2014 (12) TMI 606 - HC - Income Tax

Entitlement to claim deduction u/s 54E Assessee covered under the scope of section 50 or not Deduction u/s 54E available only w.r.t. LTCG - Held that - The Tribunal was rightly of the view that the concept of block of assets has been introduced from AY 1988-89 onwards and since Nagdevi property was no longer a business asset as on 1.4.1988, there was no occasion for the asset to enter the block of asset of the purposes of computing depreciation u/s. 32 as well as capital gain u/s. 50 hence, section 50 would not be applicable for the purpose of computation of capital gains - The Nagdevi property is obviously a long term capital asset assessee rightly relied upon Commissioner of Income Tax V. Aditya Medisales Ltd. 2013 (11) TMI 576 - GUJARAT HIGH COURT - wherein it has been held that where capital gains arising on the transfer of a long term capital asset are invested in a specified asset, the assessee is not to be charged tax on the capital gains and the exemption provided u/s 54EC, cannot be denied to the assessee only on account of the fact that a deeming fiction is created u/s 50 - the legal fiction created u/s 50 of the Act is restricted to computation of capital gains and such deeming fiction cannot restrict application of section 54EC which allow exemption of capital gains, if the assessee makes investment in the specified assets thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding depreciation claim and capital gain computation under Section 50 of the Income Tax Act.

Analysis:
The appellant revenue challenged the order passed by the Income Tax Appellate Tribunal, which dismissed the appeal filed by the revenue regarding depreciation and capital gain computation. The respondent assessee had purchased a property in 1969, claimed depreciation until 1984-85, and stopped using the property for business from 1985-86 onwards. The assessing officer held the case was covered by Section 50, disallowing the depreciation claim and deduction under Section 54E. The CIT(A) partly allowed the appeal, leading to the revenue's appeal before the Tribunal, which was dismissed.

The substantial question of law formulated by the Court was whether the Tribunal was correct in holding that the case was not covered by Section 50 and the assessee was entitled to claim deduction under Section 54E. The appellant's advocate argued that the Tribunal erred in allowing the deduction under Section 54E, urging the appeal to be allowed. On the other hand, the respondent's advocate supported the Tribunal's decision, citing a relevant court decision.

The Tribunal observed that the property ceased to be part of the block of assets from 1985-86 onwards, making Section 50 inapplicable for capital gains computation. The Tribunal upheld the CIT(A)'s view that the property was a long-term capital asset, directing the Assessing Officer to compute long-term capital gain accordingly. The Court agreed with the Tribunal's decision, citing a previous judgment that clarified the application of Section 50 and Section 54EC exemptions.

As the appellant's advocate could not distinguish the previous court decision, the Court found no reason to interfere with the Tribunal's findings. Therefore, the appeal was dismissed, and the question was answered in favor of the assessee and against the revenue.