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TMI Blog2012 (4) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... e had sold the entire plant and machinery of their paper division and had stopped and ceased to carry on business in their paper division with effect from 2nd June, 1987. The Assessing Officer after examining the factual matrix came to the conclusion that the manufacturing activity in the paper division had stopped even before 30th April, 1987. The Assessing Officer noticed that furniture and fixture having written down value of Rs.2,39,459/- had been sold for a sum of Rs.1,50,000/- resulting in a shortfall/loss of Rs.89,459/-. Plant and machinery, including affluent tank, laboratory equipment, tube well etc. had been sold for Rs.2,31,94,888/- resulting in short term capital gain of Rs.1,33,22,068/- as the written down value of the said plant and equipment was Rs.98,72,820/-. 5. After setting off short term capital loss of Rs.89, 459/-on the sale of furniture and fixtures, the short term capital gains was shown as Rs.1,32,32,609/- chargeable under Section 50 of the Act. The Assessing Officer held that Section 50 of the Act is not applicable as the entire division, i.e., plant and machinery belonging to the paper division had been sold. He came to the conclusion that Section 50 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (Appeals). They have held that Section 2(11) defines the term block of assets to mean group of assets in respect of which same percentage of depreciation is prescribed. The definition does not make distinction between block of assets of one division or the other. The block of assets held by the assessee cannot be differentiated on this ground. Further income of an assessee under the Act was calculated under different heads and capital gains has to be computed as per the provisions contained in Chapter IV-E relating to capital gains and not in accordance with the provisions of Chapter IV-D relating to profit and gains of business or profession. Reference was made to Section 32, which provides for deduction of depreciation in respect of block of assets at such percentage as is prescribed provided the asset is owned by the assessee and was used for the purpose of business. Section 50 of the Act was referred to and it was held that the main provision and sub-section (2) were attracted to the facts of the present case. The tribunal referred to decision of the Supreme Court in Commissioner of Income Tax, Madras versus Express Newspapers Limited, (1964) 53 ITR 250 (SC) in support of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications:-- (1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of assets during the previous year, exceeds the aggregate of the following amounts, namely:-- (i) expenditure incurred wholly and exclusively in connection with such transfer of transfers ; (ii) the written down value of the block of assets at the beginning of the previous year ; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets ; (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification made by the section. The full value of the consideration received or accruing as a result of the transfer of the said asset or any other asset falling within block of the asset shall be taxable as short term capital gain if it exceeds the aggregate value of the following: (1) Expenditure incurred wholly and exclusively in connection with the transfer of the assets. (2) Written down value of the block assets at the beginning of the previous year. (3) Actual cost of the assets falling within the block of assets acquired during the previous year. 16. Thus, under Section 50 short term capital gains is payable in case after adding the three amounts/values and subtracting the same from the value of consideration received/accruing on the transfer of asset and other assets in the block of assets, there is an excess or surplus. In case there is no excess, then nothing is payable as short term capital gains. 17. The phrase block of assets being a term of art, which has been specifically defined in Section 2(11) of the Act, will refer to the block of assets on which the same rate of depreciation is prescribed. As long as there is no surplus on sale of assets which form part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had purchased new assets prescribed/having the same rate of depreciation and falling with the same block of assets. The contention of the Revenue was that as a positive figure or surplus existed on the date of the transfer, the gain was taxable as short term capital gains and the purchase of assets carrying same rate of depreciation and belonging to the same block of assets, subsequently, did not matter and effect the chargeability or taxation under the head short term capital gains. The contention was rejected, inter alia, holding as under:- 14.6 A clearer indicator of the untenability of, the Revenue's submission, is demonstrable from the latter part of the provision of section 50(2) which provides the manner in which capital gains are to be arrived at. In order to do so, firstly, the cost of the acquisition of „block of assets is ascertained by taking the written down value of the „block of assets at the beginning of the previous year as increased by the actual cost of any asset falling within the „block of assets acquired during the previous year. Then, the income received or accruing as a result of such transfer or transfers is deemed to be short term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted, - (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; and (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of asses in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item (i). 23. The High Court also made reference to Direct Taxes Circular No. 469 dated 23rd September, 1986, which reads as under: 6.3 As mentioned by the Economic Administration Reforms Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 41(2) in the year of sale. Instead of these two provisions, now whatever is the sale-proceed of sale of any depreciable asset, it has to be reduced from the block of assets. This amendment was made because now the assessees are not required to maintain particulars of each asset separately and in the absence of such particular, it cannot be ascertained whether on sale of any asset, there was any profit liable to be taxed under section 41(2) or terminal loss allowable under section 32(1)(iii). This amendment also strengthen the claim that now only detail for "block of assets" has to be maintained and not separately for each asset. 34. Having regard to this legislative intent contained in the aforesaid amendment, it is difficult to accept the submission of the learned counsel for the Revenue that for allowing the depreciation, user of each and every asset is essential even when a particular asset forms part of „block of assets. Acceptance of this contention would mean that the assessee is to be directed to maintain the details of each asset separately and that would frustrate the very purpose for which the amendment was brought about. It is also essential t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edule, we find, if the asset transferred and the asset purchased fall for consideration under the self-same percentage of depreciation, then the asset qualified for being termed as falling under a block of assets. Thus, if the assets transferred from the 100 per cent export- oriented unit and the assets purchased come for the same percentage of depreciation as prescribed in the table, the assessee would be justified in seeking adjustment in the matter of working out the capital gains. 26. Learned counsel for the Revenue has relied upon Section 32 of the Act and has submitted that the effect of the said Section should be examined while computing short term capital gains and interpreting Section 50. It is not possible to accept the said contention. Capital gains is chargeable to tax under Chapter IV-E. The provisions of the said Chapter are independent and separate. The provisions of the said chapter relating to capital gains have to be examined and interpreted. Only if there is a contradiction or conflict, we have to harmoniously interpret the two provisions. Section 50 incorporates a deeming fiction and has to be given and interpreted accordingly. Section 32 forms part of Chapter ..... 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