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TMI Blog2013 (11) TMI 910X X X X Extracts X X X X X X X X Extracts X X X X ..... The respondent-assessee sold a property bearing Plot No.252 with superstructure, plant and machinery for the total sale consideration of Rs.24,99,000/-. Yet another Plot bearing No.254 was also sold along with the same for sale consideration of Rs.4,93,104/-. The respondent-assessee purchased REC bond of Rs.41,70,000/- to claim deduction under section 54EC of the Act. The long term capital gain in respect of property bearing Plot No.252 was computed by the Assessing Officer after allowing the cost of inflation index at Rs.2,35,266/-. In respect of the other property being Plot No.254, no deduction under section 54EC was allowed. However, the capital gain was computed at Rs.41,53,722/-. The short term capital gain was assessed at the ends of the respondent-assessee. 2.2 The Commissioner of Income-tax (Appeals) [hereinafter referred to as 'the CIT (A)'] relying on the decision of the Bombay High Court and Gauhati High Court allowed the deduction under section 54EC of the Act on the sale of depreciable assets, which according to it was held by the respondent-assessee for more than 36 months. 2.3 When challenged before the Tribunal, it confirmed such findings of the CIT (A) by its i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 50. These are the provisions of Section 50(2) which only are subject to the provisions of Sections 55(2), 48 and 49. Now to sections 48 and 49 the provision of Section 55(2) would apply as modified by those of Section 50." 4. The Madras High Court in the case of M. Raghavan v. Assistant Commissioner of Income-tax, reported in (2004) 266 ITR 145 (Madras), has held in favour of the Revenue by saying that the said provision was never meant to avail multiple benefits to the respondentassessee, who sells depreciable assets, by holding thus : ".. .. The object of introducing section 50 in the Income-tax Act, 1961, in order to provide different methods of computation of capital gain for depreciable assets, is to disentitle the owners of such depreciable assets from claiming the benefit of indexing, as, if indexing were to be applied, there would be no capital gain available in most cases, for being brought to taxation. The result of allowing indexing is to regard the cost of acquisition as being very much higher than what it actually is, to the assessee. If such boosted cost of acquisition is required to be deducted from the amount realised on sale, in most cases, it will re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4EC for the depreciable assets can also be claimed for short term capital gain. 4.5 Section 50 of the Act is the deeming provision made for the purpose of computation of capital gain as far as depreciable assets are concerned. 4.6. Section 50 of the Act is being reproduced at this stage profitably alongwith Section 54EC of the Act. "50. Special provision for computation of capital gains in case of depreciable assets:Notwithstanding anything contained in clause (42A) of Section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this 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 the assets during the previous year, exceeds the aggregate of the following amounts, namely: (i) expenditure incurred wholly and exclusively in connection with such transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f capital gains arising from the transfer of the original asset not charged under Section 45 on the basis of the cost of such longterm specified asset as provided in Clause (a) or, as the case may be, clause (b) of Sub Section (1) shall be deemed to be the income chargeable under the head "Capital gains" relating to longterm capital asset of the previous year in which the longterm specified asset is transferred or converted (otherwise than by transfer) into money. Explanation: In a case where the original asset is transferred and the assessee invests the whole or any part of the capital gain received or a accrued as a result of transfer of the original asset in any longterm specified asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted (otherwise than by transfer) such specified asset into money on the date on which such loan or advance is taken. (3) Where the cost of the longterm specified asset has been taken into account for the purposes of clause (a) or clause (b) of subsection (1)- (a) a deduction from the amount of income tax with reference to such cost shall not be allowed under Section 88 for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 54E, chargeable to income tax under the head 'capital gains' and shall be deemed to be the income of the previous year in which the transfer took place. 4.8. Sections 48 and 49 are machinery Sections for computation of capital gains. 4.9. Section 50 is an exception in relation to the depreciable assets and provides that where depreciation is claimed and allowed on the assets the computation of capital gain on transfer of such asset under Sections 48 and 49 shall be modified under Section 50. Thus, Section 50 is meant for computation of capital gains in case of depreciable assets. It provides for a method of computation of capital gains in relation to capital assets on which depreciation is allowable. 4.10. As could be noted from the findings of the tribunal it has essentially relied upon the decision of the Bombay High Court and concurred with the finding of the CIT(A) by holding that the exemptions under Section 54EC is to be allowed subject to the verification by the Assessing Officer that investment in long term capital asset was made by the assesseerespondent within the period prescribed under Section 54EC(1) of the Act from which short term capital gain is offered for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent therein who had joined the bank on July 1, 1972, claimed extension of service because he was deemed to be appointed in the bank with effect from October 26, 1965, for the purpose of seniority, pay and pension on account of his past service in the army as Short Service Commissioned Officer. In that context, the apex court has held that the legal fiction created for the limited purpose of seniority, pay and pension cannot be extended for other purposes. Applying the ratio of the said judgment, we are of the opinion, that the fiction created under Section 50 is confined to the computation of capital gains only and cannot be extended beyond that. Thirdly, Section 54E does not make any distinction between depreciable asset and nondepreciable asset and, therefore, the exemption available to the depreciable asset under Section 54E cannot be denied by referring to the fiction created under Section 50. Section 54E specifically provides that where capital gain arising on transfer of a longterm capital asset is invested or deposited (whole or any part of the net consideration) in the specified assets, the assessee shall not be charged to capital gains. Therefore, the exemption under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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