2012 (7) TMI 389 - AT - Income Tax

Computation of Capital gain on sale of land - long term capital gain section 50 of the Act Held that - Section 50 does not apply in case of land as no depreciation is allowable on the land when specific consideration for land has been provided in agreement for sale - appellant has not claimed any depreciation on land - revenue s appeal is dismissed.

Summary

Issues:
1. Whether gain on the sale of land should be treated as long term capital gain.
2. Applicability of Section 50 of the Income Tax Act in computing capital gain on the sale of land.
3. Allowance of benefit under Section 54EC for long term capital gain.

Analysis:
1. The primary issue in this case was whether the gain on the sale of land should be treated as long term capital gain. The Assessing Officer (A.O.) contended that since a permanent structure had been built on the land and plant and machinery were erected thereon, the land and the structures became inseparable. The A.O. held that the gain from the sale of land resulted in short term capital gain instead of the long term capital gain declared by the assessee. However, the ld. CIT (A) disagreed with this view and allowed the appeal in favor of the assessee. The ld. CIT (A) noted that the appellant had not claimed depreciation on the land, which is a non-depreciable asset as per the Indian Income Tax Act. Therefore, the ld. CIT (A) directed the A.O. to delete the addition made on this point, concluding that the land should be considered a capital asset forming part of a block of assets for which no depreciation had been claimed.

2. The second issue revolved around the applicability of Section 50 of the Income Tax Act in computing capital gain on the sale of land. The Revenue argued that the land, along with the building and machinery, was inseparable, and depreciation had been claimed on these assets. However, the A.R. of the assessee cited a case from the Delhi High Court where it was held that the land and building should be considered separately for capital gains computation. The ITAT, Ahmedabad confirmed the ld. CIT (A)'s order, stating that Section 50 does not apply to land when no depreciation has been claimed on it, especially when specific consideration for the land has been provided in the sale agreement.

3. The final issue pertained to the allowance of benefit under Section 54EC for long term capital gain. The Revenue contended that the benefit of Section 54EC was not allowed as the A.O. treated the capital assets as short term capital gain. However, the Delhi High Court in a similar case ruled in favor of the assessee, emphasizing that the land should be considered a long term capital asset despite substantial investments in the building. The ITAT, Ahmedabad dismissed the Revenue's appeal, affirming that the land should be treated as a long term capital asset, and thus, the benefit under Section 54EC should be allowed.

In conclusion, the ITAT, Ahmedabad upheld the ld. CIT (A)'s order, ruling in favor of the assessee and dismissing the Revenue's appeal. The judgment clarified the treatment of land as a capital asset, the applicability of Section 50 in capital gains computation, and the eligibility for benefits under Section 54EC for long term capital gains.