2015 (11) TMI 491 - AT - Income Tax

Claim of the assessee made under section 54EC denied - short term capital gain u/s 50 of the Act on depreciable assets of shops - Held that - The capital asset sold by the assessee during the year is a shop, comprising of land (or rights therein) as well as building or the super-structure thereon, which are separate and distinct assets under the Act (refer CIT v. Alps Theatre 1967 (3) TMI 6 - SUPREME Court and CIT v. Citi Bank N.A. 2003 (4) TMI 92 - BOMBAY High Court . The super-structure being a depreciable asset, on which depreciation had been allowed, as noted by the ld. CIT(A) (refer para 3 of the impugned order), the capital gain arising on its transfer would be, in terms of section 50 of the Act, a short-term capital gain (STCG), to be computed in the manner prescribed therein. To this extent, there is no dispute. The assessee, however, claims that the building having been held for a period in excess of three years, it would by definition qualify to be a long-term capital asset (LTCA) u/s.2(29A), and the capital gain arising on its transfer eligible for exemption u/s. 54EC. So, however, the Hon ble jurisdictional High Court, even as noticed by the ld. CIT(A), has in Ace Builders (P.) Ltd. (2005 (3) TMI 36 - BOMBAY High Court) clearly held deduction u/s.54EC to be available on the capital gains computed u/s.50 of the Act. The said authority, as well as we are bound by the said case law. No difference in facts, as claimed, has been brought forth by the Revenue for the non-applicability of the said decision in the instant case. We, therefore, respectfully following the same, uphold his decision in the matter. - Decided in favour of assessee.

Summary

Issues involved:
Appeal against order regarding claim under section 54EC of the Income Tax Act, 1961 - Treatment of capital gain on sale of depreciable asset as short-term capital gain - Dispute over availability of exemption under section 54EC for long-term capital gain.

Detailed Analysis:

Issue 1: Claim under section 54EC
The appeal concerns the rejection of the assessee's claim under section 54EC of the Income Tax Act, 1961. The Assessing Officer denied the exemption under section 54EC on the grounds that the shop sold was a depreciable asset, resulting in a short-term capital gain (STCG), while the exemption under section 54EC is applicable only to long-term capital gains (LTCG). The assessee argued that the nature of the asset does not change, and the gains should be treated as long-term capital gains for claiming the exemption under section 54EC.

Issue 2: Interpretation of relevant provisions
The Tribunal analyzed the provisions of section 50, which deem the profit from the transfer of a depreciable asset as short-term capital gain. The Tribunal also considered the definitions of short-term capital asset (STCA) and long-term capital asset (LTCA) under sections 2(42A) and 2(29A) respectively. It was observed that section 50 overrides the definitions of STCA and LTCA, and the capital gain on a depreciable asset must be computed as short-term capital gain.

Issue 3: Judicial Precedents and Interpretation
The Tribunal referred to the decision of the jurisdictional High Court in CIT vs. Ace Builders, which held that deduction under section 54EC is available on capital gains computed under section 50 of the Act. Despite the Revenue's argument regarding the treatment of depreciable assets, the Tribunal upheld the decision based on the binding precedent set by the High Court. The Tribunal emphasized the rationale behind depreciation on depreciable assets and the computation mechanism for capital gains under section 50.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the decision of the learned CIT(A) to allow the claim of the assessee under section 54EC. The Tribunal followed the judicial precedent established by the jurisdictional High Court in CIT vs. Ace Builders, emphasizing the availability of deduction under section 54EC on capital gains computed under section 50. The judgment highlights the importance of judicial principles and binding precedents in tax matters, ensuring consistency and adherence to established legal interpretations.