Case Law Details
Cit Vs Ace Builders (P) Ltd. (Bombay High Court)
The assessee owned a long-term capital asset being a flat on which depreciation was claimed. The written down value of the said asset as on 31-3-1991 was Rs.1,42,515. In the F.Y. 1991-92, the assessee sold the said flat for a sum of Rs.5,20,000. The sale proceeds were invested in the unit ‘UTI Capital Gain Scheme’ with a view to claim deduction u/s.54E of the Income-tax Act, 1961 and accordingly, the assessee made the claim for deduction. The Assessing Officer rejected the claim on the ground that the capital gain is a short-term capital gain, in view of the provision of S. 50 of the Act. The Tribunal allowed the assessee’s claim.
On appeal, The Bombay High Court upheld the decision of the Tribunal and held as under :
“Deemed fiction created in Ss.(1) and Ss.(2) of S. 50 is restricted only to the mode of computation of capital gains contained in S. 48 and S. 49 and does not apply to other provisions. A fiction created by the legislature has to be confined to the purpose for which it is created. Further, S. 54E does not make any distinction between depreciable assets and non-depreciable assets. Exemption available u/s.54E cannot be denied by referring to the fiction created u/s.50. Benefit of S. 54E is available to the assessee irrespective of the fact that the computation of capital gains is done either u/s.48 and u/s.49 or u/s.50. Legal fiction created by the statute is to deem the capital gain as short-term capital gain and not to deem the asset as short-term capital asset. Therefore, it cannot be said that S. 50 converts long-term capital asset into a short-term capital asset. Accordingly, the Tribunal was justified in allowing exemption u/s.54E in respect of the capital gains arising on the transfer of a capital asset on which depreciation had been allowed.”
Bombay High Court
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