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2016 (4) TMI 738 - AT - Income TaxCapital gain arising out of the sale of leasehold land - STCG OR LTCG - whether section 50 is applicable in the facts and circumstances of the case? - Held that - The said provision is applicable where the capital is an asset forming part block of asset in respect of which depreciation is allowed under the Act. We are unable to accept the contentions of ld. Counsel for the assessee, as already noted section 50 is applicable where capital is an asset forming part of a block of assets in respect of which the depreciation was allowed under the Income Tax Act. In so far as the land and building in question is concerned, the assessee has himself claimed the depreciation which has been duly allowed by the AO. Thus, the provisions of section 50 of the Act, then, are clearly applicable in the case of assessee and the profit arises from the sale of land and building is chargeable to tax as STCG as rightly held by the authorities below. Disallowance on account of foreign travel - Held that - The claim of the assessee on account of expenditure incurred for foreign travel of his wife is sustained and it is an allowable expenditure as held by the HON BLE HIGH COURT OF KERALA in the case of CIT vs. APPOLLO TYRES LTD 1998 (8) TMI 68 - KERALA High Court and disallowance thereon confirmed by the CIT-A is not justified
Issues Involved:
1. Classification of capital gain as Short-Term Capital Gain (STCG) or Long-Term Capital Gain (LTCG). 2. Disallowance of foreign tour expenses. Issue-wise Detailed Analysis: 1. Classification of Capital Gain: The primary issue is whether the capital gain arising from the sale of leasehold land and building should be treated as Short-Term Capital Gain (STCG) or Long-Term Capital Gain (LTCG). The assessee argued that the asset had never been a business asset and that an erroneous claim of depreciation should not alter its nature. The Assessing Officer (AO) treated the asset as a business asset and applied Section 50 of the Income Tax Act, which pertains to depreciable assets, thereby classifying the gain as STCG. During the assessment proceedings, the AO found that the assessee had deposited ?5,00,000 in the bank and treated the full value of consideration for the relinquishment of lease rights at ?1,25,00,000 instead of ?1,20,00,000. The AO added ?64,39,923 as capital gain to the total income of the assessee. The assessee contended that the AO was not justified in considering the full value of consideration at ?1,25,00,000 and argued that the additional ?5,00,000 was erroneously included. The CIT(A) upheld the AO’s decision, stating that the additional ?5,00,000 was indeed related to the surrender of lease rights and that the assessee had failed to explain its exclusion. The Tribunal held that Section 50 is applicable where the capital asset forms part of a block of assets in respect of which depreciation is allowed. Since the assessee had claimed and was allowed depreciation on the land and building, the provisions of Section 50 were applicable, and the profit from the sale was chargeable to tax as STCG. Thus, the Tribunal found no merit in the assessee’s ground and dismissed it. 2. Disallowance of Foreign Tour Expenses: The second issue concerns the disallowance of ?83,550 out of ?1,39,249 claimed as foreign tour expenses. The AO disallowed 60% of the expenses, and the CIT(A) confirmed this disallowance, viewing the expenses as personal in nature. The assessee argued that the foreign travel expenses were necessary as the assessee required personal assistance due to age and health reasons. The assessee relied on the judgment of the Hon’ble High Court of Kerala in the case of CIT vs. Apollo Tyres Ltd., which allowed similar expenses. The Tribunal examined the facts and the relevant case law, including the decision of the Bombay Special Bench in Glaxo Laboratories (India) Ltd. vs. ITO. The Tribunal noted that in modern business practices, senior executives often travel with their spouses for both business and social obligations. The Tribunal found that the foreign travel expenses incurred by the assessee were justified and allowable, as the presence of the spouse was necessary for business purposes. Therefore, the Tribunal allowed the assessee’s claim for foreign travel expenses and held that the disallowance confirmed by the CIT(A) was not justified. Conclusion: The appeal filed by the assessee was partly allowed. The Tribunal upheld the classification of the capital gain as STCG under Section 50 but allowed the claim for foreign travel expenses. The decision was pronounced in the open court on 15th April 2016.
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