2012 (8) TMI 919 - AT - Income Tax

Capital gain - Long Term capital asset - Held that - To substantiate the Ld. Counsel drew our attention to exhibit page 37 to 41 of the Paper Book which are copy of the ledger account of the factory building and pointed out that the assessee is adding towards the cost of construction since F.Y. 1995-96 till the year under consideration. We find that at page-12 of the paper Book which is a copy of NOC dt. 6.3.1997 given by the Office of the Chief Fire Officer Mumbai Fire Brigade granting the assessee to occupy and use the factory building. Referring to this the Ld. Counsel has rightly stated that the factory building is more than 36 months old. At page-35 of the paper book we find that there is a Municipal Corporation Tax receipt dt. 25th September 1997 which also substantiate the claim of the assessee. It appears that the AO has wrongly taken the date as 1.10.2003 only because the assessee claimed depreciation for the first time during the year under consideration on the amount apportioned between the factory building (rented) and factory building (SOP). We have also considered the schedule of fixed assets since 1996 to March 2004 exhibited from page 42 to 50 of the Paper Book. We find that in each of these years the assessee has showed the factory building under the head building account under consideration . Considering all these facts in totality we have no hesitation to hold that the factory building in dispute is more than 36 months old which make it as Long Term capital asset. Exemption u/s. 54EC allowed. See CIT Vs ACE Builders Pvt. Ltd 2005 (3) TMI 36 - BOMBAY High Court

Summary

Issues:
1. Treatment of factory building as a long-term asset for exemption u/s. 54EC
2. Treatment of property let out as a long-term asset for capital gains
3. Denial of exemption u/s. 54EC against long-term capital gain on sale of land

Issue 1: Treatment of Factory Building as a Long-term Asset for Exemption u/s. 54EC
The appellant challenged the order of Ld. CIT(A) regarding the treatment of the factory building as an asset held for less than 36 months before its transfer, denying exemption u/s. 54EC. The AO treated the gain as short-term capital gain under Section 50 of the Act. The appellant contended that the factory building should be considered a long-term asset as it was held for more than 36 months. The tribunal examined evidence, including ledger accounts, NOC, and municipal tax receipts, establishing that the factory building was over 36 months old. The tribunal held that the factory building was a long-term capital asset, reversing the findings of Ld. CIT(A).

Issue 2: Treatment of Property Let Out as a Long-term Asset for Capital Gains
The appellant disputed the treatment of property let out as a short-term asset for capital gains. The AO considered the property as held for less than 36 months, resulting in short-term capital gain. The appellant argued that the property had been held for over 36 months, qualifying it as a long-term capital asset. The tribunal reviewed the evidence and found that the property was indeed over 36 months old, contrary to the AO's assessment. The tribunal reversed the decision, holding that the capital gain arising from the property let out should be treated as long-term capital gain.

Issue 3: Denial of Exemption u/s. 54EC Against Long-term Capital Gain on Sale of Land
The appellant contested the denial of exemption u/s. 54EC against long-term capital gain on the sale of land. The tribunal referred to the decision in CIT Vs ACE Builders Pvt. Ltd., emphasizing that the fiction created under Section 50 is limited to the computation of capital gains and does not extend to exemption provisions. Following the precedent, the tribunal directed the AO to allow exemption u/s. 54EC in accordance with the law. The appeal was allowed in favor of the assessee based on the findings and legal principles discussed.

This detailed analysis of the judgment highlights the key issues, arguments presented, evidence examined, and the tribunal's decision in each aspect of the case.