2013 (7) TMI 873 - AT - Income Tax

Depreciable assets - adjustment of the cost of new flat against the sale consideration of factory premises under section 50(1)(iii) - scope of block of assets under section 2(11) - Held that - Assessee would be entitled to claim set off of cost of new asset acquired in the previous year, even if the assessee was not carrying on the same business or the other business. - assessee has not stopped business, therefore, as rightly held by the co-ordinate Bench the assessee is entitled for deduction under section 50(1)(iii) if the new asset is falling under same block of assets. Even though the property may be situated in residential premises, the same if used as office premises, there cannot be any objection for allowing depreciation at 10 per cent. Therefore, what is required to be examined is whether the assessee is using premises for office purposes. - property is used as office premises, the depreciation allowable is at 10 per cent. Therefore, the said asset falls in the same block of asset for deduction under section 50(1)(iii). In that case the written down value of the business premises may become zero, if the adjustment sought by the assessee was allowed in the computation of capital gains. This aspect required to be considered while working capital gains. Consequential adjustment for allowance of depreciation in later year(s) may require modification. In case the property is not used as office premises, the assessee may not be entitled for depreciation, unless asset is used for business purposes. This aspect also requires examination. Therefore, in the interest of justice we restore the matter to the file of the Assessing Officer to examine the exact usage of the property purchased and then work out capital gains/depreciation accordingly - Matter remanded back - Decided in favour of assessee.

Summary

Issues:
Deduction of new asset purchased under section 50(1)(iii).

Analysis:

1. Issue of Deduction of New Asset:
The appeal pertains to the deduction of a new asset purchased under section 50(1)(iii). The assessee sold its factory premises and purchased an apartment, claiming a short-term capital gain. The Assessing Officer disallowed the deduction, considering the apartment as a residential property eligible for 5% depreciation, unlike the factory building eligible for 10% depreciation. The Commissioner of Income-tax (Appeals) upheld this decision, stating the property was residential and not suitable for office use. The assessee argued that the property was used as office premises, supported by a no objection certificate. The Income-tax Appellate Tribunal referred to a previous case where it was held that the assessee could claim the deduction even if not carrying on the same business. The Tribunal emphasized that the new asset should fall under the same block of assets to be eligible for deduction under section 50(1)(iii).

2. Verification of Property Usage:
The Tribunal directed the Assessing Officer to verify if the property was indeed used as office premises, considering factors like municipal taxes and society permissions. If confirmed, depreciation at 10% would be allowed, potentially reducing the written down value of the business premises to zero. If not used for business purposes, depreciation may not be applicable. The Tribunal remanded the matter to the Assessing Officer for a detailed examination of the property's usage to determine the eligibility for deduction under section 50(1)(iii). The assessee was granted the opportunity to present relevant evidence and arguments.

3. Conclusion:
The appeal was allowed for statistical purposes, and the matter was sent back to the Assessing Officer for further evaluation. The decision highlighted the importance of verifying the actual usage of the property to determine the applicability of depreciation and the eligibility for deduction under section 50(1)(iii) based on whether the property was used for business purposes.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's decision, emphasizing the legal principles and requirements for claiming deductions under the relevant tax provisions.