Case Law Details
Brief of the case:
ITAT Mumbai held in ITO Vs Legal Heir of Shri Durgaprasad Agnihotri that to respect the decision given by jurisdictional Hon’ble High Court in CIT vs. Ace Builders (P.) Ltd. [2006] 281 ITR 210 (Bom) it was upholding the decision given by CIT(A) that the exemption u/s 54EC would be available on short term capital gain arising on sale of depreciable assets u/s 50.
ITAT was of the view that as sec 50 overrides sec 2(42A) and 2(29A) which defines the short term capital asset and long term capital asset respectively and also sec 50 clearly defines the short term capital gain as a difference between the WDV and the sales price. So as sec 50 deals with only short term capital asset so no question of exemption u/s 54EC would arise but as ITAT was bound to announce the decision as per the decision given by jurisdictional Hon’ble High Court in CIT vs. Ace Builders (P.) Ltd. [2006] 281 ITR 210 (Bom) so exemption u/s 54EC would be available for capital gain u/s 50.
Facts of the case:
The assessee was an individual engaged in the business of photography. During the year under consideration, the assessee earned income from business as well as income from other sources. The assessee also earned long term capital gain, which was claimed exempt under section 54EC. The assesse sold one shop and earned capital gain on the sale of the said shop. The assesse made investment of Rs.25,50,000, in capital gain bonds of National Highway Authority of India and claimed exemption under section 54EC of the Act against the aforesaid capital gain earned. The Assessing Officer denied the benefit of exemption under section 54EC on the ground that the shop was a depreciable asset and the resultant gain was a short term capital gain whereas the exemption under section 54EC was available only on long term capital gain (LTCG).
Contention of the assesse:
Assessee was of the view that as shop had been held by more than 3 years so it would be treated as a long term capital asset with which exemption u/s 54EC would be available because exemption u/s 54EC was available on long term capital gain. Moreover assesse relied on the decision given by jurisdictional Hon’ble High Court in CIT vs. Ace Builders (P.) Ltd. [2006] 281 ITR 210 (Bom) in which it was held that short term capital gain u/s 50 would be eligible for exemption u/s 54EC.
Contention of the revenue:
Revenue was of the view that as shop was a depreciable asset so gain on sale of depreciable asset would be a short term capital gain so not eligible for exemption u/s 54EC because exemption u/s 54EC was only available for long term capital asset. So the assesse wrongly claimed the same.
Held by ITAT:
ITAT held that as it was bound by the decision given by jurisdictional Hon’ble High Court in CIT vs. Ace Builders (P.) Ltd. [2006] 281 ITR 210 (Bom)in which it was held that gain on sale of depreciable asset u/s 50 would be eligible for exemption u/s 54EC. So ITAT had to decline the appeal of revenue.
Otherwise ITAT was of the view that depreciation was charged when t asset was used in the business and that denotes the depletion of asset because the asset had been used in the business. So the cost of that asset could not remain contact. Its cost would go on declining. So capital would be calculated considering the WDV as mentioned u/s 50. So gain on sale of depreciable asset would be short term capital gain because depreciable asset was short term capital asset. So not eligible for exemption u/s 54EC.
