To Be Assessed As Business Income. The Income-Taxappellate Tribunal Had Affirmed The Order Of The Appellatecommissioner. In The Circumstances, The Above Statedq v. 1]]Ansal Properties & Infrastructure Ltd

HON'BLE SRI JUSTICE G.CHANDRAIAH&HON’BLE SRI JUSTICE CHALLA KODANDA RAMR.C. No. 173 of 2000 JUDGMENT:- (per Hon’ble Sri Justice Challa KodandaRam) At the instance of the revenue, the following questionof law arising out of the order dated 23.09.1996 of theTribunal in I.T.A.No.1048/Hyd/93 for the assessment year 1990-91, is referred for opinion of this Court: “Whether on the facts and in the circumstances of the case, theIncome-tax Appellate Tribunal is correct in holding thatdeduction under Section 50 of the Act can be allowed from outof the capital gain arising from the sale of the assets during therelevant year and that the assets form part of Block of Assetsinrespect of which depreciation is allowable.” The short controversy involved in this case is withrespect to allowing of depreciation on the block of assetspurchased and used in the business of leasing which wasone of the businesses of the assessee. The assessee’smain source of income for the year was the amountsearned as warehousing and handling charges apart fromlease rentals along with some miscellaneous income. During the relevant accounting period, the assessee-company sold away certain old plant and machinery usedfor its business and received sale consideration ofRs.41.00 lakhs and provided written down value of thesame in the block of assets as Rs.9,12,548/- as on01.04.1989. The excess of sale price was treated as a short-term capital gain under Section 50(1) of the Income-Tax Act, 1961 (for short “the Act”). During the sameperiod, the assessee also purchased some newmachinery for its leasing business and its cost wasdeducted from the short-term capital gain arising on thesale of the machinery. The assessing officer came to theconclusion that the leasing business is a separate unitand treated the rental income derived from the leasing ofthe machinery as income from other sources. While doingso, he did not allow depreciation on the newly acquiredblock of assets from the sale profits of the old machinery. On appeal, the appellate Commissioner accepted theclaim of the assessee and held that notwithstanding thefact that the assessee was carrying on business for thepurpose of calculation of depreciation of the block ofassets, which carry the same rate of depreciation of theblock of assets, they have to be grouped together as oneblock of assets. The appellate Commissioner alsoaccepted the contention of the appellant-Revenue thatleasing is yet another business that is being carried on bythe assessee apart from manufacturing activity which wasabandoned during the relevant accounting period. TheRevenue carried the matter in appeal before the Income-tax Appellate Tribunal only with respect to the disputeregarding allowing of the depreciation while it acceptedthe finding of the appellate Commissioner that the leasingis another business, as such, the rental income is required to be assessed as business income. The Income-taxAppellate Tribunal had affirmed the order of the appellateCommissioner. In the circumstances, the above statedquestion of law is referred at the instance of the Revenue. The learned Senior Counsel for the Income-taxDepartment contends that the Tribunal has not given anyfinding that both the block of assets carry the same rate ofdepreciation, and in that view of the matter, allowing of thedepreciation of the newly purchased machinery is not inorder and is impermissible. On the other hand, the learned counsel for theassessee submits that it is well settled law by variousjudgments that if the block of assets carry the same rate ofdepreciation they are required to be treated as one blockof assets, and no question is raised by the Department atany point of time that there is any difference in the rates ofdepreciation of the newly acquired machinery and of themachinery which was already with the assessee duringthe accounting year. He relies on the judgment of DelhiHigh Court reported in Commissioner of Income-tax vs. .[[1]]Ansal Properties & Infrastructure Ltd On the other hand, the learned counsel for theassessee submits that it is well settled law by variousjudgments that if the block of assets carry the same rate ofdepreciation they are required to be treated as one blockof assets, and no question is raised by the Department atany point of time that there is any difference in the rates ofdepreciation of the newly acquired machinery and of themachinery which was already with the assessee duringthe accounting year. He relies on the judgment of DelhiHigh Court reported in Commissioner of Income-tax vs. .[[1]]Ansal Properties & Infrastructure Ltd We have considered the rival submissions and arein agreement with the learned counsel for the respondent-assessee that no specific question was raised at anypoint of time even before the Tribunal that the rates ofdepreciation of the newly acquired machinery and of theexisting machinery of the assessee are different, as such they cannot be grouped together as block of assets forthe purpose of consideration of the claim of depreciation. As a matter of fact, the first appellate authority himself hadaccepted the claim of the assessee and grouped themtogether as block of assets while considering the interplaybetween Sections 28, 32 and 3[rd] proviso to Section 50 ofthe Act. The learned counsel for the assessee woulddraw our attention to Appendix-I under Rule 5 of theIncome Tax Rules, 1962 and point out that plant andmachinery are grouped together under different sub-headings. In the light of the findings of fact asrecorded by the Tribunal, we have no hesitation to acceptthe contention of the learned counsel for the assessee. While dealing with the issue, the Delhi High Court in itsjudgment (cited 1[st] supra) had referred to a similarquestion which was considered by the Madras High Courtin S.Muthurajan vs. Deputy Commissioner of Income- tax[[2]]and the same may be usefully quoted hereunder: “Madras High Court in S.Muthurajan’s case had examinedSection 50(2) and interpreted the same. In the said case, theassessee had separate units/divisions and one of the units wassold. Question arose whether the gain from the sale of the saidunit was separately taxable as a short-term capital gains thoughthe block of assets i.e. assets carrying/having same rate ofdepreciation still continued to exist and whether short-termcapital gains tax was payable in such cases. The High Courtrejected the contention and the stand of the Revenue andagreed with the plea of the assessee that Section 50(2) was not applicable as the block of assets i.e. assets in the same rate ofdepreciation continue to exist and inter alia observed. tax[[2]]and the same may be usefully quoted hereunder: “Madras High Court in S.Muthurajan’s case had examinedSection 50(2) and interpreted the same. In the said case, theassessee had separate units/divisions and one of the units wassold. Question arose whether the gain from the sale of the saidunit was separately taxable as a short-term capital gains thoughthe block of assets i.e. assets carrying/having same rate ofdepreciation still continued to exist and whether short-termcapital gains tax was payable in such cases. The High Courtrejected the contention and the stand of the Revenue andagreed with the plea of the assessee that Section 50(2) was not applicable as the block of assets i.e. assets in the same rate ofdepreciation continue to exist and inter alia observed. “As already pointed out, Section 50 is a special provisionfor computation of capital gains in the case ofdepreciable assets. The said provision states that wherethe capital assets is an asset forming part of a block ofassets, then the computation of the capital gains has tobe done in accordance with Section 50 of the Act. Undersub-section (2) of Section 50, where any block of assetsare transferred, the cost of depreciation at the hands ofthe transferee shall be written down value of the block ofassets at the beginning of the previous year, asincreased by the actual cost of any asset falling withinthat block of assets, acquired by the assessee during theprevious year. The income thus received or accruing asa result of such transfer or transfer is deemed to be thecapital gains arising from the transfer of short-term capitalassets. Given the fact that block of assets is identified bythe percentage of depreciation granted, on going throughthe various heads under the Schedule, we find that thedepreciation percentage fixed is more of machineryspecific rather than industry specific. Thus, on goingthrough the various clauses in the Schedule, we find, ifthe asset transferred and the asset purchased fall forconsideration under the self-same percentage ofdepreciation, then the asset qualified for being termed asfalling under a block of assets. Thus, if the assetstransferred from the 100 per cent export-oriented unit andthe assets purchased come for the same percentage ofdepreciation as prescribed in the table, the assesseewould be justified in seeking adjustment in the matter ofworking out the capital gains.” In the above view of the matter, the referred questionof law is answered in favour of the assessee and againstthe Revenue. Accordingly, the Referred Case is disposed of. Noorder as to costs. As a sequel to the disposal of the Referred Case, Miscellaneous Petitions, if any pending, shall standdisposed of as infructuous. _________________ G. CHANDRAIAH, J 25.02.2014 ______________________ CHALLA KODANDA RAM,J bcj [1][2012] 207 TAXMAN 61 (Delhi) [2](2011) 339 ITR 301 (Mad)