Legal fiction created in Section 50 is to deem capital gain as short term capital gain and not to deem an asset as short term capital asset and therefore it cannot be said that Section 50 converts long term capital asset into short term capital asset and therefore exemption under Section 54F of the Act is available for depreciable assets as Section 54F does not make any distinction between depreciable assets and non depreciable asset.
FULL TEXT OF THE ITAT JUDGMENT
This appeal filed by Revenue is directed against the order of the CIT(A)-33, Mumbai dated 03.08.2016 and it relates to A.Y. 2012-13.
2. The only issue raised by the Revenue is against the order of the CIT(A) holding that whether deduction under Section 54F of the Income Tax Act, 1961 (hereinafter ‘the Act’?) is allowable on capital gain arising on transfer of depreciable asset without appreciating the fact that same is taxable as short term capital gain under Section 50 of the Act and also challenged the order of CIT(A) on the ground that allowing deduction under Section 54F of the Act would amount to double deduction once as depreciation and subsequently under Section 54F of the Act.
3. The brief facts of the case are that the assessee is engaged in the business of manufacturing and exporting of readymade garments and job work through her proprietary concern, M/s. Hitech Fashions. During the year the assessee sold a building on which she has claimed depreciation in the earlier years for a net consideration of 1,33,73,400/-. The opening WDV of the said block was 6,23,456/- and as a result of sale of the said building for a consideration of 1,33,74,400/- a gain of 1,27,49,944/- has resulted. It was claimed by the assessee as exempt under Section 54F of the Act by investing the gain in new house property to the tune of 1,44,68,000/-. The AO denied exemption under Section 54 F and added the same on the ground that capital gain resulting from sale of depreciable assets under Section 50 of the Act is short term capital gain and therefore no exemption of the same can be claimed under Section 54F of the Act. In the appellate proceedings the learned CIT(A) allowed the appeal of the assessee after considering the contentions and submissions by holding and observing as under: –
“7.5 From the above, it is clear that the main question taken up by the Hon’ble High Court was as to whether the deeming fiction created under section 50 is restricted to section 50 only or it can be extended to section 54E of the Income-tax Act as well. The Hon’ble High Court in the aforesaid case has clearly held that where the Long-term capital asset has availed depreciation the capital gain has to be computed in the manner prescribed under section 50 and the capital gains tax will be charged as if such capital gain has arisen out of a short-term capital asset. Thereafter, Hon’ble Jurisdictional High Court has ruled that even in such circumstances, the benefit of sec. 54E of the Act will be available to the assessee. In the instant case too, the appellant has claimed benefit U/s 54F to make hi mself eligible for such benefit.
7.6 In the light of the discussion made in the preceding paragraphs and respectfully following the decision of the Hon’ble Jurisdictional High Court, the AO is directed to allowing exemption claimed by assessee under section 54F of Income Tax Act, 1961. Thus, ground of appeal no. 1 is allowed.”
4. After hearing both the parties and perusing the material we find that the issue for adjudication before us is whether the capital gain resulting from sale of depreciable assets is short term capital gain or long term capital gain for the purpose of exemption under Section 54F of the Act towards investment in new house. In our opinion the deeming provisions as contained in section 50 of the Act only provide that the any gain resulting from the depreciable assets shall be deemed to be capital gain arising from short term capital assets. The Hon’ble Bombay High Court in the case of CIT vs. ACE Builders (P.) Ltd. 155 Taxman 855 has held that the legal fiction created in Section 50 is to deem capital gain as short term capital gain and not to deem an asset as short term capital asset and therefore it cannot be said that Section 50 converts long term capital asset into short term capital asset and therefore exemption under Section 54F of the Act is available for depreciable assets as Section 54F does not make any distinction between depreciable assets and non depreciable asset. The learned CIT(A) also considered and followed the said decision of the Hon’ble Jurisdictional High Court in deciding the issue in favour of the assessee. Similarly the case of the assessee is also squarely covered by various decisions of various judicial forums such as; (i) CIT vs. F.S. Dempo Company Ltd. (2016)74 taxmann.com 15(SC), (ii) Smita Conductors Ltd., ITA No. 4004/Mum/2011 for A.Y. 2006-07 dated 17.09.2013, and (iii) CIT vs. Rajiv Shukla (2013_ 20 taxman.com 606(Del) wherein identical issue was also decided in favour of the assessee by holding that capital gain arising from depreciable assets is long term capital gain for the purpose of claiming exemption under Section 54F/54E of the Act. We, therefore, respectfully following the decisions of various hon’ble courts are inclined to dismiss the appeal of the Revenue by upholding the order of the CIT(A).
5. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 12thOctober, 2018.