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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 ..... pter IV-D and relates to computation of income from profession and business. It is not the case of the Revenue that the gain on transfer of the block of assets is taxable as business income. The two sections operate in their own filed and there is no conflict. In these circumstances, we do not think we should refer and rely upon Section 32 and accordingly compute and decide whether short term capital gains is payable under Chapter IV-E - in favour of the assessee - ITA Nos. 601/2011 & 602/2011 - - - Dated:- 19-4-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V.EASWAR, JJ. For Appellant: Mr. Abhishek Maratha, Sr. Standing Counsel. For Respondent: Mr. Satyen Sethi, Advocate. O R D E R Having heard learned counsel for the parties, we frame the following substantial question of law: Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in holding that short terms capital gains tax is not payable as per Section 50 of the Income Tax Act, 1961? 2. As we have heard learned counsel for the parties on the aforesaid question, we proceed to dictate our decision. 3. These appeals under Section 260A of the Income Tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May, 2005 again held that the entire block, i.e., paper division had been sold and, therefore, Rs.1,32,32,609/- i.e. the gain was chargeable as short term capital gain. He held that the paper division was a separate unit for which accounts were being maintained separately and the profits were being worked out separately. Thus, the respondent-assessee was claiming depreciation for each unit/division separately and when the entire unit itself had been sold, no block of assets was left. He further mentioned that the assessee for the purpose of Sections 80(IA) and 80(IB) was required to maintain separate accounts for each unit. Once plant and machinery relating to the paper division was sold, the block of assets, relating to the paper division ceased to exist and the entire amount was taxable as short term capital gains and it did not matter if the assessee had a block of assets relating to other units/divisions. 8. In the first appeal, the CIT(Appeal) reversed the decision of the Assessing Officer and observed that the approach adopted by the Assessing Officer was contrary to Section 50 of the Act and the addition was wrongly made by treating the sale proceeds as short term capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd by the tribunal. However, the Revenue, the appellants before us, have not placed on record the orders passed in the first round. 11. The CIT(Appeals) for the same reasoning as given for the Assessment Year 1989-90 accepted the appeal filed by the assessee and held that Section 50(2) was applicable. The tribunal by their order dated 13th August, 2010 following their order passed for the Assessment Year 1989-90 has affirmed the decision taken by CIT(Appeals) and dismissed the appeal of the Revenue. Appreciation of the legal provisions and findings. 12. In order to decide the question of law, we have to refer to the expression block of assets defined in Section 2 sub-section (11) of the Act and also refer and interpret Section 50. The two provisions are reproduced below: 2. Definitions. In this Act, unless the context otherwise requires,(11) "block of assets" means a group of assets falling within a class of assets comprising- (a) tangible assets, being buildings, machinery, plant or furniture ; (b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, in respect of which the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is that in respect of assets which form the block of assets, same percentage of depreciation should be prescribed. The word same percentage‖ shows that the block of assets refers to same rate of depreciation which is prescribed under the Rules. All assets, which may be of different types, but in respect of which same percentage of depreciation is prescribed, are to be treated and form part of the block of assets. 14. Appendix-I under Rule 5 of the Income Tax Rules, 1962 (Rules, for short) prescribes and states the table of rates at which depreciation is admissible and is divided into different parts and sub headings. Rates of depreciation have been prescribed. Assets of different types which have been prescribed same rate of depreciation have been clubbed and put together. Appendix does not stipulate and provide that each unit or division of assessee has to be separately accounted for and shown or forms a separate block of assets. The table in fact does not postulate and require any such division or bifurcation. The bifurcation is made between tangible assets and intangible assets and then under various sub headings as per the rate of depreciation mentioned in the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. In the present case, there is no finding of the Assessing Officer or the appellate authorities that the block of assets carrying the same rate of depreciation ceased to exist or that after adding the three elements mentioned in Section 50, there was surplus on the full value of consideration received or accruing as a result of transfer of plant and machinery or the building. It is not the finding of the Assessing Officer that the block of assets entitled to the same percentage of depreciation ceased to exist or there was a surplus in the block of assets carrying the same rate of depreciation. The Assessing Officer has proceeded on the basis that the division itself constitutes a separate and an independent block of assets. Appendix to the Rules as noticed above, is not a unit/division specific but is rate of depreciation specific, as all assets prescribed the same rate of depreciation are clubbed and are a part of the same block of assets. The view we have taken finds resonance and acceptance in two decisions of the Delhi High Court in Commissioner of Income Tax versus Eastman Industries Limited, 174 Taxman 344 and Commissioner of Income Tax versus Oswal Agro Mills Limited, ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring same rate of depreciation exist(s) was with the assessee at the end of the previous year, then the provision of Section 50 (2) would not apply. 21. The aforesaid paragraph shows and records that in Section 50 there is reference to written down value of the block of assets at the beginning of the previous year as increased or decreased by the actual cost of assets acquired/transferred falling within the block of assets during the previous year. The term block of assets for the purpose of the Section 50 would mean assets having the same rate of depreciation. 22. In the case of Oswal Agro Mills Limited (supra) the assessee had different units and the Bhopal unit was closed. The High Court observed and held that the assets of Bhopal unit were not being used even passively by the assessee as the unit was completely non functional. A second question thereafter arose whether the assets of the Bhopal unit were entitled to depreciation, if they form part of the block of assets as the assessee had other businesses/divisions other than the Bhopal unit. The stand of the assessee in this regard was accepted after making reference to Section 2(11) and Section 50 of the Act. Reference wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely, buildings, machinery, plant and furniture." 24. Thereafter it has been observed and held: 29. Thus, for the assessment year 1998-99, the W.D.V. of any block of assets shall be the aggregate of the W.D.V. of all the assets falling within that block of assets at the beginning of the previous year. From this, the adjustment has to be made for the increase or reduction in the block of assets during the year under consideration. The deduction from the block of assets has to be made in respect of any asset, sold discarded or demolished or destroyed during the previous year. .. 32. It becomes manifest from the reading of the aforesaid Circular that the Legislature felt that keeping the details with regard to each and every depreciable assets was time consuming both for the assessee and the Assessing Officer. Therefore, they amended the law to provide for allowing of the depreciation on the entire block of assets instead of each individual asset. The block of assets has also been defined to include the group of asset falling within the same class of assets. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gains tax was payable in such cases. The High Court rejected the contention and the stand of the Revenue and agreed with the plea of the assessee that Section 50(2) was not applicable as the block of assets, i.e., assets in the same rate of depreciation continue to exist and, inter alia, observed: 16. As already pointed out, section 50 is a special provision for computation of capital gains in the case of depreciable assets. The said provision states that where the capital assets is an asset forming part of a block of assets, then the computation of the capital gains has to be done in accordance with section 50 of the Act. Under sub-section (2) of Section 50, where any block of assets are transferred, the cost of depreciation at the hands of the transferee shall be 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 that block of assets, acquired by the assessee during the previous year. The income thus received or accruing as a result of such transfer or transfer is deemed to be the capital gains arising from the transfer of short term capital assets. Given the fact that block of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to be income of the previous year in which the sale, etc., took place. This deeming clause does not lift the capital gains from the sixth head in section 6 and place it under the fourth head. It only introduces a limited fiction, namely, that capital gains accrued will be deemed to be income of the previous year in which the sale was effected. The fiction does not make them the profits or gains of the business. It is well settled that a legal fiction is limited to the purpose for which it is created and should not be extended beyond its legitimate field. Sub-sections (2A) and (2B) of section 24 provide for the setting off of the loss falling under the head capital gains against any capital gains falling under the same head. Such loss cannot be set off against an income falling under any different head. These three sections indicate beyond any doubt that the capital gains are separately computed in accordance with the said provisions and they are not treated as the profits from the business. The profits and gains of business and capital gains are two distinct concepts in the Income Tax Act: the former arises from the activity which is called business and the latter accrues be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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