9911796707
TMI Blog2022 (10) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... licopter of Rs.19,09,32,707/- as Long Term Capital Gain as against Short Term Capital Gain as assessed by the AO." 3. Facts in brief qua the issue raised in ground no. 1 are that the assessee-company is engaged in the business of travel agent and chartering of yacht and helicopters, etc. The Assessing Officer noticed that in the Profit & Loss account, assessee has debited expenses under the head 'Custom paid' of Rs.32,12,90,245/-, out of which, Customs duty was Rs.26,49,31,101/-, and the remaining was in the nature of penalty which was added back by the assessee. The assessee has taken the yacht named as 'Tian' on rent from M/s. Ammolite Holding Limited, Channel Island, Jersey. The Assessing Officer has referred to some report and investigation carried out by the Customs authorities wherein it was reported that the yacht was purchased for EUR1,16,40,875 by M/s. Ammolite Holding Limited having its registered office at Temiplar House, Don Road, St. Heller, Jersey JE1, 2TR, Channel Island, which was a foreign based company of the Reliance ADAG Group, from M/s. Ferretti SPA, Italy in August, 2008. The same was registered at Jersey with British Registry and named the Yacht as 'TIAN' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms, i.e. stock-in-trade which is imported or import of capital asset. In the case of assessee-company, it is neither stock-in-trade nor capital asset; therefore, the Customs Duty is not applicable on the yacht in the hands of the assessee-company. Insofar as the assessee's contention that Customs and Excise Settlement Commission has levied Customs Duty on the assessee and, therefore, the expenses should be allowed, the same he held that it is not tenable because the Settlement Commission has not adjudicated, whether it is applicable on the assessee or M/s. Ammolite Holding Limited or M/s. Reliance Transport & Travels Pvt. Ltd. or the persons who have used the yacht. 6. The Assessing Officer further held that the expenses claimed by the assessee-company cannot be allowed as expenses under Section 37(1) of the Act because it does not satisfy the following conditions :- (i) It is not incurred during the previous year. The yacht was brought in India in AY 2009-10 for which the expenses belongs to whereas the expenses were claimed in the A.Y.2013-14. The assessee may argue it is customs duty and can be claimed on payment basis u/s.43B of the Act. However, it is to be noted that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or (n) and further Bill of Entry in the Customs and therefore, Section 111(m) is not applicable as the Yacht was declared properly. From the above, it is seen that the SCN has alleged that the Yacht was purchased for personal purposes only. However, the allegation raised by the SCN was neither answered nor rejected. From the above, it is crystal clear that the Yacht was purchased for personal purposes only. 7. The Assessing Officer also rejected the assessee's contention that payment of Customs Duty was commercial expediency for the reason that chartering of foreign flag yacht was not for the purpose of business and chartering of such a yacht was not going to serve any business purpose. If there was no commercial or business purpose in chartering of such yacht, how can payment of Customs Duty on it be treated as business exigency? Thus, he disallowed the Customs Duty claimed by the assessee of Rs.26,49,31,101/- and added it back to the income of assessee. 8. Before the ld. CIT(A), detailed submissions were made which has been dealt with and incorporated in the appellate order on pages 5 to 19. The ld. CIT (A) after noting down the facts noted that the assessee had submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing fee as per the agreement. The assessee-company has earned revenue from operating of yacht of Rs.53,16,319/- and for the period 01.12.2008 to 31.03.2013 it has earned revenue of Rs.1,58,45,786/-. The assessee has only acquired the chartering rights of the yacht and income has always been assessed as business income in all the years by the Assessing Officer. Insofar as the Assessing Officer's allegation that Customs Duty is not applicable in the case of assessee, he held that as per the order of Settlement Commission, the assessee alone was liable for payment of Customs Duty on yacht for using same in the territory of India and accordingly, assessee had paid the Customs Duty. Further, the assessee has taken the yacht on lease from M/s. Ammolite Holding Limited and, therefore, it has not been capitalised or treated as stock-in-trade. For coming to this conclusion, he has referred to the decision of Hon'ble Bombay High Court in the case of National Organic Chemicals Industries Ltd. Vs. CIT, 203 ITR 410 (Bom.). Again, insofar as the Assessing Officer's observation that the said expenses have not been incurred during the previous year because the yacht was brought in India in Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for personal purposes of assessee-company. Insofar as the liability to pay Customs Duty by the assessee-company is concerned, he submitted that once the Settlement Commission had fixed the liability of Customs Duty on the assessee for the yacht, then, it is purely a payment of duty which is allowable as business expenses of the assessee-company. 11. It is an undisputed fact that the assessee-company is in the business of travel and tourist agent and also chartering of aircrafts, helicopters, yachts, etc. The revenue earned from operation of yacht/helicopters, etc. has been shown as business income and same has been accepted by the Assessing Officer in all the years. If in the course of its business, assessee has hired a yacht for the use of its business and to provide services to other entities and companies, then, so far as the assessee is concerned, it is purely a business activity. The ld. CIT(A) has already noted that the revenue earned from operation of yacht over the period of time, which has been accepted by the Assessing Officer. Even if the company which is hiring the services or individuals who are using the yacht for their personal purposes, then insofar as the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets and was a depreciable asset and why it should not be treated as Short term capital gains. The working of capital gains as per assessee was as under :- Particulars Amount (Rs.) Net block of helicopter as on 01.04.2012 11,19,47,371 Less : Deduction during the year (excluding spare parts of Rs.65,10,284/- and equipment of R.3,73,438/-) 30,28,80,078 Capital gains as per section 50(2) of the Act 19,09,32,707 15. The helicopter was purchased on 31.10.2006 and the same was sold on 25.03.2013 and, therefore, the period of holding was more than 3 years. Since the block became Nil, the provisions of Section 50(2) of the Act was attracted and the deeming provision of Section 50 of the Act are applicable with respect to computation of capital gains and it does not convert the long term capital asset into short term capital asset. However, the Assessing Officer held that in the section 50 of the Act, it is clearly stated the manner of calculation of capital gains on sale of depreciable assets, which is applicable here as it was sale of asset on which depreciation was allowed. In the instant case, the helicopter is a depreciable asset and the assessee has claimed depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l asset or rate of short term capital gain. The Assessing Officer has treated the capital gain on sale of helicopter amounting to Rs.19,09,32,707/- as Short term capital gains and taxing the same at normal rate of tax as per the provisions of Section 111A(1) of the Act @ 30%; whereas the ld. CIT(A) has held that for the purpose of rate of tax, same should be treated as Long term capital gains and, therefore, as per the provisions of Section 112(1) of the Act, the rate of tax should be 20%. 18. It is an undisputed fact that the holding period of the said asset was more than 3 years (i.e. 5 ½ years) and, therefore, same is a long term capital asset as per the provisions of Section 2(29AA) of the Act. Since the asset was a depreciable asset used for the purpose of business, assessee claimed depreciation from the date of its acquisition, i.e., from 31.10.2006. During the current year, the helicopter was sold for Rs.30,28,80,078/- which amount was higher than the net block of asset as on 01.04.2012. The resulting capital gain as per Section 50(2) of the Act was Rs. 19,09,32,707/- which assessee has offered for capital gains at the tax rate of 20%. As per Section 112 of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains are computed by deducting from the consideration received on transfer of a capital asset, the cost of acquisition, the cost of improvement and the expenditure incurred in connection with the transfer. The meaning of the expressions 'cost of improvement' and 'cost of acquisition' used in sections 48 and 49 are given in section 55. As the depreciable capital assets have also availed depreciation allowance under section 32, section 50 provides for a special procedure for computation of capital gains in the case of depreciable assets. Section 50(1) deals with the cases where any block of depreciable assets do not cease to exist on account of transfer and Section 50(2) deals with cases where the block of depreciable assets cease to exist in that block on account of transfer during the previous year. In the present case, on transfer of depreciable capital asset the entire block of assets has ceased to exist and, therefore, Section 50(2) is attracted. The effect of Section 50(2) is that where the consideration received on transfer of all the depreciable assets in the block exceeds the written down value of the block, then the excess is taxable as a deemed short term capital gains. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as deemed to be appointed in the bank with effect from 26/10/1965 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 non depreciable 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 long term 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 section 54E of the I.T.Act cannot be denied to the assessee on account of the fiction created in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has held that for the purpose of exemption under Section 54E of the Act, it has to be treated as Long term capital gains. Later on, the same principle was reiterated by the Hon'ble Bombay High Court in the case of CIT vs Parrys (Eastern) (P) Ltd., 384 ITR 264 (Bom.) wherein the Hon'ble High Court has held that if deemed Short term capital gains is arising on account of sale of a depreciable asset that was held for a period to which Long term capital gains will apply, then, said gain would be set-off against brought forward Long Term Capital Loss and unabsorbed depreciation. Further, in case CIT vs Manali Investments [2013] 219 Taxman 113 (Bom.) again the same principle was reiterated by the Hon'ble Bombay High Court. Later on, the Hon'ble Supreme Court in the case of CIT V.S. Dempo Co. Ltd. Civil Appeal No(s). 4797/2008 vide order dated 15.09.2016 had the occasion to examine the eligibility of assessee to claim exemption under Section 54E of the Act in respect of capital gains arising on transfer of a capital asset on which depreciation has been allowed. The Hon'ble Apex Court reiterated and affirmed the judgment of Hon'ble Bombay High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est that the fiction created in Section 50 is not only restricted to Sections 48 and 49 but also applies to other provisions. On the contrary, Section 50 makes it explicitly clear that the deemed fiction created in sub-section (1) & (2) of Section 50 is restricted only to the mode of computation of capital gains contained in Section 48 and 49. Secondly, it is well established in law that a fiction created by the legislature has to be confined to the purpose for which it is created. In this connection, we may refer to the decision of the Apex Court in the case of State Bank of India vs. D. Hanumantha Rao reported in 1998 (6) SCC 183. In that case, the Service Rules framed by the bank provided for granting extension of service to those appointed prior to 19.07.1969. The respondent therein who had joined the bank on 1.7.1972 claimed extension of service because he was deemed to be appointed in the bank with effect from 26.10.1965 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 canno ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
