2010-VIL-881--DT

Income Tax Appellate Tribunal, MUMBAI

ITA No. 5396/Mum/2009;

Date: 20.12.2010

DIVINE CONSTRUCTION CO.

Vs

ACIT

P. Daniel and S.M. Makhija for the Appellant  
Jitendra Yadav for the Respondent  

BENCH

R.S. Syal, Vijay Pal Rao, JJ.

JUDGMENT

R.S. Syal, Accountant Member:-  

1. This appeal by the assessee arises out of the order passed by the CIT(A) on 13th Aug., 2009 in relation to the asst. yr. 2006-07.  

2. The only grievance is against the upholding of the view taken by the AO in treating long-term capital gain earned by the assessee on transfer of an office premises on which depreciation was neither claimed nor allowed by invoking s. 50 of the Act. Briefly stated the facts of the case are that the assessee is a civil engineering contracting firm. During the course of assessment proceedings the AO noted that the assessee was owning a premises at Mangal Bhavan since 1999 which was sold during the year and income therefrom was offered to tax as long-term capital gain. The AO called upon the assessee to explain as to why provisions of s. 50 be not applied. The assessee tendered its explanation stating that though the property was included in the block of assets but neither it was used for the purpose of business nor any depreciation was claimed thereon. It was also stated that the assessee was carrying on its business from a rented premises at Bandra (East) and therefore the property could not be categorized as business asset. The AO did not accept the assessee's contention in view of s. 50 r/w Expln. 5 to s. 32 and computed short-term capital gain as under:-  

Sale value	14,62,500
Less:- Purchase cost	8,26,750
Total	6,35,750

The assessee was unsuccessful before the learned CIT(A) as well.  

3. We have heard the rival submissions and perused the relevant material on record. Sec. 50 has been invoked by the AO for treating the sale of asset as the one eligible to be considered as short-term capital gain instead of long-term capital gain as claimed by the assessee. At this juncture it would be relevant to consider the relevant part of s. 50 as under:-  

"50. Notwithstanding anything contained in cl. (42A) of s. 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian IT Act, 1922 (11 of 1922), the provisions of ss. 48 and 49 shall apply subject to the following modifications:-  

(1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely:-  

(i) expenditure incurred wholly and exclusively in connection with such transfer or transfers;  

(ii) the written down value of the block of assets at the beginning of the previous year; and  

(iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;"  

4. On going through the mandate of this section it can be easily noticed that in order to treat capital gain arising from the transfer of capital assets in the circumstances mentioned in the section as short-term capital gain, it is necessary that the conditions mentioned in the opening lines of s. 50 be fulfilled viz.:-  

(i) the capital asset should be an asset forming part of block of assets, and  

(ii) depreciation should have been allowed on it under this Act or under the Indian IT Act, 1922.  

It is only on the fulfilment of these twin conditions that the prescription of s. 50 gets activated. Adverting to the facts of the instant case it is noted that the assessee included the property in its schedule of fixed assets for this year at Rs. 8,91,460. No depreciation was claimed in this year. We are in agreement with the learned Departmental Representative that merely not claiming depreciation in one year is not sufficient to push a case out of the purview of s. 50. It is necessary that the depreciation should have never been allowed on such capital asset. The learned Authorised Representative was directed to file purchase deed of this premises in 1999 and subsequent balance sheets. Today such details have been placed on record. It can be noticed that the value of this property as appearing in the balance sheet for assessment year under consideration at Rs. 8,91,460 continues to remain the same since its purchase in 1999. It shows that no depreciation was ever claimed or allowed on this property. In that view of the matter the provisions of s. 50 cannot be applied. We, therefore, overturn the impugned order on this issue and hold that the long-term capital gain declared by the assessee be accepted as such, since no infirmity was pointed out by the AO in the calculation shown by the assessee.  

5. In the result, the appeal is allowed.  

 

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