Ita/108/2000 Of M/S.crescent Ice And Coldstorage,Ponnani v. The Commr. Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR WEDNESDAY, THE 20TH FEBRUARY 2008 / 1ST PHALGUNA 1929 ITA.No. 108 of 2000() --------------------- ITA.96/COCH./1996 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/ASSESSEE: ----------------- M/S.CRESCENT ICE AND COLD STORAGE,BEACH ROAD, PONNANI-679 583,MALAPPURAM DISTRICT, REP. BY ITSPARTNER, SRI.P.H.SYED MOHAMMED ASHRAFF. BY ADV. SRI.C.KOCHUNNY NAIR SRI.S.VINODKUMAR RESPONDENTS: ------------- THE COMMISSIONER OF INCOME-TAX,TRIVANDRUM. BY ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT SRI.GEORGE K. GEORGE, SC FOR IT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 20/02/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &T.R.RAMACHANDRAN NAIR, JJ. .................................................................... .................................................................... Dated this the 20th day of February, 2008. C.R. JUDGMENT C.N.Ramachandran Nair, J. This is an appeal filed by the assessee against the order of theTribunal upholding the order issued by the Commissioner under Section263 of the Income Tax Act for the assessment year 1992-93. Assessee, apartnership firm was running two ice plants located at different places witha distance of one kilometer between them. During the accounting yearrelevant for the assessment year the assessee sold one ice plant by nameM/s.Master Ice Plant for a total consideration of Rs.4,40,000/-. In theincome tax return filed for the assessment year, assessee returned the capitalgains of Rs.1,00,600/- for the sale of Ice Plant comprising of land, building,machinery etc. In the computation of capital gains, the assessee reckonedthe written down value of the entire balance block of assets which includesassets of the retained Ice Plant i.e M/s.Crescent Ice Plant. Even though theAssessing Officer completed the assessment accepting capital gainsreturned, the Commissioner of Income Tax issued orders under Section 263 of the Income Tax Act holding that written down value of the other IcePlant which was retained by the assessee could not be deducted from saleconsideration to arrive at the capital gains assessment for sale of one IcePlant by the assessee. In the appeal filed by the assessee, Tribunalconcurred with the view of the Commissioner on the ground that assesseehad maintained separate profit and loss accounts for the two separate IcePlants. Since both the units were distinct and separate units and assesseewas maintaining separate profit and loss accounts for the two units, theTribunal held that the assessee was not entitled to set off written down valueof the assets of the retained unit in the computation of capital gains on thesale of one unit. It is against this order of the Tribunal that the assesseehas filed this appeal. 2. We have heard counsel appearing for the assessee and StandingCounsel appearing for the respondent. While the assessee contended thatit is entitled to set off of value of all the assets in the "block of assets" whilecomputing capital gains on sale of assets, Standing Counsel submitted thatcapital gains has to be computed with reference to written down value ofassets in each of the industrial units. We are unable to agree with thefindings of the Tribunal and the argument of the department in supportthereof for the following reasons. "Block of assets" defined under Section 2(11) of the Income Tax Act reads as follows: "Block of assets" means a group of assets falling within aclass of assets comprising-- (a)tangible assets, being buildings, machinery, plant or furniture;or furniture; (b)intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature,trademarks, licences, franchises or any other business or commercial rights of similar nature, 2(11) of the Income Tax Act reads as follows: "Block of assets" means a group of assets falling within aclass of assets comprising-- (a)tangible assets, being buildings, machinery, plant or furniture;or furniture; (b)intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature,trademarks, licences, franchises or any other business or commercial rights of similar nature, in respect of which the same percentage of depreciation isprescribed." The provisions pertaining to computation of capital gains of depreciable assets contained in Section 50 of the Income Tax Act reads as follows: "Notwithstanding anything contained in clause (42A) ofsection 2, where the capital asset is an asset forming part of ablock of assets in respect of which depreciation has beenallowed under this Act or under the Indian Income tax Act,1922(11 of 1922), the provisions of sections 48 and 49 shall besubject to the following modifications:- (1) where the full value of the consideration received oraccruing as a result of the transfer of the asset togetherwith the full value of such consideration received oraccruing as a result of the transfer of any other capitalasset falling within the block of the assets during theprevious year, exceeds the aggregate of the followingamounts, namely:- (i) expenditure incurred wholly and exclusively inconnection with such transfer or transfers; (ii) the written down value of the block of assets at thebeginning of the previous year; and (iii) the actual cost of any asset falling within the blockof assets acquired during the previous year, such excess shall be deemed to be the capital gainsarising from the transfer of short-term capital assets; (2) where any block of assets ceases to exist as such, forthe reason that all the assets in that block are transferredduring the previous year, the cost of acquisition of theblock of assets shall be the written down value of the blockof assets at the beginning of the previous year, as increasedby the actual cost of any asset falling within that block ofassets, acquired by the assessee during the previous yearand the income received or accruing as a result of suchtransfer or transfers shall be deemed to be the capital gainsarising from the transfer of short-term capital assets." From the definition clause it is clear that all assets for which same rate ofdepreciation is provided, fall within the definition "block of assets". Whatis provided under Section 50(1) is that for computation of capital gains onthe sale of any asset or assets in the block of assets, the written down valueof the remaining assets in the same block of assets has to be reduced fromthe sale price. Of course besides this, deductions of expenditure incurredfor transfer and actual cost of assets falling under the same block accrued inthe previous year are also permissible. It is clear from these provisions thatcapital gain on sale of a depreciable asset is to be computed not withreference to every industrial unit owned by the assessee, but with referenceto assets falling within a block of assets. Computation of capital gains ondepreciable asset under the above provision is not affected even if assesseemaintains separate profit and loss account for each unit. But what is relevant is whether assets the written down value of which is claimed asdeduction in the computation of capital gains on sale of any asset or assetsby the assessee come within the same block of assets. In this case there isno dispute that the two Ice Plants come within the same block of assets andso much so, in the computation of capital gains on the sale of assets of oneIce Plant, the written down value of assets of the other Ice Plant can bededucted. relevant is whether assets the written down value of which is claimed asdeduction in the computation of capital gains on sale of any asset or assetsby the assessee come within the same block of assets. In this case there isno dispute that the two Ice Plants come within the same block of assets andso much so, in the computation of capital gains on the sale of assets of oneIce Plant, the written down value of assets of the other Ice Plant can bededucted. 3. The next aspect of the matter is whether sub-section (2) of Section50 authorises modification. Original assessment is completed in this caseunder Section 143(3) of the Act on the basis that assessee has sold one IcePlant with land, building and machinery. It is clear from sub-section(2) ofSection 50 that sale of assets visualised therein is not sale of any industrialunit but sale of any block of assets. In this case since assessee has sold oneIce Plant but retained the other, the block of asset does not cease to exist butonly part of the asset from the same has ceased to exist. Therefore, in ourview, sub-section (2) of Section 50 has no application at all in this case.We, therefore, hold that the original assessment completed accepting claimof computation of capital gains of the assessee as stated above is correct andthe Commissioner was not justified in ordering revision of assessment underSection 263 of the Income Tax Act and the Tribunal's order confirming the same is also incorrect. We, therefore, uphold the assessment reversing the order of the Tribunal and that of the Commissioner of Income Tax issuedunder Section 263 and restore the original assessment. C.N.RAMACHANDRAN NAIRJudge pms T.R.RAMACHANDRAN NAIRJudge