Case Law Details
RELEVANT PARAGRAPHS:
6. Section 54EC provides that where the capital gain arises from the transfer of a long term capital asset and the assessee has at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long term specified asset, the capital gain shall be dealt with in accordance with the provisions of this section, that is to say, if the cost of the long term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged u/s.45 of the Act. The Assessing Officer has not disputed that the assessee had made investment in REC bond. The copy of such bond certificate is available at page 10 of the paper book which depicts that the investment was made on 19.6.2002. The objection of the Assessing Officer against the allowing of exemption under this section was that the capital asset transferred by the assessee was a short term capital asset as per section 50 of the Act and hence the provisions of section 54EC will not apply.
7. In order to appreciate this controversy it is apt to consider the language of section 50 which opens with the words : Notwithstanding anything contained in clause (42A) of section 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 Income-tax Act, 1922, the provisions of section 48 and 49 shall be subject to the following modifications” . Clause (2) further states that ‘where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of asset shall be the written down value of the block of asset at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gain rising from the transfer of short term capital assets.’ From the language of section 50 it is clearly proved that where a capital asset forming part of a block of assets, in respect of which depreciation has been allowed, is transferred and the block of assets ceases to exist, then the resultant capital gain shall be deemed to be from the transfer of short term capital asset. It is no doubt true that block of assets as defined in section 2(11) clearly means a group of asset falling within the block of assets comprising inter alia, the buildings in respect of which percentage of depreciation is prescribed. Thus it is manifest that for entering into a block of assets the actual claim of depreciation is not relevant. If the capital asset is of a nature which fits into the categories of the assets prescribed and in respect of which depreciation rate is prescribed, then it will fall within the definition of “block of asset”. Adverting to the facts of the instant case we observe that the assessee sold her building in which she was carrying on her profession. The building as such is a capital asset on which depreciation rate has been prescribed, hence such building will fall within the definition of “block of asset”.
13. The second aspect which weighed against the assessee before the learned CIT(A) was that the judgement of the Hon’ble jurisdictional High Court in the case of Ace Builders Pvt. Ltd (supra)is not attracted to the facts of the instant case. The learned CIT(A) has referred to the case of CIT Vs. Ace Builders P. Ltd and the citation has been mentioned as 187 ITR 222 (Bom.)- There appears to be some typographical error for the reason that at the mentioned citation no such case is available. On the contrary the correct citation of this case is (2006) 281 ITR 210 (Bom.). Let us examine the facts of that case to determine whether it is applicable to the case under consideration. Ace Builders P. Ltd (supra) was a partner in firm called M/s. D. Manekji and Associates which was dissolved in the year 1984 and the assessee was allotted a flat against the balance standing to its credit in the capital account with the firm. The assessee showed the said flat as capital asset in its books of account and claimed depreciation thereon from year to year. When this flat was sold for a consideration of Rs.5,20,000 its written down value was Rs. 1,42,515. The sale proceeds were invested in the UTI capital gain scheme for claiming deduction u/s.54E of the Act, which was denied by the A.O. on the ground that section 50(2) was applicable as the assessee had availed depreciation on the transferred long term capital asset and the capital gain arising on transfer of such a long term capital asset was to be considered as short term capital gain with in the meaning of section 50 of the Act and hence the benefit u/s.54E was not available. Eventually when the matter came before the Hon’ble High Court it came to the conclusion that the fiction created in sub-sections (1) and (2) of section 50 is restricted only to the mode of computation of capital gain contained in section 48 and 49 and does not apply to the other provisions. The assessee was held to be entitled to exemption u/s.54E in respect of the capital gain arising on the transfer of a long term capital asset on which depreciation was allowed. Coming back to the facts of the instant case we find that the learned CIT(A) has simply chosen not to follow the mandate of the judgement of the Hon’ble jurisdictional High Court by mentioning that the appellant in that case was a private limited company and hence the facts were different. It is not the factual position de hors the real controversy in each and every case which must be identical for applying the ratio decidendi of the judgement. What is material to consider is the logic and reasoning of the judgement. If the factual scenario qua the point decided is the same, then the non-matching of the irrelevant considerations cannot be a ground to bid farewell to the ratio of the judgment. It becomes the duty of the subordinate authorities to consider and apply the judgment if the relevant factual matrix is mutatis mutandis similar. The fact that in the case before the Hon’ble High Court the assessee was a private limited company and hence to hold that the decision of the case will not apply to the individuals or firms etc., is a misconception. If the overall factual position qua the controversy is matching with the case already decided by the Hon’ble jurisdictional High Court, then it is not open to the lower authorities to depart from the same on frivolous reasoning. Turning to our case we note that the building transferred by the assessee was held by her for a period more than 36 months, which is a condition precedent for classifying any asset under “long term capital asset” as per section 2(29A) of the Act. Section 54EC is an independent provision not controlled by section 50. If the capital asset is held for more than 36 months, the benefit of section 54EC cannot be snatched away because section 50 is restricted only to the mode of computation of capital gain contained in sections 48 and 49 and this fiction cannot be extended beyond that for denying the benefit otherwise available to the assessee u/s.54EC of the Act, if the other requisite conditions of the section are satisfied. Our view is also fortified by CIT VS. Assam Petroleum Industries (P) Ltd (2003) 262 ITR 587 (Gau). We, therefore, overturn the impugned order and direct that the exemption under this section be allowed to the assessee because of her having made investment in eligible bonds out of the sale proceeds from the transfer of long term capital asset.
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