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2022 (9) TMI 1242 - AT - Income TaxRate of tax - 20% or 30% - share of depreciable assets - applicability of section 50 - use of assets more than thee years / long term assets - HELD THAT - Provisions of section 50 of the Act provides for procedure for computation of capital gains in case of transfer of capital asset which forms part of block of assets and in respect of which depreciation has been allowed under the Act. Therefore, only for this limited purpose, the capital gains arising from transfer of the assets, as covered in section 50 of the Act, is treated as capital gains arising from transfer of short term capital assets. Further, section 50 of the Act also clarifies that the same is restricted for the purpose of provisions of section 48 and 49 of the Act which, inter alia, deals with mode of computation of capital gains. We find that similar issue arose for consideration before the Co ordinate Bench of the Tribunal in Smita Conductors Ltd. ( 2013 (9) TMI 1056 - ITAT MUMBAI wherein it was held that even in case where capital gain has been computed under section 50 of the Act, tax rate applicable will be the rate in respect of the long term capital gain in respect of property held for more than three years. Section 50 of the Act, which is a special provision for computing the capital gains in the case of depreciable assets, is not only restricted for the purposes of Section 48 or Section 49 of the Act as specifically stated therein and the said fiction created in sub section (1) (2) of Section 50 has limited application only in the context of mode of computation of capital gains contained in Section 48 and 49. See V.S. DEMPO COMPANY LTD. 2016 (10) TMI 62 - SUPREME COURT In the present case, it is not the plea of the Revenue that the property from which the capital gains arose was held by the assessee for less than three years. The Assessing Officer only by application of provisions of section 50 of the Act treated the gains as arisen from transfer of short term capital asset and hence applied the rate of tax @ 30% as applicable in case of short term capital gain. Therefore, respectfully following the aforesaid judicial precedents, we find no infirmity in the impugned order passed by the learned CIT(A). As a result, grounds raised by the Revenue are dismissed.
Issues Involved:
1. Taxation rate on capital gains from the sale of a depreciable asset. 2. Applicability of indexation on the sale of a depreciable asset. 3. Relevance of the Supreme Court's decision in CIT Vs. Dempo Company Ltd. to the present case. Detailed Analysis: Issue 1: Taxation Rate on Capital Gains from the Sale of a Depreciable Asset The primary issue in this appeal was whether the capital gains arising from the sale of a depreciable asset should be taxed at 20% as claimed by the assessee or at 30% as contended by the Revenue. The Revenue argued that the capital gains should be treated as short-term capital gains under section 50 of the Income Tax Act, 1961, and taxed at 30%. The assessee, however, contended that the gains should be taxed at 20% as long-term capital gains. The Tribunal noted that section 50 of the Act provides a special provision for computing capital gains in the case of depreciable assets, which is limited to the mode of computation of capital gains under sections 48 and 49. The Tribunal referred to the judgment in CIT v/s V.S. Dempo Company Ltd., where it was held that the fiction created under section 50 is confined to the computation of capital gains and does not extend to other provisions of the Act. Consequently, the Tribunal held that the capital gains should be taxed at 20%, treating them as long-term capital gains for the purpose of the tax rate. Issue 2: Applicability of Indexation on the Sale of a Depreciable Asset The Revenue also contested the applicability of indexation on the sale of the depreciable asset, arguing that since the asset formed part of the block of assets on which depreciation had been claimed, the capital gains should be treated as short-term and not eligible for indexation. The Tribunal, however, upheld the decision of the CIT(A), which followed the Supreme Court's ruling in V.S. Dempo Company Ltd. The Tribunal reiterated that the fiction created under section 50 is limited to the computation of capital gains and does not affect the eligibility for indexation benefits. Therefore, the assessee was entitled to indexation on the sale of the depreciable asset. Issue 3: Relevance of the Supreme Court's Decision in CIT Vs. Dempo Company Ltd. The Revenue argued that the CIT(A) erred in relying on the Supreme Court's decision in CIT Vs. Dempo Company Ltd., as it pertained to the applicability of section 50 in a case where exemption under section 54E was claimed, which was not relevant to the present case. The Tribunal dismissed this argument, stating that the principles laid down in the Dempo case regarding the limited application of the fiction created under section 50 were directly applicable. The Tribunal emphasized that section 50's fiction is confined to the computation of capital gains and does not extend to the tax rate or indexation benefits. Conclusion The Tribunal concluded that the capital gains arising from the sale of the depreciable asset should be taxed at 20% as long-term capital gains, and the assessee was entitled to indexation benefits. The appeal by the Revenue was dismissed, and the order of the CIT(A) was upheld. Order Pronounced The order was pronounced in the open Court on 23/09/2022.
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