2014 (2) TMI 523 - AT - Income Tax

Short Term Capital Gain or Long Term Capital Gains (STCG / LTCG) - sale of composite factory Held that - The assessee had sold his bakery including the land, building and machinery - it was found that the assessee sold only factory land, factory building alongwith borewell was sold - the assessee sold for a composite consideration factory land on which no depreciation was claimed and allowed, alongwith factory building and borewell on which depreciation was claimed and allowed to the assessee in earlier years - The gain which the assessee derived on sale of factory land is therefore, to be treated as long term capital gains and the profit which the assessee derived on sale of factory building and borewell is to be treated as short term capital gain in view of special provisions contained in section 50 of the Act thus, consideration received should be bifurcated in respect of each of the assets on reasonable basis - the Assessing Officer was not justified in treating the entire capital gains as short term capital gains nor the CIT(A) was justified in treating the entire capital gains as long term capital gains as claimed by the assessee the order set aside and the matter remitted back to the AO for recomputation of the capital gains Decided in favour of Revenue.

Summary

Issues:
- Determination of capital gains treatment on the sale of factory land and building.

Analysis:
The appeal before the Appellate Tribunal ITAT Ahmedabad involved a dispute regarding the treatment of capital gains arising from the sale of a factory land and building. The Revenue contended that the Assessing Officer erred in treating the capital gains as short term gains due to the depreciation claimed on the factory building. The CIT(A) directed the Assessing Officer to accept the long term capital gains claimed by the assessee. The Revenue argued that it was not a case of selling an undertaking but rather individual assets, relying on various precedents. Conversely, the assessee supported the CIT(A)'s decision, citing a Madras High Court judgment. The assessee explained that the sale involved factory land, building, and borewell, with no transfer of an entire business undertaking.

The Tribunal examined the facts and legal precedents to determine the appropriate treatment of capital gains. It was established that the sale involved factory land without depreciation and a building with depreciation claimed in previous years. The Tribunal concluded that the gain on the sale of factory land should be treated as long term capital gains, while the profit from the building and borewell should be considered short term gains under section 50 of the Act. The Tribunal found fault with both the Assessing Officer's and CIT(A)'s approaches, directing a recomputation of capital gains after bifurcating the consideration received for each asset reasonably. The decision highlighted the distinction between selling an entire business undertaking and selling individual assets, emphasizing the need for a specific allocation of consideration in such cases.

In conclusion, the Tribunal allowed the Revenue's appeal, setting aside the lower authorities' orders and remanding the issue to the Assessing Officer for recalculating the capital gains in accordance with the Tribunal's directions. The judgment provided a detailed analysis of the transaction, legal principles, and relevant precedents to arrive at a fair and legally sound decision.