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2011 (6) TMI 506 - AT - Income TaxExemption u/s 54EC on STCG u/s 50 - benefit of cost inflation index u/s 48 - assessee adopted the fair market value of the flat sold at Rs 33 lakhs as on 1.1.1981 based on valuation report of a Registered valuer - Held that - As decided in CIT Versus Ace Builders (P.) Ltd. 2005 (3) TMI 36 - BOMBAY HIGH COURT in the case of depreciable assets the deemed fiction created under sub-section 1 & 2 of Sec.50 is restricted only to the mode of computation of capital gains contained under Sec.48 & 49 and does not apply to any other provision. The fiction created by the legislature is to be confined to the purpose for which it is created. Further, Sec.54E does not make any distinction between depreciable asset and non-depreciable asset. Exemption available under Sec. 54E (sic) cannot be denied by referring to the fiction created under Sec.50. Benefit of Sec.54E (sic) is available to the assessee irrespective of the fact that the computation of capital gains is done either under sec.48 & 49 or u/s 50 - Thus the assessee is entitled to relief u/s 54E in respect of capital gains computed u/s 50 in respect of transfer of depreciable asset - Decided in favor of the assessee
Issues Involved:
1. Exemption under Section 54EC for Short Term Capital Gain computed under Section 50. 2. Application of Cost Inflation Index under Section 48 for Short Term Capital Gain from depreciable assets. 3. Adoption of Fair Market Value as on 1.4.1981 for depreciable assets. 4. Set off of Short Term Capital Gain against brought forward Long Term Capital Loss. Detailed Analysis: Issue 1: Exemption under Section 54EC for Short Term Capital Gain computed under Section 50 The Revenue contended that the CIT(A) erred in allowing exemption under Section 54EC from the Short Term Capital Gain computed under Section 50, arguing that Section 54EC applies only to Long Term Capital Gain. The assessee had invested Rs. 5,71,50,000 in NABARD Capital Gains Bonds and claimed exemption under Section 54EC. The CIT(A) upheld the assessee's claim, citing precedents including the jurisdictional High Court's decision in ACE Builders (P.) Ltd., which held that Section 50's fiction is confined to computation purposes and does not convert a long term capital asset into a short term capital asset. Thus, the exemption under Section 54EC was allowed. The Tribunal affirmed this view, dismissing the Revenue's appeal on this ground. Issue 2: Application of Cost Inflation Index under Section 48 for Short Term Capital Gain from depreciable assets The Revenue argued that the CIT(A) erred in allowing the benefit of the Cost Inflation Index under Section 48 for Short Term Capital Gain arising from the sale of a depreciable asset under Section 50. The CIT(A) had not specifically addressed this issue in their order. The Tribunal noted that the grounds raised by the Revenue were not directly arising from the CIT(A)'s order, and hence, dismissed these grounds as misconceived. Issue 3: Adoption of Fair Market Value as on 1.4.1981 for depreciable assets The Revenue contended that the CIT(A) erred in allowing the assessee to adopt the Fair Market Value as on 1.4.1981 for a depreciable asset, which is considered a short term capital asset under Section 50. The Tribunal found that the CIT(A) had not decided on this issue and that it did not arise from the CIT(A)'s order. Consequently, the Tribunal dismissed this ground as well. Issue 4: Set off of Short Term Capital Gain against brought forward Long Term Capital Loss The Revenue argued that the CIT(A) erred in allowing the set off of Short Term Capital Gain arising from the sale of depreciable assets under Section 50 against the brought forward Long Term Capital Loss. The CIT(A) had actually held against the assessee, stating that long term capital losses brought forward from earlier years are not eligible for set off against the short term capital gain of the current year. The Tribunal noted that the CIT(A) had ruled correctly as per the provisions of Section 74 and dismissed the Revenue's ground as misconceived. Conclusion: The Tribunal dismissed the Revenue's appeal in its entirety, upholding the CIT(A)'s decision to allow the exemption under Section 54EC and confirming that the other grounds raised by the Revenue were either misconceived or did not arise from the CIT(A)'s order.
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