9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2012 (4) TMI 347 - HC - Income TaxClaim of exemption under Section 54EC - ITAT hold that AO was not justified in invoking Section 50(2) - assessee computed LTCG on the sale of land and having invested the gains in REC Bonds claimed gains as exempt under Section 54 EC of the Act Held that - A combined reading of Section 2(11), Section 32(1) and Section 50(2) of the Act shows no depreciation is allowable in respect of land as it is not specifically mentioned as an asset eligible for depreciation - if land is not a depreciable asset and cannot form part of the block of assets in the absence of a rate of depreciation the provisions of Section 50 of the Act cannot be invoked land as an asset was held for a period of more than 36 months the surplus of the sale price over the indexed cost of acquisition was rightly shown as LTCG AND investment in REC Bonds the entire long term capital gains are exempt under Section 54EC of the Act - against revenue. Cost attributed to the building when it was purchased was only Rs. 68, 00,000/- divided in two properties and the assessee had incurred expenditure on additions to the building up to 31.03.2003 and reckoned from this date the assessee did not hold the property for more than 3 years and, therefore, the sale of land cannot be considered as a sale of a long term capital asset Held that - incurred substantial expenditure on additions to the building could well have been because of the compulsions of its business and not because it considered the land to be of considerably low worth compared to the worth of the building. We are unable to appreciate or accept the line of argument adopted by the Assessing Officer against revenue.
Issues Involved:
1. Whether the Income Tax Appellate Tribunal was right in holding that the Assessing Officer was not justified in invoking Section 50(2) of the Income Tax Act, 1961? 2. Whether the assessee is entitled to exemption under Section 54EC of the Income Tax Act, 1961 in respect of Rs. 4,30,40,600/-? Issue-wise Detailed Analysis: 1. Invocation of Section 50(2) of the Income Tax Act, 1961: The primary issue was whether the Assessing Officer (AO) was justified in invoking Section 50(2) of the Income Tax Act, 1961. The assessee, a private limited company, declared long-term capital gains on the sale of property and claimed exemption under Section 54EC by investing in eligible bonds. The AO contested this, arguing that the entire property (land and building) should be treated as a single block of depreciable assets, thus invoking Section 50(2) to treat the capital gains as short-term. The court noted that the assessee had bifurcated the purchase price between land and building and had claimed depreciation only on the building, not on the land. The AO's error was in treating the land as part of the block of depreciable assets, despite no depreciation being allowed on land. The court emphasized that land is not a depreciable asset as per the Income Tax Act, supported by the Supreme Court's judgment in CIT v. Alps Theatre. Thus, Section 50(2) was wrongly invoked by the AO, as it applies only to depreciable assets. 2. Entitlement to Exemption under Section 54EC: Given that the court found the AO's invocation of Section 50(2) incorrect, the next issue was whether the assessee was entitled to exemption under Section 54EC. The assessee had held the land for more than 36 months, qualifying it as a long-term capital asset. Since the land was not depreciable and the gains were invested in REC Bonds, the entire long-term capital gains were exempt under Section 54EC. The CIT (Appeals) and the Tribunal both supported the assessee's claim, stating that the land was a long-term capital asset and the exemption under Section 54EC was rightly claimed. The court upheld this view, affirming that the surplus from the sale of land, held for more than 36 months, qualifies for exemption under Section 54EC. Conclusion: The court answered both substantial questions of law in favor of the assessee, affirming that the AO was not justified in invoking Section 50(2) and that the assessee was entitled to exemption under Section 54EC. The Revenue's appeal was dismissed with no order as to costs.
|
