The Commissioner Of Income Tax Chennai v. M/S. Union Co (Motors) Ltd. 118, Anna Salai Chennai 600 002

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 1.2.2006 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A) No.12 of 2006 The Commissioner of Income TaxChennai...Appellant/Appellant Vs. M/s. Union Co (Motors) Ltd.118, Anna SalaiChennai 600 002...Respondent/Respondent Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Madras 'B' Benchdated 16.6.2005 in ITA No. 2361/Mds/92 for the assessment year1989-90. Order of the Commissioner of Income Tax (Appeals) V Madras34 dated 16.7.1992 ITA No.198/92-93 against order of the DeputyCommissioner of Income Tax Special Range I Madras 34 dated 31.3.92PAN/G.I.R.No.47-004-CY-7453/1-U (Delivered by P.D.DINAKARAN, J.) The above tax case appeal is directed against the order of theIncome-tax Appellate Tribunal in ITA No.236/Mds/92 dated 16.6.2005. 2. The brief facts of the case are stated as follows: The assesee owned 20,365 sq.ft. of land in Bangalore with anequivalent built up area and the same was treated as business assetand claimed depreciation. The assessee sold the property and https://hcservices.ecourts.gov.in/hcservices/ claimed the gains arising therefrom as a long term capital gains.But the assessing officer treated the same as a short term capitalgain under Section 50 of the Income Tax Act on the ground that theconsolidated value was given to the land and building and no breakup was possible and accordingly, the difference between the writtendown value and the sale consideration was treated as short termcapital gains. Hence, the assessee filed an appeal before theCommissioner of Income Tax (Appeals), who allowed the appeal findingthat the purchaser of the property sought permission to demolish thesuperstructure and therefore, there is no value for the building andconsequently, what remains is only the land which is not depreciableasset, as no depreciation could be taken on the land and thus heldthat Section 50 of the Act should not have been applied to the caseof the assessee. The said order was also confirmed by the IncomeTax Appellate Tribunal on the appeal preferred by the revenue.Hence, the above appeal. 3. The learned counsel for the appellant, under the facts andcircumstances of the case, raises the following substantial questionof law. "Whether on the facts and circumstances of the case, theTribunal was right in holding that the capital gainsarising on sale of land and building on which depreciationhad been claimed would not be hit by Section 50 of theAct?" 4. In this regard, it is apt to refer Section 50 the Act, whichreads as under. "Special provision for computation of capital gains incase of depreciable assets.- Notwithstanding anythingcontained in clause (42A) of section 2, where the capitalasset is an asset forming part of a block of assets inrespect of which depreciation has been allowed under thisAct or under the Indian Income-tax Act, 1922 (11 of 1922),the provisions of sections 48 and 49 shall be subject tothe 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 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 atthe beginning of the previous year; and (iii) the actual cost of any asset falling within theblock of assets acquired during the previous year, such excess shall be deemed to be the capital gainsarising from the transfer of short-term capital assets; (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 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 atthe beginning of the previous year; and (iii) the actual cost of any asset falling within theblock of 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 assuch, for the reason that all the assets in that block aretransferred during the previous year, the cost ofacquisition of the block of assets shall be the writtendown value of the block of assets at the beginning of theprevious year, as increased by the actual cost of anyasset falling within that block of assets, acquired by theassessee during the previous year and the income receivedor accruing as a result of such transfer or transfersshall be deemed to be the capital gains arising from thetransfer of short-term capital assets." 5. This Court in ASST. COMMISSIONER OF INCOME TAX v. RAKA FOODPRODUCTS (277 ITR 261), interpreting the scope and applicability ofSection 50 of the Act in a transaction relating to the land andbuilding, of course along with machinery therein, treated the saidtransaction as a long term capital gains and held as follows: "Land is not a depreciable asset. Section 50 of the Actdeals only with transfer of depreciable assets. Once theland forms part of the assets of the undertaking and thetransfer is of the entire undertaking as a whole, it isnot possible to bifurcate the sale consideration to aparticular asset. As already observed above, Section 50of the Act applies only when depreciable assets alone aretransferred." 6. It is, therefore, a settled law that even though thetransaction involved land and building, once the land forms theassets of the undertaking, the transfer is of entire undertaking asa whole and it is not possible to bifurcate the same, as suggestedby the assessing officer in the instant case. All the more, in theinstant case, the fact remains that the purchaser had applied fordemolition of the building and also demolished the building, whichwas taken into consideration by the Commissioner and the Tribunal,while arriving at a conclusion that Section 50 of the Act is notattracted, as, under the facts and circumstances of the case, it isclear that the sale consideration made by the purchaser is only for the land, since the building had no value and therefore, gotdemolished.Finding no error in the order of the authorities below, theappeal stands dismissed. kpl Sd/Asst.Registrar /true copy/ Sub Asst.Registrar To1. The Assistant Registrar of Income TaxAppellate Tribunal,Bench 'B' Rajaji Bhavan,III Floor,Besant Nagar, Chennai-902. The Secretary,Central Board of Direct TaxesNew Delhi.3. The Commissioner of Income Tax(Appeals)VMadras-344. The Deputy Commissioner of Income Tax,Special Range I,Madras 345. The Commissioner of Income Tax,Chennai.+1 CC to Mr.Pushya Sitaraman, S.S.C.for I.T, SR No.4356TEJ(CO)BG/21.2.2006 TC (A) No.12 of 2006