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2013 (11) TMI 576 - HC - Income TaxExemption u/s 54EC - eligibility of capital gain from sale of depreciable assets being taxable as short term capital gain u/s 50 overriding provisions Held that - Reliance has been placed on the judgment of Hon ble Gauhati High Court in the case of CIT v. Assam Petroleum Industries (P.) Ltd. Reported in 2003 (6) TMI 23 - GAUHATI High Court and Bombay High Court in the case of CIT v. ACE Builders (P.) Ltd. reported in 2005 (3) TMI 36 - BOMBAY High Court . In the above judgments it was hold that capital gain arising of long term capital asset, if invested in specified asset, the assessee is not to be charged capital gains and exemption provided under Section 54EC of the Act cannot be denied to the assessee only on account of the fact that deeming fiction is created under Section 50 of the Act. In other words, legal fiction created under Section 50 of the Act is though restricted to computation of capital gains, such deeming fiction cannot restrict application of Section 54EC which allows exemption of capital gains, if assessee makes investment in the specified assets. Thus, the assessee cannot be charged to capital gains when short term gains of long terms capital assets get invested in the areas specified under the law Decided against the Revenue.
Issues Involved:
1. Interpretation of 'long term assets' under Section 54EC of the Income Tax Act. 2. Allowability of exemption under Section 54EC for capital gains from depreciable assets covered by Section 50. 3. Applicability of Section 50's deeming provisions for the purpose of Section 54EC. Detailed Analysis: Issue 1: Interpretation of 'long term assets' under Section 54EC of the Income Tax Act The primary issue addressed was whether the exemption available under Section 54EC of the Income Tax Act for long-term capital gains is also applicable to short-term capital gains arising from the transfer of long-term capital assets due to the deeming fiction under Section 50. The court noted that Section 50 is a special provision for the computation of capital gains in the case of depreciable assets and modifies the provisions of Sections 48 and 49. Section 54EC allows for exemption from capital gains tax if the gains are invested in specified bonds within six months of the transfer. Issue 2: Allowability of exemption under Section 54EC for capital gains from depreciable assets covered by Section 50 The assessee had sold an 'Automatic Electric Load Monitoring System' and invested the gains in Rural Electrification Bonds, claiming exemption under Section 54EC. The Assessing Officer disallowed the exemption, stating it was not available for short-term capital gains. However, both the CIT(A) and the Tribunal allowed the exemption, relying on the Bombay High Court's decision in CIT v. ACE Builders (P.) Ltd., which held that the exemption under Section 54EC is available for capital gains arising from depreciable assets, despite the deeming fiction of Section 50. Issue 3: Applicability of Section 50's deeming provisions for the purpose of Section 54EC The court examined whether the deeming fiction under Section 50, which treats gains from depreciable assets as short-term, affects the applicability of Section 54EC. The court referred to the Bombay High Court's ruling, which clarified that the fiction created by Section 50 is limited to the computation of capital gains and does not extend to other provisions. The court emphasized that Section 54EC does not distinguish between depreciable and non-depreciable assets and that the exemption is available if the capital gains are invested in specified assets. Conclusion: The court concluded that the legal fiction created under Section 50 is confined to the computation of capital gains and does not restrict the applicability of Section 54EC. Therefore, the exemption under Section 54EC is available for capital gains arising from the transfer of long-term depreciable assets, even if such gains are deemed short-term under Section 50. The court upheld the decisions of the CIT(A) and the Tribunal, affirming that the assessee is entitled to the exemption under Section 54EC. The Tax Appeal was disposed of accordingly.
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