DCIT Vs Shri Hrishikesh D. Pai (ITAT Mumbai)
Conclusion: Assessee was entitled for deduction u/s. 54F on the capital gains arising on the sale of depreciable assets being commercial flats computed in the manner laid down in Section 50 read with Section 48, 49 and 45 and section 50 was a deemed provision, therefore, its applicability could not be extended to deduction section 54F.
Held: Assessee intended to claim deduction u/s 54F with respect to capital gains arising from the sale of commercial flats being unit numbers 24-26 situated at Pearl Center , Dadar which were used by assessee for running his clinic and on which depreciation u/s 32 was also claimed by assessee by treating the same as long term capital gains entitled for deduction u/s 54F on reinvestment made in new residential flat at Beau Monde, while Revenue on the other hand treated the same as short term capital gains in the teeth of provisions of Section 50 by holding that the gains on sale of commercial property to be short term capital gains on sale of short term capital asset depriving assessee benefit of deduction u/s 54F on reinvestment in new residential flat as the said section stipulated that only long term capital gains were entitled for deduction u/s 54F for reinvestment made in new residential properties. It was held section 50 creates a deeming fiction by modifying provisions of Section 48 and 49 for the purposes of computation of capital gains chargeable to tax under Section 45 with respect of the depreciable assets forming part of block of assets and there was nothing in Section 50 which could suggest that deeming fiction was to be extended beyond what was stated in provisions of Section 50 and it could not be extended to deduction allowable to the assessee u/s 54F which was an independent Section operating in altogether different field.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal, filed by Revenue, being ITA No. 2766/Mum/2017, is directed against appellate order dated 05.12.2016 passed by learned Commissioner of Income Tax (Appeals)-5, Mumbai (hereinafter called “the CIT(A)”), for assessment year 2012-13, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 30.03.2015 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”) for AY 2012-13.
2. The grounds of appeal raised by Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-
(i) “On the facts and circumstances of the case, the CIT(A) erred in allowing the claim of deduction u/s 54F of the IT Act ignoring the fact that the assets in question were commercial assets and in view of provisions of section 50 of the IT Act, the gain arising out of sale of said depreciable assets was rightly treated as short term capital gain by the Assessing Officer and disallowed the claim of deduction u/s 54F of the IT Act, 1961”
(ii) “On the facts and circumstances of the case, the CIT(A) was erred in deleting the addition made by the Assessing Officer under section 69B of the IT Act amounting to Rs. 1,89,97,538/-ignoring the fact that the assessee could not explain the difference in the said capital account balance as shown by the assessee and that of the firm M/s Pregnancy Advices and Services, wherein assessee was a partner”.
(iii) The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be.
(iv) The appellant, therefore, prays that on the grounds stated above, the order of the CIT(A)51, Mumbai, may be set aside and that of the Assessing Officer restored.”
3. The brief facts of the case are that the assessee is a Doctor by profession and has earned income from Salaries , Profits and Gains of Business or Profession and Income from other Sources.
4. The Revenue has filed this appeal with tribunal late by 27 days beyond the time stipulated under Section 253(3) of the 1961 Act. The Revenue has submitted an application dated 01-08-2018 praying for condoning delay in filing this appeal with tribunal late by 27 days beyond the time stipulated u/s. 253(3) of the 1961 Act. The Revenue has explained the delay in filing this appeal late with tribunal mainly due to interpretation of law of limitation for computing period of limitation effective from date of service of order of learned CIT(A) to the office of learned Principal CIT(Central)-2, Mumbai who presently hold charge over the assessee and who received the order on transfer from learned Pr. CIT-16,Mumbai who earlier held charge over the assessee. It is prayed that the erstwhile jurisdictional learned Pr. CIT-16 received the appellate order of learned CIT(A) on 20.01.2017 which was transferred to present jurisdictional Pr. CIT(Central)-2, Mumbai who received the same on transfer on 17.02.2017 from Pr. CIT-16,Mumbai. It was submitted that the Revenue erred in calculating the period of limitation provided u/s 253(3) from date of receipt of order by learned Pr. CIT(Central)-2, Mumbai on 17.02.2017 while it ought to have calculated period of limitation as provided u/s 253(3) from the receipt of appellate order of learned CIT(A) by learned Pr. CIT-16,Mumbai.It is submitted that this position was clarified by Hon’ble Delhi High Court in the case of CIT v. Odeon Builders (ITA no. 52/2015 , 755/2015 dated 24-03-2017 which was the intervening period as the appeal was ultimately filed on 17-04-2017 which was late by 27 days and it is prayed before the Bench to condoned this delay. The Ld. Counsel for the assessee submitted that the assessee has no objection if the Bench condone this delay of 27 days in filing of this appeal late by Revenue beyond the time stipulated u/s 253(3) of the 1961 Act. After hearing both the rival parties and keeping in view bonafide of sufficient cause shown in the Prayer made for condonation of delay by Revenue in filing this appeal late by 27 days beyond the time stipulated u/s 253(3) and also keeping in view that opposite party has no objection to the admission of this appeal , we keeping in view the interest of substantial justice vis-a-vis technicalities are inclined to condone the aforesaid delay of 27 days in filing late this appeal by Revenue beyond the time stipulated u/s 253(3) of the 1961 Act and admit this appeal to be adjudicated on merits in accordance with law in succeeding para’s of this order. The judgment of Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst Katiji (1987) 167 ITR 471(SC) is relevant. We admit this appeal and condonation application filed by Revenue stand allowed. We order accordingly.
5. During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Act, the AO observed that the assessee has earned capital gains on sale of immovable properties , the first set of immovable properties sold being units no. 24-24 situated at Pearl Centre, S B Marg , Dadar, Mumbai and Second immovable property sold being residential flat situated at 114 situated at 4/11, Avanti Apartments , S B Marg, Dadar, Mumbai . The AO observed that the first set of immovable properties sold being units 24-26 at Pearl Center, Dadar, Mumbai were all commercial properties used by the assessee for the purpose of his clinic and depreciation on the same was claimed by the assessee. The AO observed that the second immovable property sold being flat at 114,Avanti Apartments, Dadar was used for residential premises . It is an undisputed fact between rival parties that both these set of immovable properties which were sold during the year under consideration were held by the assessee for a period of more than thirty six months before being sold . It is also undisputed between rival parties that the assessee has purchased a new residential flat at Beau Monde, Prabhadevi for Rs. 20,63,72,233. The assessee has claimed deduction u/s 54F of the 1961 Act for making reinvestment in new residential flat even with respect to sale of commercial units located at Pearl Center, Dadar, Mumbai which was used by the assessee for commercial purposes for his clinic and on which the assessee even claimed depreciation u/s 32 of the 1961 Act , wherein assessee treated capital gains arising thereof from sale of units located at Pearl Center as long term capital gains. A short question which has arisen before us is whether the assessee is entitled for deduction u/s. 54F of the 1961 of the Act by making reinvestment in new residential flat , with respect to capital gains arisen on sale of commercial flat used by assessee for clinic on which even depreciation u/s 32 of the 1961 Act was claimed by the assessee and which was undisputedly held by the assessee for a period of more than thirty six months. The AO has disallowed deduction u/s. 54F to the tune of Rs. 6.5 crores by holding that sale of units 24, 25 and 26 at Pearl Center, Dadar, Mumbai which were used by the assessee for commercial purposes for his clinc and on which depreciation was also claimed by the assessee u/s 32 of the 1961 Act is to be treated as short term capital asset within the deeming provision of Section 50 of the 1961 Act which stipulates that the capital gains arising from the transfer of depreciable assets shall be deemed to be the capital gains arising from the transfer of short term capital assets and the AO ultimately held that assessee is not entitled for deduction u/s. 54F of the Act with respect to short term capital gains arising on sale of such short term capital assets , as the said deduction u/s 54F is available only on the long term capital gains arising from transfer of long term capital assets. The assessee before the AO had relied upon decision of Hon’ble Bombay High Court in the case of CIT v. Ace Builders (2006)281 ITR 201(Bom.) but the AO rejected the contentions of the assessee by holding that said decision is only relevant for claiming deduction u/s. 54E of the 1961 Act and additions of Rs. 6,50,00,000/- were made by the AO to the income of the assessee by denying deduction u/s 54F of the 1961 Act, vide assessment order dated 30.03.2015 passed u/s 143(3) of the 1961 Act despite the fact that reinvestment to the tune of Rs. 20,63,72,233/- was made by the assessee in new residential flat situated at 114, Beau Monde Prabhadevi .
6. Aggrieved by the assessment order dated 30.03.2015 passed by the AO u/s 143(3) of the 1961 Act, the assessee filed first appeal before Ld. CIT(A) which was allowed by Ld. CIT(A) vide appellate order dated 05.12.2016 wherein learned CIT(A) held as under:-
“ 3.3 1 have considered the appellant’s submissions. Appellant had sold commercial and residential property totalling to Rs.10.5 Crs. and purchased a residential house at Beau Monde, Prabhadevi for Rs.20,63,72,233/-. Appellant had claimed a deduction of 54F from the sale consideration received from the sale of commercial and residential property. However, AO had denied appellant’s claim u/s 54F on sale of commercial property on observing that as appellant had claimed depreciation for commercial property, hence section 50 of the Income Tax Act is applied in the appellant’s case. According to the AO, if section 50 is applied in capital gain received from sale of any depreciable asset, it is to be computed as short term capital gain. Hence, AO treated the capital gain as short term capital gain. According to AO section 54 clearly states that capital gain arising from the transfer of any long term capital asset is exempt if the same is invested in residential property. As appellant’s asset is to be treated as short term capital asset, AO denied the exemption claim of the appellant u/s 54F. Even, AO was of the view that decision of Bombay High Court in the case of CIT vs ACE Builders P. Ltd.[281 ITR 210(Bom)] is not applicable as the above decision deals with exemption u/s 54E of the Act.
In the submissions appellant states that properties which appellant had sold was held for more than 3 years which even AO has not disputed and the consideration received was Rs. 10.5 Crs. Consideration received from sale of commercial property is Rs.6.5 Crs. As this property is also held for more than 3 years, according to the appellant it is to be treated as long term capital gain. Further, section 50 of the Act which is for computation of capital gains arising from transfer of depreciable assets is a deeming provision. According to the appellant this deemed provision cannot be extended more than what is intended. Further appellant states that as appellant had held the property for more than 3 years though by deeming section, short term capital gain has to be computed u/s. 50 of the Act for depreciable assets, it cannot be considered as short term capital asset. Appellant is of the view that character of the assets will not change because of computation of capital gain u/s 50 of the Act. Hence, appellant states that as the assets were held for more than 3 years, appellant is eligible for long term capital gain and hence eligible for deduction u/s 54 f the Act.
It is true that section 50 of the Act is a deemed provision. In case of a deemed provision its applicability cannot be extended to other sections. Even Supreme Court in the case of CIT vs Amarchand N. Shroff [48 ITR 59 ] held that deeming provision is a fiction of law, it cannot be extended beyond the object for which it was enacted. By the above Supreme Court case, it is clear that in deeming provision fiction cannot be extended to other sections of the Act. Hence, appellant is correct in stating that deeming provision u/s 50 were for computation of capital gain under depreciable assets is treated as Short term capital gain, but if the asset is held for more than 3 years, the character of the assets will not change from Long term to Short term assets just because it is computed under section 50 of the Act. As deeming provision section cannot be extended for other sections, by this way appellant is eligible even for claiming section 54F of the Act for sale of commercial property on which it claimed depreciation. This issue was further resolved by Delhi High Court in the case of CIT vs. Rajiv Shukla [334 ITR 138] where it is held as under :
The AO took the view that the capital gains arising from transfer of a depreciable asset shall be deemed to be capital gains arising from transfer of a short term capital asset and deduction u/s 54F was not available. The Commissioner (Appeals) deleted the addition of Rs.91,77,118/- made by the Assessing Officer under the head “Short-term Capital gain”. This was confirmed by the Tribunal, on appeal:
Held, dismissing the appeal, that the income earned by the assesse on sale of property was to be treated as long-term capital gains entitling him to the benefit of deduction u/s 54F.
In the above Delhi High Court case it was held that when a depreciable asset has to be treated as Long term capital asset, it is entitled to the benefit of section 54F of the Act. In the above case, Delhi High Court had relied on the case of CIT vs. ACE Builders [281 ITR 210 (Bom), CIT vs Assam Petroleum Industries (P) Ltd. [262 ITR 587] Ld. CIT vs. Delite Tin Industries , I.T. Act, 1961 No. 1118/2008. If we apply the above case laws to our case here also appellant sold commercial property which is held for more than 3 years and from the consideration received from sale of the property he purchased new property. Hence appellant is eligible for exemption u/s 54F of the Act. AO’s addition of Short Term Capital Gain for Rs.6.50 Crs. is deleted. Ground of appeal is allowed.
7. The Revenue being aggrieved by the appellate order dated 05.12.2016 passed by Ld. CIT(A) has filed an appeal with the tribunal. The Ld. DR opened the argument by submitting that deduction u/s. 54F cannot be allowed to the assessee as the immovable properties which were sold being units 24-26 at Pearl Center , Dadar , Mumbai were used by assessee for commercial purposes for running his clinic and the assessee had claimed deprecation u/s 32 of the 1961 Act on said commercial flats used as his clinic , so the said assets shall be deemed to be short term capital assets within the provision of Section 50 of the Act and hence gains arising from the sale of said commercial flats were short term capital gains , thus consequently no deduction u/s. 54F of the 1961 Act is allowable on short term capital gains on reinvestment made in new residential flat at Beau Monde, Prabhadevi. The Ld. Counsel for the assessee on the other hand submitted that that issue is covered by the decision(s) of Hon’ble Supreme Court as well as Hon’ble High Courts including jurisdictional High Court as well tribunal and following case laws were relied upon by the assessee to support its contentions:-
