The Decision Of This Court In The Case Of Commissioner Of Income Tax v. Aditya Medisales Ltd. Reported In [2014] 362 Itr 600 (Guj

O/TAXAP/245/2001 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 245 of 2001 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ INCOME TAX OFFICER....Appellant(s)VersusVersus PARIKH TRANSPORT CO.....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKERDate : 25/11/2014ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.By way of this appeal, the appellant-revenue has challenged the order dated 23.01.2001 passed by the Income Tax Appellate Tribunal, Ahmedabad [for short “the Tribunal”] in ITA No. 6030/Ahd/1994, whereby the appeal filed by the revenue was dismissed by the Tribunal. 2.The short facts of this case are that on 13.10.1969, the respondent-assessee had purchased one immovable property in the form of a godown at Bombay for an amount of Rs.1,22,767/-. Depreciation on this property was claimed upto Assessment Year 1984-85. Thereafter, with effect from Assessment Year 1985-86 onwards the assessee neither claimed any depreciation nor any such claim was allowed by the revenue in respect of the said property. The contention of the assessee was that the said property had not been used for the purpose of business with effect from Assessment Year 1985-86 and therefore, the provisions of Section 50 would not be applicable since the property was not included in the block of assets. The assessing Officer, however, rejected the contention and held that the case was covered by section 50 of the Act and as such the capital gain and no deduction under Section 54-E could be granted. 2.1.Against the said order, the assessee filed an appeal before the Income Tax Appellate Tribunal. The CIT(A) partly allowed the said appeal. Being aggrieved by the same, the revenue has filed an appeal before the Income Tax Appellate Tribunal. The Tribunal, vide its order dated 23.01.2001 dismissed the said appeal. Hence, this appeal is filed at the instance of the revenue. 3.While admitting this appeal on 17.09.2001 this Court had formulated the following substantial 3.question of law:- “ Whether the Income Tax Appellate Tribunal was justified in law and on facts in confirming the order of the CIT(Appeals) and thereby holding that the case of the assessee was not covered by Section 50 of the Act and the assessee was entitled to claim deduction under Section 54-E which is admissible only in respect of the long-term capital gain ?” 4.Learned advocate for the appellant-revenue has submitted that the Tribunal has committed error in confirming the order of the CIT(A) and holding that the assessee was entitled to claim deduction under Section 54E of the Income Tax Act. He further submitted that the Tribunal has not properly appreciated the material available on record, therefore, he urged to allow this appeal. 3.question of law:- “ Whether the Income Tax Appellate Tribunal was justified in law and on facts in confirming the order of the CIT(Appeals) and thereby holding that the case of the assessee was not covered by Section 50 of the Act and the assessee was entitled to claim deduction under Section 54-E which is admissible only in respect of the long-term capital gain ?” 4.Learned advocate for the appellant-revenue has submitted that the Tribunal has committed error in confirming the order of the CIT(A) and holding that the assessee was entitled to claim deduction under Section 54E of the Income Tax Act. He further submitted that the Tribunal has not properly appreciated the material available on record, therefore, he urged to allow this appeal. 5.On the other hand, learned advocate for the respondent-assessee has supported the impugned order of the Tribunal and submitted that the view taken by the Tribunal is just and proper and no interference is required to be called for by this Court. 5.1.In support of his contention, he relied upon the decision of this Court in the case of Commissioner of Income Tax V. Aditya Medisales Ltd. reported in [2014] 362 ITR 600 (Guj.) 6.We have heard learned advocates appearing for the parties and perused the material on record. While deciding the appeal, the Tribunal in paragraph No.3 has observed as under:- “3. The CIT(A) held that once the asset in question has not been used for the purposes of business right since asstt. Year 1985-86 onwards, it would not form part of block of assets and profit arising on the sale of the said asset cannot be taxed as a short term capital gain asset by invoking the provisions of Section 450. According to the CIT(A) the surplus realization is liable to be taxed as long term capital gain. The revenue is aggrieved and has come up in appeal before us. Relevant for the determination of the present controversy are undisputed. The assets in question namely the Nagdevi property situated at Bombay has been purchased in October, 1969 and thereafter has been used for the purpose of business right upto A.Yr. 1984-85. The depreciation has been claimed and allowed by the Assessing Officer upto A.Y.1984-85. However, with effect from A.Y. 1985-86 the property has not been used for the purposes of business and no depreciation has been claimed and none has been allowed. Thus, so far as asstt. Years 1985-86, 1986-87 & 1987-88 are concerned, the written down value of the property has been reflected in the books of the company unchanged. With effect from 1.4.1988 the legislature brought into the statute by the Taxation laws (Amendment and Miscellaneous Provisions) Act, 1986 a new scheme for deduction of depreciation on the block of assets by way of realization and simplification measure. With effect from 1.4.1988, a new provision namely Section 50 was introduced as a special provision for computation of capital gains in case of depreciable assets. Section 50 provided for computation of capital gains for asstt. Year 1988-89onwardsinthefollowing circumstances; (1)Capital asset is a depreciable asset on which depreciation has been allowed under the 1961 Act or 1922 Act. 2.of assets. The capital asset forms part of a block the property has been reflected in the books of the company unchanged. With effect from 1.4.1988 the legislature brought into the statute by the Taxation laws (Amendment and Miscellaneous Provisions) Act, 1986 a new scheme for deduction of depreciation on the block of assets by way of realization and simplification measure. With effect from 1.4.1988, a new provision namely Section 50 was introduced as a special provision for computation of capital gains in case of depreciable assets. Section 50 provided for computation of capital gains for asstt. Year 1988-89onwardsinthefollowing circumstances; (1)Capital asset is a depreciable asset on which depreciation has been allowed under the 1961 Act or 1922 Act. 2.of assets. The capital asset forms part of a block Now in the instant case the Nagdevi property fulfills the first requirements as above. However, in so far as the second requirement for applying section 50 is concerned, the same is not fulfilled inasmuch as in the Nagdevi property no longer form part of block of assets. Since it was not being used for purposes of business right since Asstt. Year 1985-86 onwards. The concept of block of assets has been introduced from asstt. Year 1988-89 onwards and since Nagdevi property was no longer a business asset as on 1.4.1988, there was no occasion for the asset to enter the block of asset of the purposes of computing depreciation u/s. 32 as well as capital gain u/s. 50. We would accordingly, uphold the view taken by the learned CIT(A) that section 50 would not be applicable for the purpose of computation of capital gains. The Nagdevi property is obviously a long term capital asset. The Assessing Officer would, therefore, compute the long term capital gain by applying the O/TAXAP/245/2001 JUDGMENT provisions of section 45 and 49 the cost of acquisition would be adopted as the purchased consideration paid by the assessee. The order of the CIT(A) is, therefore, upheld. 7.In view of the aforesaid discussion, we are in complete agreement with the view taken by the Tribunal. Even otherwise, the issue involved in this appeal is already concluded by the decision of this Court in the case of Aditya Medisales Ltd. (supra), wherein it has been held that “where capital gains arising on the transfer of a long term capital asset are invested in a specified asset, the assessee is not to be charged tax on the capital gains and the exemption provided under Section 54EC of the Income Tax At, 1961, cannot be denied to the assessee only on account of the fact that a deeming fiction is created under Section 50 of the Act. In other words, the legal fiction created under Section 50 of the Act is restricted to computation of capital gains and such deeming fiction cannot restrict application of section 54EC which allow exemption of capital gains, if the assessee makes investment in the specified assets”. 8.Learned advocate for the appellant-revenue is not in a position to distinguish the aforesaid decision of this Court. 9.In that view of the matter, we are of the considered opinion that the view taken by the Tribunal is just and proper and we do not find any reason to interfere with the findings recorded by the Tribunal. Hence, the present appeal deserves to be dismissed and the same is accordingly dismissed. The question posed in this appeal is answered in favour of the assessee and against the revenue. (K.S.JHAVERI, J.) (K.J.THAKER, J) pawan