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TMI Blog2011 (4) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... te. The return of income for the year under consideration was filed by it on 28.11.2003 declaring total income of Rs. 1,86,466/-. In the said year, office building used earlier for its business purpose was sold by the assessee firm for a consideration of Rs. 49,43,525/- As the written down value of the said building after claiming depreciation for the earlier years was the same i.e. Rs. 49,43,525/-, no short-term capital gains was offered by the assessee in its return of income as per the provisions of section 50. During the course of assessment proceedings, it was noticed by the Assessing Officer that the value of the property sold by the assessee as per stamp duty valuation was Rs. 76,49,000/-. According to him, the said value was liable to be taken as full value of the consideration received or accruing to the assessee as a result of transfer as per the provisions of section 50C and after deducting the written down value of the asset adopted as cost of acquisition, the balance amount was chargeable to tax in the hands of the assessee as short term capital gains. The stand taken by the assessee in this regard that section 50C having been introduced in the Statute with effect from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase transfer of depreciable assets, is liable to be deleted as it was not in consonance with the intention of the legislature behind enacting the said deeming provision. 4. The learned CIT(A) found merit in the submissions made on behalf of the assessee and deleted the addition made by the assessing Officer on account of short term capital gains by applying the provisions of section 50C in the case of transfer of depreciable assets for the following reasons given in paragraph 2.4 of his impugned order. "I have gone through the submissions of the Ld. Counsel of the appellant as well as the contents of the impugned assessment order and the report of the Assessing Officer. I find that the provisions of section 50 as well a section 50C are mutually disjoint provisions and are special provisions for specific purposes. I also find that the provisions of section 50C are not overriding in nature over provisions of section 50 which are meant for the purposes of taxing the capital gains out of transfer of depreciable assets. On facts, I do not find any dispute that the office premises in question forms part of the depreciable assets and depreciation has been provided thereon in the block o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived or accruing to the assessee as a result of transfer' used in section 48, however, remains the same and here the provisions of section 50C come into play which lay down that stamp duty valuation is to be adopted or substituted as 'full value of the consideration received or accruing to the assessee as a result of transfer', if it is more than the consideration shown by the assessee. He submitted that section 50C is applicable only in case of transfer of land and building, which is capital asset including the depreciable one. He contended that even after the creation of legal fiction in section 50, the term 'full value of the consideration received or accruing to the assessee as a result of transfer' used in section 48 and section 50 had remained the same and this term has subsequently been extended by the legal fiction created in section 50C. He submitted that there is nothing in the provisions of section 50 to debar the application of the provisions of section 50C. According to him, the scope of fiction created in section 50 as explained by the Hon'ble supreme Court in the case of commonwealth Trust Ltd. Vs. C.I.T. 228 ITR 1 (SC) is confined to modify section 48 by taking th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 50 is applicable. As regards the decision of the Tribunal in the case of Pachiram Nahata vs. Jt. CIT 127 TTJ 128 (Cal.) taking a view in favour of the assessee on this issue, he pointed out that reliance was placed by the Tribunal in the said case on the decision of the Hon'ble Rajasthan High Court in the case of CIT vs. Oil And Natural Gas Commission reported in 255 ITR 413 (Raj.). He submitted that the said decision was rendered by the Hon'ble Rajasthan High Court in the context of section 44BB of the Act, the provisions of which specifically exclude the applicability of section 28. He submitted that it was, therefore, held by the Hon'ble Rajasthan High Court that while applying section 44BB, recourse cannot be taken to section 28. He contended that the provisions of section 50, on the other hand, do not override the provisions of section 50C and there being nothing in the provisions of section 50C to exclude specifically its applicability to section 50, it cannot be said that section 50C cannot be applied in case where section 50 is applicable. In support of this contention, he once again relied on the decision of the Hon'ble Supreme Court in the case of Commonwealth Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to treat capital gains arising even from transfer of long term capital asset as short term capital gains by creating a deeming fiction and therefore, section 50C creating another deeming fiction cannot be applied in a case where section 50 is applicable. Relying on the decision of the Hon'ble Bombay high Court in the case of Executers and Trustees of Sir Cawasji Jahangir (First Baranet) and others vs. CIT 35 ITR 537(relevant page 548) as well as the other judicial pronouncements, he contended that the imposition of fiction upon a fiction is not permissible. 8. The learned counsel for the assessee then proceeded to raise an altogether new contention as an alternative contention in support of the assessee's case on the issue under consideration. In this regard, he submitted that although the assessee claimed to have sold the entire block of building comprising of office no. 101, 401 to 403 and 407 to 410 to the sons of its partners at the written down value, the Aseesing Officer was of the opinion that sale of office no. 101 was effected only on 17.05.2004 i.e. not in the year under consideration. According to him, the Assessing Officer thus worked out the capital gain at Rs. 20, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahalaxmi Textile Mills Ltd. 66 ITR 710. 9. In the rejoinder, the learned Departmental Representative submitted that the provisions of section 50C are applicable in certain cases where transfer of land and building is shown for consideration less than the stamp duty valuation. He contended that section 50C cannot be read in isolation and it has to be read with section 48 which has been specifically referred to in section 50C. He submitted that even section 50 has to be read with section 48 and section 48 cannot be ignored which comes into reckoning when section 50 or section 50C is applicable. He also contended that applicability of section 50C is not excluded in a case where section 50 is applicable and the Court therefore cannot supply causus omissus. In support of this contention, he relied on page 62 of the G.P. Singh's book on Interpretation of Law. He also contended that section 48 is modified for the purpose of section 50 to the limited extent. He contended that the object of section 50C is of prime importance and the same is to curb on-money. According to him, there is no logical basis to say that the said object is not relevant or is not applicable in the cases cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l take up the main issue which is raised for consideration and decision of this Special bench i.e. "whether in a case where capital gain arising from the transfer of depreciable asset is computed as per the special provisions contained in section 50, the provisions of section 50C can be applied so as to adopt the value assessed for the purpose of payment of stamp duty to be the full value of the consideration received or accruing as a result of such transfer?". In this regard, it is observed that the provisions relating to computation of income from capital gains are contained in Chapter IV-E of the Income Tax Act, 1961 and section 48 of the said Chapter gives the mode of computation of capital gains. As per the provisions of section 48, the income chargeable under the head "capital gains" has to be computed by deducting from the full value of the consideration received or accruing as a result of transfer of the capital asset, the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and the cost of any improvement therein. The second proviso to section 48 allows the benefit of indexation in certain cases by allowing d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of capital gains in the case of depreciable assets. The benefit of indexation has also been taken away for computing the capital gains arising from the transfer of depreciable assets. This position has been duly taken note of by the Hon'ble Supreme Court in the case of Commonwealth Trust Limited vs. CIT (supra) wherein it was held that Section 50 has the effect of modifying the provisions of section 48 and 49, inasmuch as, for the assessee in whose case the depreciation allowance has been availed of before the transfer of capital asset, the meaning of cost of acquisition as stated in section 48 and 49 has been modified in the manner stated in section 50. It was held that section 50, in absolute terms, specifically provides for fixing the cost of acquisition in case of depreciable assets only. This position also becomes abundantly clear from a comparison of the provision of section 48 and 50 which respectively gives the mode of computation of capital gains as a result of transfer of capital asset and as a result of transfer of depreciable asset, inasmuch as, what is modified in section 50 for computing capital gain in case of depreciable assets is essentially the "cost of acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of payment of stamp duty in respect of such transfer , the value so adopted or assessed shall for the purpose of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. There are thus now two deeming fictions created in section 50 and section 50C. The first deeming fiction modifies the term 'cost of acquisition' used in section 48 for the purpose of computing the capital gains arising from transfer of depreciable assets whereas the deeming fiction created in section 50C modifies the term "full value of the consideration received or accruing as a result of transfer of the capital asset" used in section 48 for the purpose of computing the capital gains arising from the transfer of capital asset being land or building or both. The deeming fiction created in section 50-C thus operates in a specific field which is different from the field in which section 50 is applicable. The Hon'ble Bombay High Court in the case of Bhatia Nagar Co-operative Society Ltd. (supra) had an occasion to consider the scope of section 50C and it was held by Their Lordships that section 50C is a measure provided to bridge the gap as it was found that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; ------------- 12,59,901 Less : Dividend declared by the company 4,34,768 ------------ &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the consideration of the Hon'ble Bombay High Court was " Whether the section 23A dividend of Rs.. 6,31,527 can be dissected into two parts in the ratio of Rs. 7,86,900 : Rs.20,63,016 for the purpose of determining the amount of income-tax and super-tax payable by the assessee shareholder on his total income and if so, whether that smaller portion of Rs. 6,31,527 is liable to be taxed at the rates applicable to ' capital gains ' as laid down in section 17(6) of the Income-tax Act, 1922. The contention urged before the Hon'ble Bombay High Court on behalf of the assessees in this regard was that under section 23A it is not the income of the company which is deemed to have been distributed among the shareholders but it is the income as computed in the hands of the company that is distributed. This contention was negatived by the Hon'ble Bombay High Court relying inter alia on the judgment of Hon'ble Supreme Court in the case of M. K. Venkatchalam, Income-tax Officer, v. Bombay Dyeing and Manufacturing Co. Ltd.(1) 34 ITR 143. It was held that by the fiction created in section 23A, the dividend income which is not paid to nor received by the shareholders is to be deemed for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 50C in a case where section 50 is applicable, there is no extension of the legal fiction created in the said provision beyond its legitimate field. Moreover, it is not a case where supposition is sought to be imposed on a supposition of law which is not warranted or supported by the language of the relevant provisions and in any case, the harmonious interpretation of the relevant provisions makes it clear that there is no exclusion of applicability of one fiction in a case where other fiction is applicable. As a matter of fact, there is no conflict in these two legal fictions which operate in different fields and their application in a given case simultaneously does not result in imposition of supposition on other supposition of law which is not warranted or supported by the language of the relevant provisions. 16. In the case of CIT v. ACE Builders Pvt. Ltd. (supra), exemption available u/s.54E in respect of long term capital gains was denied to the assessee where capital gain was computed u/s.50 as short term capital gain on transfer of long capital asset which was deemed to be a short term capital asset being a depreciable asset. The Hon'ble Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A) in favour of the assessee, it is not permissible for it to raise the same, as a respondent, under Rule 27 of the ITAT rules. The applicability of section 50 in its case thus was never disputed by the assessee before the learned CIT(A) and the relevant finding of the learned CIT(A) that entire block of assets had ceased to exist during the year under consideration having become final, the assessee, in our opinion, can not now dispute the applicability of section 50 at this stage by taking a contrary stand stating that that the said finding is factually incorrect merely because the same is likely to support its alternative contention which is being sought to be raised for the first time as a respondent without filing a cross appeal or cross objection. 18. As regards the decisions of the Hon'ble Supreme Court in the cases of Hukumchand Mills (supra) and Mahalakshmi Textile Mills Ltd. (supra) cited by the learned counsel for the assessee in support of the assessee's case on this issue, it is observed that the same are clearly distinguishable and are of no help to the assessee's case. In the case of Hukumchand Mills (supra), the subject-matter of the appeal before the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee before him, this issue can not be said to be decided against the assessee by the learned CIT(A). 19. In the case of Mahalaxmi Textile Mills Ltd. (supra) cited by the learned counsel for the assessee, the assessee, carrying on the business of manufacture and sale of cotton yarn, had spent Rs. 93,215 in A.Y. 1956-57 for introduction of " Casablanca conversion system " in its spinning plant. Substantially, this involved replacement of certain roller stands and fluted rollers fitted with rubber aprons to the spinning machinery, removal of ringframes from certain existing parts, introduction, inter alia, of ball-bearing jockey-pulleys for converting the original band-drivers to tape-drivers and other additions and alterations in the drafting mechanism. The Income-tax Officer disallowed the claim of the assessee for Rs. 93,215 because it was not admissible as " development rebate " since the introduction of the Casablanca conversion system did not involve installation of " new machinery ". The Appellate Assistant Commissioner agreed with the Income-tax Officer. In appeal to the Tribunal, besides submitting the claim that expenditure was allowable as development rebate, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enged by the department. It was also observed that under subsection (4) of section 33 of the Indian Income-tax Act, 1922, the Appellate Tribunal was competent to pass such orders on the appeal "as it thinks fit" and there was nothing in the Income-tax Act to restrict the Tribunal to the determination of questions raised before the departmental authorities. In the present case, as we have already observed, the subject matter of the appeal before the Tribunal is whether the provision of section 50C is applicable when the capital gain is to be computed under section 50. The applicability of section 50 to its case on the ground that the relevant block of assets had not ceased to exist was not disputed by the assessee before the authorities below. On the other hand, the stand taken by the assessee throughout was that the entire block of building was sold by it during the year under consideration and this stand of the assessee was accepted by the learned CIT(A) giving a finding in favour of the assessee. In this backdrop, we are of the view that the contention now being sought to be raised on behalf the Assessee that the entire block of assets did not cease to exist and therefore the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of depreciable capital assets covered by section 50 and in computing the capital gain arising from the said transfer by adopting the stamp duty valuation. We, therefore, answer the question referred to this special bench in the affirmative i.e. in favour of the Revenue and against the assesse. 21. Before parting, we may clarify that all the judicial pronouncements cited by the learned representatives of both the sides in support of their respective stands have been considered and deliberated upon by us while arriving at our conclusions. Some of them, however, are not specifically mentioned or discussed in the order as `the same have been found to be not directly relevant to the issue or the proposition propounded therein is found to be repetitive which has already been considered by us. We have also not specifically discussed the various decisions of the division benches of the Tribunal referred to by the learned representative of both the sides during the course of their arguments for the reason that this special bench has been constituted to resolve the controversy arising from the different/contrary views expressed therein on the issue which has been referred to this special b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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