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2012 (12) TMI 607 - HC - Income TaxExemption u/s 54EC - Capital gain on depreciable assets being short term capital gain - held that - the assessee cannot be denied exemption under section 54E, because, firstly, there is nothing in Section 50 to suggest that the fiction created in Section 50 is not only restricted to Section 48 and 49 but also applies to other provisions. On the contrary, Section 50 makes it explicitly clear that the deemed fiction created in sub-sections (1) and (2) of Section 50 is restricted only to the mode of computation of capital gains contained in section 48 and 49. Secondly, it is well established in law that a fiction created by the Legislature has to be confined to the purpose for which it is created. It is true that Section 50 is enacted with the object of denying multiple benefits to the owners of depreciable assets. However, that restriction is limited to the computation of capital gains and not to the exemption provisions. In the other words, where the long term capital assets has availed of depreciation, then the capital gain has to be competed in the manner prescribed under section 50 and the capital gains tax will be charged as if such capital gains has arisen out of a short-term capital asset but if such capital gain is invested in the manner prescribed in section 54E, then the capital gain shall not be charged under section 45 of the Income-tax Act. To put it simply the benefit of Section 54E will be available to the assessee irrespective of the fact that the computation of capital gains is done either u/s. 48 and 49 or u/s. 50. - Decided in favor of assessee.
Issues Involved:
1. Whether the Tribunal was right in law in deleting the disallowance of Rs.40,99,947/- under Section 50 of the Income Tax Act on account of the assessee's claim for exemption under Section 54EC on gain arising from the sale of depreciable assets being short-term capital gain. Detailed Analysis: Factual Background: The case revolves around the assessee's claim for exemption under Section 54EC of the Income Tax Act, 1961, on short-term capital gains arising from the sale of depreciable assets. The assessee had held these assets for more than 36 months and invested the capital gains in specified bonds to claim the exemption. The Assessing Officer initially accepted the return filed under Section 143(1) but later issued a notice under Section 148 for reopening the assessment, disallowing the exemption claim. The CIT(Appeals) allowed the exemption, and the Tribunal upheld this decision, leading to the Revenue's appeal to the High Court. Statutory Provisions: - Section 45: Charges any profits or gains arising from the transfer of a capital asset to income-tax under the head "Capital gains." - Section 48: Provides the mode of computation for capital gains. - Section 49: Deals with the cost of acquisition of capital assets in certain cases. - Section 50: Special provision for computation of capital gains in case of depreciable assets, modifying the application of Sections 48 and 49. - Section 54EC: Provides for exemption from capital gains tax if the gains are invested in specified bonds within six months of the transfer. Revenue's Contention: The Revenue argued that by virtue of Section 50, the sale of depreciable assets should be treated as short-term capital gain. Since Section 54EC applies only to long-term capital gains, the exemption should not be available. The language of Section 50 was cited as unambiguous in treating gains from depreciable assets as short-term. Court's Analysis: The Court examined the statutory provisions and previous judgments to determine the validity of the assessee's claim. It noted that Section 50 modifies the application of Sections 48 and 49 only for the purpose of computing capital gains from depreciable assets but does not change the nature of the asset itself. Key Judgments Cited: - Gauhati High Court in Commissioner of Income Tax Vs. Assam Petroleum Industries (P) Ltd.: Held that Section 54E (similar to Section 54EC) is an independent provision not controlled by Section 50. The exemption applies if the asset transferred is a long-term capital asset and the gains are invested in specified assets. - Bombay High Court in Commissioner of Income Tax Vs. ACE Builders Pvt. Ltd.: Supported the view that the fiction created by Section 50 is confined to the computation of capital gains and does not extend to other provisions like Section 54E or 54EC. The exemption under Section 54E/54EC cannot be denied based on the fiction created by Section 50. Conclusion: The Court concluded that the assessee's claim for exemption under Section 54EC was valid. The fiction created by Section 50 for computing capital gains does not alter the nature of the asset or the applicability of exemptions under Section 54EC. The Tribunal's decision to uphold the CIT(Appeals)'s allowance of the exemption was correct. Consequently, the Revenue's appeal was dismissed. Final Judgment: The Tax Appeal was dismissed, upholding the Tribunal's decision to allow the assessee's claim for exemption under Section 54EC on the short-term capital gains arising from the sale of depreciable assets.
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