meaning. Therefore even if gain is assessed as short term capital gain, flat under consideration having been held for more than 36 4 ITA 271/JP/2016_ ITO Vs M/s Ankur Mining Pvt. Ltd. months, is long term capital assets and therefore deduction u/s 54EC is available in respect of such short term capital gain determined by AO. In support of its claim, appellant relied upon number of judicial pronouncements. (iii) I have gone through judicial pronouncements relied upon by appellant and I find merit in contention of appellant. It is fact that flat under consideration was owned by appellant for more than three years and thus is long term capital asset. Further section 54EC talks about exemption on transfer of long term capital asset and it does not exclude depreciable assets, gain on transfer of which is deemed to be short term capital gain u/s 50 of IT Act. In view of above discussion and judicial pronouncements in cases of: CIT Vs. Aditya Medisales Ltd. 218 Taxman 477 (Guj.) (HC) CIT Vs. Himalaya Machinery (P.) Ltd. (2012) 88 DTR 175 (Guj) (HC) CIT v. Ace Builders (P) Ltd (2006) 281 ITR 210 (Bom. H.C) CIT vs. Assam Petroleum Industries (P) Ltd (2003) 262 ITR 587 (Gauhati) Manali Investments Vs. Asstt. CIT 56 DTR 218 (Mum. Trib) Ramakrishna Theatres Ltd. Vs. DCIT(2014) 41 CCH 0050 (Bang) (Trib.) 5 ITA 271/JP/2016_ ITO Vs M/s Ankur Mining Pvt. Ltd. It is held that AO was not justified in denying exemption u/s 54EC of Act on investments made by appellant during year under consideration. 4. ld. Sr.DR has contended that ld. CIT(A) has erred in allowing deduction of Rs. 50.00 lacs to assessee U/s 54EC of Act, despite fact that capital gain was long term capital gain. It has been submitted that ld. CIT(A) has erred in failing to consider that acceptedly property in question was held as fixed asset in block of assets as business asset, due to which, provisions of Section 50 of Act are applicable, as transaction of sale was in respect of depreciable asset, calling to be assessed as short term capital gain; that moreover, ld. CIT(A) has also failed to consider that assessee had himself shown land and building as composite assets and depreciation had been claimed; that flat comprised of only building on which depreciation had been claimed by assessee and so, it was short term capital gain, which was chargeable on sale of flat; that ld. CIT(A) has erroneously failed to consider this aspect of matter; that ld. CIT(A) has also erred in not considering that since it was case of transfer of depreciable capital asset, no deduction U/s 54EC of Act was allowable; that ld. CIT(A) has further fallen in 6 ITA 271/JP/2016_ ITO Vs M/s Ankur Mining Pvt. Ltd. error in misapplying case laws which are not applicable to facts of present case; and that, therefore, order of ld. CIT(A) be set aside and that passed by Assessing Officer be revived. 5. On other hand, ld. AR of assessee has placed strong reliance on impugned order. It has been contended that, it has rightly been appreciated by ld. CIT(A), since flat was owned by assessee for more than three years, it was long term capital asset, but transfer whereof, gain is long term capital gain, entitling assessee for exemption U/s 54EC of Act. 6. We have heard rival contentions of both parties and perused material available on record. flat in question was purchased on 13/5/1996. It was sold on 03/2/2012; during year. Assessing Officer disallowed claim of exemption U/s 54EC, observing that capital gain earned was short term capital gain and exemption U/s 54EC of Act is available only for long term capital assets. ld. CIT(A) held, deleting disallowance, that flat had been owned by assessee for more than three years and so, it was long term capital asset. It was observed that transfer of flat fetched gain, which entitled assessee for exemption U/s 54EC of Act, which does not 7 ITA 271/JP/2016_ ITO Vs M/s Ankur Mining Pvt. Ltd. exclude depreciable assets, gain on transfer of which is deemed to be short term capital gain U/s 50 of Act. 7. We do not find any error whatsoever in order of ld. CIT(A). Section 50 of Act creates deeming fiction. This deeming fiction is restricted only to mode of computation of capital gains, as prescribed by Sections 48 and 49 of Act. It does not apply to other provisions of Act. If asset is held for more than 36 months, dispite depreciation having been allowed on it, benefit U/s 54EC of Act is available. If asset is held for more than 36 months, it is long term capital asset, on which, all benefits or exemptions available to long term capital assets, are available. As such, even if gain is assessed as short term capital gain, on transfer of such asset, deduction U/s 54EC is available. 8. In this regard, in CIT Vs. ACE Builders (P) Ltd , 281 ITR 210 (Bom), it was held that there is nothing in Section 50 of Act to suggest that fiction created thereunder is not only restricted to Sections 48 and 49 of Act, but it also applies to other provisions; that on contrary, Section 50 makes it clear that deemed fiction created in Sections 50(1) and 50(2) is restricted only to mode of computation of capital gains contained in Sections 48 & 49; that fiction created by 8 ITA 271/JP/2016_ ITO Vs M/s Ankur Mining Pvt. Ltd. Legislature has to be confined to purpose for which it was created; that thus, Section 50 is confined to computation of capital gains only and cannot be extended beyond what is not stated in statute; and that Section 54E does not make any distinction between depreciable asset and non-depreciable asset, and, therefore, exemption available U/s 54E cannot be denied to depreciable assets by referring to fiction created in Section 50. 9. ACE Builders , (supra) was followed by Hon ble Jurisdictional High Court in case of CIT Vs Aditya Medisales Ltd. , 218 Taxman 477 (Guj)(HC), to hold that legal fiction created U/s 50C is restricted only to computation of capital gains and it does not restrict application of Section 54EC allowing exemption of capital gain on making prescribed investments. 10. Similar are other decisions relied on by ld. CIT(A). No decision to contrary has been brought to our notice. As such, ld. CIT(A) cannot be held to have misapplied case laws which he has referred to in impugned order. 9 ITA 271/JP/2016_ ITO Vs M/s Ankur Mining Pvt. Ltd. 11. In view of above, finding no merit in grievance sought to be raised by department, same is rejected. order under appeal is confirmed. 12. In result, appeal of department is dismissed. Order pronounced in open court on 15/09/2016. Sd/- Sd/- (Vikram Singh Yadav) (A.D. Jain)Accountant Member Judicial Member Jaipur Dated:- September, 2016Copy of order forwarded to: s 1. Appellant- ITO, Ward-2(2), Jaipur. 2. Respondent- M/s Ankur Mining Pvt. Ltd., Jaipur. 3. CIT 4. CIT(A) 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 271/JP/2016) By order, Asst. Registrar I.T.O., Ward 2(2), Jaipur v. M/s Ankur Mining Pvt. Ltd