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TMI Blog2011 (6) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... r sec.48 & 49 or u/s 50 - Thus the assessee is entitled to relief u/s 54E in respect of capital gains computed u/s 50 in respect of transfer of depreciable asset - Decided in favor of the assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... term capital gain of Rs 5,77,35,538/-The long term capital gain chargeable to tax on transfer of the asset has been shown by assessee at Rs. 'Nil' worked out by it as under: Sale consideration received Rs. 7,65,00,000/- Less: (i) share of assessee in stamp Duty/Reg charges 10,00,000 (ii) Cost of sale 13,63,462 Rs. 23,63,462/- Rs. 7,41,36,538 Less: Cost of acquisition 33,00,000 Indexed cost of acquisition= Rs 33,00,000 × 497 = Rs. 1,64,01,000 100 Capital gain Rs. 5,77,35,538 Less: Investment of Rs. 5,71,50,000 u/s. 54EC Rs. 5,71,50,000 Long term capital gain Rs. 5,85,538 Less: Brought forward losses Rs. 5,85,538 Nil 4. In the above computation of capital gains assessee adopted the fair market value of the flat sold a Rs 33 lakhs as on 1.1.1981 based on valuation report of a Registered valuer. The cost of purchase of the said flat in 1979 was only Rs 6,09,000/- to the assessee. According to the assessee's valuation report there had been an increase of 542% to the value of the flat within a short period of 2 years i.e., from 1979 to 1981. The Assessing Officer was of the view that the valuation of the assessee as on 1/4/1981 adopted by assessee with su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various judicial decisions of Hon'ble High Courts in favour mentioned below: 1. M. Raghavan v. Asstt. CIT [2004] 266 ITR 145/134 Taxman 790 (Mad.) 2. Rajnagar Vaktapur Ginning Pressing and Manufacturing Co. Ltd. v. CIT [1975] 99 ITR 264(Guj.) 3. CIT v. Upper Doab Sugar Mills [1979] 116 ITR 240(All.) 4. Prime Products (P.) Ltd. v. CIT [1979] 116 ITR 473 (All.) 5. India Jute Co. Ltd. v. CIT [1982] 136 ITR 597/[1981] 6 Taxman 239 (Cal.) 6. And finally this issue has been settled with the judgment of the Hon'ble Supreme Court in the case of Commonwealth Trust Ltd. v. CIT [1997] 228 ITR 1/94 Taxman 137 (SC). The assessee has not offered any proper explanation on the issues at all except making some vague statement about acquiring the property prior to 1.4.1981 and assessee's eligibility of indexation of the costs on 1.4.1981. The Assessing Officer held that the stand taken by the assessee was incorrect and the capital gain need to be computed under the provisions of section 50(2) as applicable in the assessee's case and worked out below: Rs. Rs. Sale consideration 76500000 Less: (i) WDV of block of assets as on 1.4.05 194747 (ii) cost of sales 2363462 2558209 Short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EC qualifies an exemption out of chargeable capital gain not on transfer of a long term capital asset alone but it also stipulate that the capital gain out of the 'original asset' transferred should remain invested in the specified long term capital asset. In other words categorization of capital gain as the long term capital gain is also an essential requirement. As per the provisions of sec 54EC, the capital gain remaining invested in the specified capital assets should arise from the transfer of the 'original asset' and it should also be a long term capital asset. Hence both these conditions of transfer of a long term capital asset as well as investment of the resultant capital gain being a long term capital gain are required to be satisfied. In the case of the assessee the capital asset transferred was a depreciable asset and its computation of capital gain is u/s 50. The capital gain thus computed had been a short term capital gain arising out of short term capital asset. The investment made in specified long term capital asset u/s 54EC by the assessee has been out of short term capital gain on the transfer of a short term capital asset, and therefore the condition to be satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch asset u/s 48 and 49 shall be as modified u/s 50. The effect of section 50(2) is that where the consideration received on transfer of depreciable asset exceeds the written down value of the asset, then the excess is taxable as a deemed short term capital gain. It is to be noted that the fiction created u/s 50 is confined to the computation of capital gains only and cannot be extended beyond that. The benefit of section 54E will be available to the assessee firm irrespective of the fact that the computation of capital gains is done either u/s 48 and 49 or u/s 50. There is nothing in section 50 to suggest that the fiction created in section 50 is not only applicable to section 48 and 49 but also applies to other provisions. On the contrary, this section makes it explicitly clear that the deeming provision created in sub section (1) and (2). Is restricted only to the mode of computation of gains contained in section 48 and 49. The legal fiction is to deem the capital gains as short term capital gain and not to deem the asset as short term capital asset. Section 50 does not convert a long term capital asset into a short term capital asset. Though section 50 has been enacted with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee firm has invested or deposited in whole or part of the net consideration in the specified assets within the stipulated time. Thus, respectfully following the decisions of the jurisdictional High Court and the jurisdictional ITAT, the Assessing Officer is directed to allow exemption u/s 54E on account of investment in eligible bonds out of the sale proceeds from the transfer of the long term capital asset." 10. In so far as set off of carried forward long term capital losses against the current year's gains the Ld. CIT(A) dismissed the Assessee's claim holding as under: "The Assessing Officer has held that the capital gain computed in the order on transfer of flat is of short term capital gain instead of long term computed by the assessee, Against the current years short term capital gain, the set off that can be given against the brought forwarded losses of earlier years are the short term capital loss of Rs. 23773 and Rs. 4575 for AY 2004-05 and 2005-06 respectively. The long term capital losses brought forward from earlier years are not eligible for set off against the short term capital gain of the current year in view of the provisions of section 74. The provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue on this ground has raised that the assessee cannot adopt as cost of acquisition of market value of asset as on 1.4.81 and apply the indexation permitted under provision of sec.48. The Ld. DR was not certain as to how these grounds arise from the order of CIT(A). The Deputy Commissioner in his order of assessment has clearly stated that the assessee is not entitled to adopt the fair market value as on 1.4.81 or apply to indexation. We do not find in the grounds of appeal raised by the assessee before the Ld. CIT(A) regarding the computation of capital gains by adopting the market value of the share as on 1.4.81 and apply the indexation permitted u/s 48. Again, while the assessee has submitted these arguments before the CIT(A), the CIT(A) has not decided the same. From the records it would appear that the assessee has not agitated the issue regarding re-computation of capital gains by adopting market value of the asset as on 1.4.81 and applying indexation thereto. In the circumstances, we hold that the grounds 2 & 3 raised by the Revenue regarding adoption of fair market value as on 1.4.81 and granting benefit of cost of inflation index u/s 48 is misconceived and does not ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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