2017 (11) TMI 458 - AT - Income Tax

Gain arising on the sale of building - whether gain will be assessable under the head Long term capital Gains as claimed by the assessee or will be assessable as per the provisions of section 50 of the Income tax Act - assessment of income of the predecessor company demerged company - Held that - We noted that the Assessing Officer has applied the provisions of section 50 on the basis of the statement of deprecation as on 01.10.2010, which according to the assessee represent the depreciation claimed under the Companies Act. We, therefore, in the interest of justice and fair play to both the parties set aside this issue and restore the matter to the file of the Assessing Officer with the direction that the Assessing Officer shall re-decide the issue after going through the facts of the case i.e. whether M/s. Super Leasing Ltd. has claimed depreciation under the Income tax Act in respect of the said property sold by the assessee or not. In case, it is found that M/s. Super Leasing Ltd. has claimed depreciation under the Income tax Act, the provisions of section 50 would apply and the gain arising from the said property will be assessed under the head Short term capital gain. In case it is found that the said company has not clamed any depreciation under the Income tax Act, the gain so arising shall be assessed under the head Long term capital gain. Eligibility of cost of indexation as per the provisions of section 48 - Held that - The assessment of the said income shall be made on the assessee in the like manner and the same extent as it would have been made on the predecessor i.e. M/s. Super Leasing Ltd, the demerger company. Now the question arises if the return has to be filed by M/s. Super Leasing Ltd, naturally it would have been entitled to claim indexation in view of the provisions of section 48 from the financial year in which it had purchased the said property. The reliance on Explanation 3 to section 48 by the Revenue, in our view, will not assist the Revenue. It is case where the said property has not been sold by the assessee but, in fact, it has been sold by M/s. Super Leasing Ltd. vide sale deed executed on 16.07.2010 i.e. date prior to the order passed by the Hon ble Bombay High Court. It is a fact that Bombay High Court has approved the scheme of demerger by order dated 23.12.2010. In view of the provisions of section 170, the assessee shall be liable on the said income as would be M/s. Super Leasing Ltd. It is not denied that the said property is held by M/s. Super Leasing Ltd from the F Y 1997-98. We accordingly, direct the Assessing Officer to allow the benefit of cost of indexation to the assessee from the F Y 1997-98, in case it is found that M/s. Super Leasing Ltd has not claimed any depreciation in income tax proceedings. MAT computation - Held that - Restore the issue to the file of the Assessing Officer with the direction that that he shall recalculate the tax levied u/s.115JB and, consequently, interest shall also be recalculated in accordance with law. The assessee is also directed to submit the correct calculation before the Assessing Officer

Summary

Issues involved:
1. Assessment of long-term capital gain on the sale of building.
2. Application of section 50 of the Income Tax Act.
3. Eligibility for cost indexation under section 48 of the Income Tax Act.
4. Recalculation of tax levied under section 115JB.

Issue 1: Assessment of long-term capital gain on the sale of building:
The appellant contested the CIT(A)'s order enhancing the long-term capital gain from ?1,96,10,755 to ?2,35,60,000. The dispute revolved around treating the building as a depreciable asset, denying adjustment of cost of acquisition by Cost Inflation Index, and creating illegal tax demands. The appellant argued that no depreciation was claimed or allowed on the asset, making section 50 inapplicable. The appellant also highlighted that the building was sold by the predecessor company, not by the appellant, and thus, the approach of the lower authorities was unsustainable.

Issue 2: Application of section 50 of the Income Tax Act:
The Assessing Officer applied section 50, contending that the predecessor company had claimed depreciation on the building, hence the capital gain should be assessed as short-term capital gain. However, the appellant argued that depreciation was claimed only for the Companies Act purposes, not for income tax computation. The ITAT directed the Assessing Officer to re-examine whether the predecessor company had claimed depreciation under the Income Tax Act. If depreciation was not claimed, the gain would be assessed as long-term capital gain.

Issue 3: Eligibility for cost indexation under section 48 of the Income Tax Act:
The ITAT analyzed section 170(2), which mandates assessing the successor in the same manner as the predecessor. It was established that if the predecessor (M/s. Super Leasing Ltd.) had filed the return, it would have been entitled to claim indexation from the year of property purchase. The ITAT directed the Assessing Officer to allow cost indexation from the year of acquisition (FY 1997-98) if no depreciation was claimed by M/s. Super Leasing Ltd. in income tax proceedings.

Issue 4: Recalculation of tax levied under section 115JB:
The ITAT directed the Assessing Officer to recalculate the tax levied under section 115JB and adjust the interest accordingly. The appellant was instructed to provide the correct calculation to the Assessing Officer for reevaluation. This decision was made to ensure the accurate calculation of tax liability under section 115JB.

In conclusion, the ITAT allowed the appeal for statistical purposes, emphasizing the need for a thorough reassessment based on the specific provisions of the Income Tax Act and the circumstances of the case.