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TMI Blog2009 (2) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... is clearly proved that where a capital asset forming part of a block of assets, in respect of which depreciation has been allowed, is transferred and the block of assets ceases to exist, then the resultant capital gain shall be deemed to be from the transfer of short-term capital asset. It is no doubt true that block of assets as defined in s. 2(11) clearly means a group of assets falling within the block of assets comprising inter alia, the buildings in respect of which percentage of depreciation is prescribed. Therefore, we observe that the assessee sold her building in which she was carrying on her profession. The building as such is a capital asset on which depreciation rate has been prescribed, hence such building will fall within the definition of block of asset . Where the assessee has not claimed depreciation or not furnished requisite particulars then should the depreciation be mandatorily granted by the AO - When the matter was finally taken up by the Hon'ble Supreme Court in the case of CIT vs. Mahendra Mills [ 2000 (3) TMI 3 - SUPREME COURT] it was held that if the assessee does not claim depreciation and does not furnish particulars for claiming depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asserting that the appeal filed before the learned CIT(A) against the assessment order dt. 24th March, 2005 was dismissed without correctly appreciating the judgment of the Hon'ble jurisdictional High Court in the case of CIT vs. Ace Builders (P) Ltd. (2005) 195 CTR (Bom). 1 : (2006) 281 ITR 210 (Bom). Petition under s. 154 was filed before the learned CIT(A) for rectification of his order, which also came to be rejected by the first appellate authority. The assessee filed appeal in time before the Tribunal against the order by the learned CIT(A) rejecting the rectification application. Later on she was advised to file appeal against the original order of the CIT(A) also as that constituted the very basis of assessee's grievance. Immediately thereafter the present appeal was presented which was late by 214 days. The learned counsel for the assessee contended that the assessee was entertaining a bona fide belief that the relief will be allowed by the learned first appellate authority in the rectification proceedings which was erroneously denied despite the judgment of the Hon'ble jurisdictional High Court on the same point. He relied on the judgment of the Hon'ble Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome whether or not any such claim was made. He, therefore, came to the conclusion that even if no depreciation was allowed to the assessee in the earlier years, the mandate of the Expln. 5 to s. 32 would be attracted since the building which was sold by the assessee was falling within the "block of assets" and the resultant capital gain would be covered under s. 50 taxable as short-term capital gain. Accordingly the said exemption under s. 54EC was denied and capital gain was computed at Rs. 5.85 lakhs. In the first appeal the learned CIT(A) echoed the assessment order by observing that the building which was sold by the assessee was used by her for carrying on profession. He further held that the judgment of the Hon'ble jurisdictional High Court in the case of Ace Builders (P) Lid. (1991) 187 ITR 222 (Bom) (sic). cited before him was not applicable because in that case the assessee was a public limited company. He then went on to observe that the assessee had not made any investment in instruments like UTI etc. The nutshell of the order of the learned CIT(A) was that the assessee remained unsuccessful. 5. We have heard the rival submissions and perused the relevant material on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets in that block are transferred during the previous year, the cost of acquisition of the block of asset shall be the WDV of the block of asset 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 and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gain arising from the transfer of short-term capital assets." From the language of s. 50 it is clearly proved that where a capital asset forming part of a block of assets, in respect of which depreciation has been allowed, is transferred and the block of assets ceases to exist, then the resultant capital gain shall be deemed to be from the transfer of short-term capital asset. It is no doubt true that block of assets as defined in s. 2(11) clearly means a group of assets falling within the block of assets comprising inter alia, the buildings in respect of which percentage of depreciation is prescribed. Thus it is manifest that for entering into a block of assets the actual claim of depreciation is not relevant. If the capital asset is of a nature which fits in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of depreciation shall be granted automatically notwithstanding the fact that the assessee had not claimed this deduction. The assessment year before us is 2002-03 and this Explanation has also been inserted on and or asst. yr. 2002-03. 10. At this juncture it is relevant to consider the facts leading to the insertion of this Explanation. An issue was argued before the Courts that where the assessee has not claimed depreciation or not furnished requisite particulars then should the depreciation be mandatorily granted by the AO. There was a cleavage of opinion amongst the Hon'ble High Courts on this point. When the matter was finally taken up by the Hon'ble Supreme Court in the case of CIT vs. Mahendra Mills (2000) 159 CTR (SC) 381 : (2000) 243 ITR 56 (SC) it was held that if the assessee does not claim depreciation and does not furnish particulars for claiming depreciation, the depreciation cannot be thrust upon him. The sum and substance of this judgment is that the AO has no authority for allowing depreciation under s. 32 when the assessee has not claimed it in computing the income under s. 29 of the Act. It was pursuant to this judgment that Expln. 5 was inserted to s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not exist. If s. 50 is not applicable then it will have to be seen the life of the asset in the hands of the assessee for determining the nature of the capital asset, that is, it is short-term or long-term capital asset. It is apparent from the orders of the authorities below that such building was held by the assessee, for around 14 years before its transfer. Resultantly it will be considered as a long-term capital asset and the provisions of s. 54EC will not be ousted. 11. Be that as it may, we will also view the case of the assessee from the angle of the authorities below. It has been held by the learned CIT(A) that by virtue of the application of s. 50, the capital gain on the building transferred by the assessee becomes short-term capital gain and hence s. 54EC will not apply as this benefit of exemption extends only in respect of the transfer of long-term capital assets. The learned CIT(A) has jettisoned the claim of the assessee on two grounds. Firstly there is no investment in the instruments like UTI etc. and the secondly, the judgment of the Hon'ble Bombay High Court in the case of Ace Builders (P) Ltd. does not apply. Copy of the bond certificate issued by REC ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . For these reasons we are not inclined to accept the view point of the learned Departmental Representative as well as the learned CIT(A) on this issue. 13. The second aspect which weighed against the assessee before the learned CIT(A) was that the judgment of the Hon'ble jurisdictional High Court in the case of Ace Builders (P) Ltd. is not attracted to the facts of the instant case. The learned CIT(A) has referred to the case of CIT vs. Ace Builders (P) Ltd. and the citation has been mentioned as 187 ITR 222 (Bom). There appears to be some typographical error for the reason that at the mentioned citation no such case is available. On the contrary the correct citation of this case is (2005) 195 CTR (Bom) 1 : (2006) 281 ITR 210 (Bom). Let us examine the facts of that case to determine whether it is applicable to the case under consideration. Ace Builders (P) Ltd. was a partner in firm called M/s D. Manekji and Associates which was dissolved in the year 1984 and the assessee was allotted a flat against the balance standing to its credit in the capital account with the firm. The assessee showed the said flat as capital asset in its books of account and claimed depreciation thereon f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was held by her for a period more than 36 months, which is a condition precedent for classifying any asset under "long-term capital asset" as per s. 2(29A) of the Act. Sec. 54EC is an independent provision not controlled by s. 50. If the capital asset is held for more than 36 months, the benefit of s. 54EC cannot be snatched away because s. 50 is restricted only to the mode of computation of capital gain contained in ss. 48 and 49 and this fiction cannot be extended beyond that for denying the benefit otherwise available to the assessee under s.54EC of the Act, if the other requisite conditions of the section are satisfied. Our view is also fortified by CIT vs. Assam Petroleum Industries (P) Ltd. (2003) 185 CTR (Gau) 71 : (2003) 262 ITR 587 (Gau). We, therefore, overturn the impugned order and direct that the exemption under this section be allowed to the assessee because of her having made investment in eligible bonds out of the sale proceeds from the transfer of long-term capital asset. 14. The other appeal by the assessee is against the order passed in the learned CIT(A) rejecting her request for the rectification of the order under s. 154. In view of our decision on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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