Case Law Details
CA Sandeep Kanoi
On appeal before the Ld. CIT(A), it was stated that during the year, the assessee firm has sold the premises for the consideration of Rs 7,55,00,000/- and the working of the capital gains arising there from is given in the computation of total income filed along with the return of income. The capital gain arising there from is Rs 5,77,35,538/- Rs 5,71,50,000/- have been invested in Nabard Capital Gains Bonds to claim the exemption u/s 54.
The balance capital gain of Rs 535,538/- has been set off against the carried forward long term capital gain/loss of Rs 5,80,238/- The assessee firm has claimed depreciation on the said premises from year to year and hence as per section 50, the gain arising there from is deemed to be the short term capital gain. Section 50 of the IT Act, 1961 carves out an exception in respect of depreciable assets and provides that where depreciation has been claimed and allowed on the asset, then the computation of capital gain on transfer of such asset u/s 48 and 49 shall be as modified u/s 50. The effect of section 50(2) is that where the consideration received on transfer of depreciable asset exceeds the written down value of the asset, then the excess is taxable as a deemed short term capital gain. It is to be noted that the fiction created u/s 50 is confined to the computation of capital gains only and cannot be extended beyond that. The benefit of section 54E will be available to the assessee firm irrespective of the fact that the computation of capital gains is done either u/s48 and 49 or u/s 50. There is nothing in section 50 to suggest that the fiction created in section 50 is not only applicable to section 48 and 49 but also applies to other provisions. On the contrary, this section makes it explicitly clear that the deeming provision created in sub section (1) and (2). Is restricted only to the mode of computation of gains contained in section 48 and 49. The legal fiction is to deem the capital gains as short term capital gain and not to deem the asset as short term capital asset. Section 50 does not convert a long term capital asset into a short term capital asset. Though section 50 has been enacted with the object of denying multiple benefits to own depreciable assets, yet the restrictions is limited to the computation of capital gains and not to exemption provisions Thus the exemption u/s 54E cannot be denied to the assessee firm on account of the fiction created in section 50. It was further submitted that the assessee firm has relied upon before the AO on the following decisions exactly on the same point and identical issue which is in appeal:
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