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TMI Blog2016 (2) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... ck of Assets. Now, when he has enjoyed the fruit of rental income and deduction u/s 24 of income from House Property. Now he wants to shift the gala again back to Block of Assets to avail the benefit of Section 43(6) and to get away from the clutches of tax liability by virtue of Section 50 of the Incometax Act, 1961. 3. The sole issue raised by the Revenue in all the grounds of appeal is against the deletion of addition made by CIT(A) on account of short term capital on sale of gala. The brief facts of the case are that the assesse filed his return of income for the AY 2009-10 declaring total income of Rs. 29,48,080/- on 26.09.2009. The assessee had purchased a factory gala bearing number 221/222 at Tantia Jogani Industrial Estate which was sold for Rs. 63,00,000/- and registered at Rs. 66,41,733/-with Joint Sub Registrar Mumbai City. The assessee claimed depreciation on this gala upto AY 2006-07. Thereafter the gala was given on rent for 2 A.Y namely 2007-08 and 2008-09 and the depreciation was not claimed during these 2 years and the rental income from said gala was shown out as "income from house property". The assessee treated the said gala as part of the block of assets of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory gala ceased to be part of the block of assets for the year under consideration since the appellant had derived rental income from the same. 5.2 A perusal of the schedules enclosed with the report u/s 44AB for the year under consideration shows that the value of the net block of factory gala as on 31/03/2009 was Rs. 29,33,290/-. The schedule of depreciation encapsulating the depreciation claimed on fixed assets and the purchase and sales under the relevant block i.e 'factory building' shows that during the F.Y. 2008-09, transactions related to this block were as follows: Opening Balance : Rs. 18,39,880/- Added - Purchases : Rs. 73,68,410/- Reduced - Sales : Rs. 62,75,000/- Closing Balance : Rs. 29,33,290/- Thus it is clear that the block of "factory building/gala" was in existence during the relevant financial period. The AO has held that by virtue of the appellant having offered rental income from the same factory gala to tax under the head "income from house property" the said asset cannot be held to have been part of the block of "factory building/gala." 5.3 Section 50 of the Act reads as follows: "50. Special provision for computation of ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een claimed, will be excluded from the: said block merely because it has subsequently given rise to income assessable under another head. 5.6 In the decision rendered in the case of CIT v Mis Sakthi Metal Depot reported at 333 ITR 492, the Kerala High Court adjudicated upon a case where the appellant has purchased a. flat in 1974 and used it as an office. Depreciation on the asset was claimed till A.Y. 1995-96. No depreciation was claimed for A.Yrs. 1996-97 and 1997-98. The flat was sold by the assessee in A.Y. 1998-99 and the profit was returned as long term capital gains. The AO applied section 50 and computed income arising from the sale of the flat as short-term capital gains. The CIT(A) upheld the order of the AO. The ITAT allowed the appeal of the assessee observing that the flat had been shown as 'investment' in the balance sheet for the year under consideration and had been held for a period that qualified it to be considered a long-term capital asset. The High Court held as follows: "In our view Section 50 has to be understood with reference to the general scheme of assessment on sale of capital assets. The scheme of the Act is to categorise assets between sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the sale of a depreciable- asset, the assessee need not have claimed depreciation continuously for the entire period upto the date of sale of the asset. In other words, in our view, the building which was acquired by the assessee in 1974 and in respect of which depreciation was allowed to it as a'" business asset for 21 years, that is upto the assessment year 1995- 96, still continued to be part of the business asset and depreciable asset, no matter the non-user disentitles the assessee for depreciation for two years prior to the date of sale. We do not know how a depreciable asset forming part of block of assets within the meaning Section 2(11} of the' Act can cease to be art of block of assets. The description of the asset by t e assessee in the Balance Sheet as an investment asset in our view is meaningless and is only to avoid payment of tax on short term capital gains on sale of the building. So long as t e assessee continued business, the building forming part of the block of assets will retain its character as such, no matter one or two of the assets in one or two years not used for business purposes disentitles the assessee for depreciation for those years. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee did not claim and depreciation on the said gala because the same was given on rent during the 2 years i.e. AY 2007-08 and AY 2008-09. In the AY 2009-10 the said gala was sold and the sale proceeds in respect of the said gala was treated in accordance with the provisions of section 50 of the Act by reducing the said consideration from the block of asset pertaining to factory gala and no short term capital gain had resulted from the said sale as the WDV at the year end worked out at Rs. 29,33,290/- before depreciation and after taking opening WDV plus additions and sale during the year. We also find that the ld. AO treated the sale of gala as sale of short term asset and denied the benefit of blocked of assets u/s 43(6) and of special provisions u/s 50 for calculating capital gain in case of depreciable assets. The short term capital gain was calculated at Rs. 60,42,693/- by applying the provision of 50C of the Act. In our opinion the ld. CIT(A) had rightly reversed the action of AO by holding that sale of gala was part of relevant block of assets as per the provisions of section 43(6) and short term capital gain was to be computed in accordance with section 50 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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