2011 (4) TMI 15 - AT - Income Tax

Capital Gain - depreciable assets u/s 50 - computation u/s 50C - Held that - Regarding alternative contention - The applicability of section 50 in its case thus was never disputed by the assessee before the learned CIT(A) and the relevant finding of the learned CIT(A) that entire block of assets had ceased to exist during the year under consideration having become final, the assessee, in our opinion, can not now dispute the applicability of section 50 at this stage by taking a contrary stand stating that that the said finding is factually incorrect merely because the same is likely to support its alternative contention which is being sought to be raised for the first time as a respondent without filing a cross appeal or cross objection. There are two deeming fictions created in section 50 and section 50C. The first deeming fiction modifies the term cost of acquisition used in section 48 for the purpose of computing the capital gains arising from transfer of depreciable assets whereas the deeming fiction created in section 50C modifies the term full value of the consideration received or accruing as a result of transfer of the capital asset used in section 48 for the purpose of computing the capital gains arising from the transfer of capital asset being land or building or both. The deeming fiction created in section 50-C thus operates in a specific field which is different from the field in which section 50 is applicable. It is thus not a case where any supposition has been sought to be imposed on other supposition of law. On the other hand, there are two different fictions created into two different provisions and going by the legislative intentions to create the said fictions, the same operate in different fields. The harmonious interpretation of the relevant provisions makes it clear that there is no exclusion of applicability of one fiction in a case where other fiction is applicable. As a matter of fact, there is no conflict between these two legal fictions which operate in different fields and their application in a given case simultaneously does not result in imposition of supposition on other supposition of law. Assessing Officer was right in applying the provision of section 50C to the transfer of depreciable capital assets covered by section 50 and in computing the capital gain arising from the said transfer by adopting the stamp duty valuation.

Issues Involved:
1. Applicability of Section 50C to depreciable assets covered by Section 50.
2. Interpretation of Sections 48, 50, and 50C of the Income Tax Act, 1961.
3. Computation of capital gains on the sale of depreciable assets using Stamp Duty valuation.
4. The legal fiction created by Sections 50 and 50C and their interaction.
5. The alternative contention regarding the sale of the entire block of assets.

Issue-wise Detailed Analysis:

1. Applicability of Section 50C to depreciable assets covered by Section 50:
The core issue was whether Section 50C, which deals with the adoption of Stamp Duty valuation for computing full value of consideration, can be applied to depreciable assets covered under Section 50. The Tribunal held that Section 50C is applicable to depreciable assets forming part of a block of assets, thereby modifying the full value of consideration received or accruing as a result of the transfer. The Tribunal concluded that Section 50C operates in a specific field different from Section 50, and there is no legislative intention to exclude its applicability to depreciable assets.

2. Interpretation of Sections 48, 50, and 50C of the Income Tax Act, 1961:
The Tribunal interpreted Sections 48, 50, and 50C, noting that Section 50 modifies the term "cost of acquisition" used in Section 48 for computing capital gains from depreciable assets. However, the term "full value of consideration" remains the same under Section 48, allowing Section 50C to step in and deem the Stamp Duty valuation as the full value of consideration for land or building. The Tribunal emphasized that the legal fictions created by Sections 50 and 50C operate in different fields and can be applied simultaneously without conflict.

3. Computation of capital gains on the sale of depreciable assets using Stamp Duty valuation:
The Tribunal upheld the Assessing Officer's approach of using the Stamp Duty valuation to compute capital gains on the sale of depreciable assets. The Tribunal reasoned that the legislative intent behind Section 50C was to curb under-valuation of property transactions and ensure that the full value of consideration reflects the market value as assessed for Stamp Duty purposes.

4. The legal fiction created by Sections 50 and 50C and their interaction:
The Tribunal addressed the argument that imposing a fiction upon a fiction is not permissible. It clarified that Sections 50 and 50C create two separate legal fictions: Section 50 modifies the cost of acquisition for depreciable assets, while Section 50C modifies the full value of consideration for land or building. These fictions operate in distinct fields and can coexist without extending beyond their legitimate scope. The Tribunal cited judicial precedents to support the harmonious interpretation of these provisions.

5. The alternative contention regarding the sale of the entire block of assets:
The assessee's alternative contention was that one of the office buildings was not sold in the year under consideration, implying that the block of assets did not cease to exist, and Section 50 should not apply. The Tribunal rejected this contention, noting that the assessee had consistently treated the entire block of assets as sold during the year. The Tribunal held that the assessee could not challenge the factual findings of the lower authorities at this stage, especially when the assessee had not filed a cross-appeal or cross-objection.

Conclusion:
The Tribunal concluded that the Assessing Officer was correct in applying Section 50C to the transfer of depreciable assets covered by Section 50 and computing capital gains based on the Stamp Duty valuation. The appeal by the Revenue was allowed, and the question referred to the Special Bench was answered in the affirmative, in favor of the Revenue and against the assessee. The legal interpretations and judicial precedents considered by the Tribunal supported this conclusion, ensuring a harmonious application of the relevant provisions.

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