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Income Tax Appellate Tribunal - Ahmedabad

Aditya Medisales Limited,, Baroda vs Department Of Income Tax on 8 January, 2013

         आयकर अपीलीय अिधकरण,
                     अिधकरण, अहमदाबाद Ûयायपीठ 'डȣ
                                               डȣ'
                                               डȣ अहमदाबाद ।
       IN THE INCOME TAX APPELLATE TRIBUNAL
               " D " BENCH, AHMEDABAD

सव[ौी मुकुल कुमार ौावत, Ûयाियक सदःय एवं ौी टȣ.आर.मीणा, लेखा सदःय के सम¢ ।
 BEFORE SHRI MUKUL Kr.SHRAWAT, JUDICIAL MEMBER AND
         SHRI T.R. MEENA, ACCOUNTANT MEMBER

              आयकर अपील सं./I.T.A.       No.2544/Ahd/2012
             ( िनधा[रण   वष[ /   Assessment Year : 2007-08)

 The DICT                           बनाम/
                                    Aditya Medisales Limited
 Circle-1(1)                   Vs. 402,  R.K.Centre
                                     th
 Baroda                             4 Floor
                                    Fatehgunj Main Road
                                    Baroda
 ःथायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AABCA 9317 J
    (अपीलाथȸ /Appellant)       ..       (ू×यथȸ / Respondent)

            अपीलाथȸ ओर से / Appellant by    :   Shri T. Shankar, Sr.D.R.
            ू×यथȸ कȧ ओर से/Respondent by :       Ms.Urvashi Shodhan

          सुनवाई कȧ तारȣख / Date of Hearing     : 8.1.2013
          घोषणा कȧ तारȣख /Date of Pronouncement : 11.1.13


                                 आदे श / O R D E R

PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :

This is an appeal filed by the Revenue arising out of the order of ld.CIT(A)-I, Baroda dated 28.08.2012 passed for A.Y. 2007-08 and the grounds raised are reproduced below 1(a). On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in not appreciating that 'long term asset' referred in Section 54EC can only yield long term capital gains and that gain on sale of depreciable asset can only be short term capital gain.

DCIT vs. Aditya Medisales Limited Asst.Year - 2007-08 -2- 1(b). The ld.CIT(Appeals) erred in allowing exemption u/s.54EC of ` 30,28,732/- on the capital gain in respect of Automatic Electrical Load Monitoring System, included in the depreciable assets under the meaning of section 50 of the Act, without appreciating that exemption u/s.54EC was not allowable in the case of assets covered by the provisions of section 50 of the Act since section 50 being special provision cannot be overridden by provisions of section 54EC.

1(c). The ld.CIT(Appeals) erred in law in not appreciating that benefit u/s.54EC is granted on capital gains and not on sale proceeds of capital asset. And that capital gain in respect of depreciable assets can be arrived at only u/s.50 and therefore, deeming provisions of section 50 cannot be ignored for the purpose of section 54EC.

2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the IT Act dated 1.9.2009 were that the assessee- company is a distributor of pharmaceutical products. It was noted by the AO that the assessee had sold "automatic electrical load monitoring system" at a sum of Rs.240 lacs. The assessee had offered "short-term capital gain" u/s.50 of Rs.30,28,732/-. The assessee had invested the gain amount in Rural Electrification Bonds and claimed under exemption u/s.54EC of IT Act. The objection of the AO was that the capital gain was not "Long-term capital gain" but it was "short-term capital gain", therefore do not qualify for exemption u/s.54EC of the Act. Finally, the exemption u/s.54EC of Rs.30,28,732/- was denied and taxed accordingly.

3. That the matter was carried before the first appellate authority, who had decided the issue in assessee's favour as follows:-

DCIT vs. Aditya Medisales Limited Asst.Year - 2007-08 -3- "6.2. I have considered the matter. Assessing Officer has not disputed appellant's submission that the assets in question were 'long term capital assets' held for more than 10 years. Exemption u/s.54EC is available on capital gains arising from transfer of 'long term capital asset' and there is no condition in section 54EC about the resulting gains having been assessed as 'long term capital gains'. It was held by the Bombay High Court in the case of ACE Builders (P) Ltd. (2005) 144 Taxman 855 (Bom) that legal fiction created in section 50 is to deem capital gains as short term capital gain and not to deem an asset as short term capital asset.

The Court further held that section 54E did not make any distinction between depreciable asset and non depreciable asset and, therefore, exemption available to depreciable asset under section 54E can not be denied by referring to fiction created under section 50. Further, ITAT's Mumbai Bench in the case of DCIT vs. Bharat Enterprise (2011) 14 Taxman 110 (Mum) relied upon by appellant has held that benefit of section 54EC is available to appellant irrespective of the fact that computation of capital gains is done either u/s.48 & 49 or u/s.50. Similar view has been taken by ITAT's Mumbai Bench in the case of Dr. (Mrs) Sudha S.Trivedi (2009) 315 SOT 38 (Mum). As a result, deduction u/s.54EC is directed to be allowed subject to verification by the A.O. that investment in 'long term specified asset' was made by appellant within period prescribed under section 54EC(1)."

4. From the side of the Revenue, ld.Sr.DR Mr.T.Shankar appeared and supported the order of the AO.

5. From the side of the respondent-assessee, ld.AR Ms.Urvashi Shodhan appeared and placed reliance on the following decisions:-

DCIT vs. Aditya Medisales Limited Asst.Year - 2007-08 -4- Sl.No(s) Decision in the case of ... Reported in.../unreported...

1. DCIT vs. Bharat Enterprise [2011] 14 Taxmann 110 (Mum).

ITAT Mumbai 'E"

Bench

2. ACE Builders Pvt.Ltd. vs. [2006] 281 ITR CIT 210 (Bom.)

3. CIT vs. Assam Petroleum [2003] 262 ITR Industries (P.) Ltd. 587 (Guj.)

4. ITO vs. Sh.Prahlad Vinubhai ITA Panchal No.2187/Ahd/2010 A.Y.2007-08 order dated 7.1.2011.

ITAT 'D' Bench Ahmedabad

6. Having heard the submissions of both the sides as also on perusing the case laws cited, we are of the considered opinion that this issue now stood settled in favour of the assessee by the Hon'ble Courts. In the case of ACE Builders 281 ITR 210 (Bom.), the Hon'ble Bombay High Court has opined as under:-

"..... It is true that section 50 is enacted with the object of denying multiple benefits to the owners of depreciable assets. However, that restriction is limited to the computation of capital gains and not to the exemption provisions. In other words, where the long- term capital asset has availed of depreciation, then 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 but if such capital gain is invested in the manner prescribed in section 54E, then the ITA No.2544/Ahd/2012 DCIT vs. Aditya Medisales Limited Asst.Year - 2007-08 -5- capital gain shall not be charged under section 45 of the Income- tax Act. To put it simply, the benefit of section 54E will be available to the assessee irrespective of the fact that the computation of capital gains is done either under sections 48 and 49 or under section 50. The contention of the Revenue that by amendment to section 50 the long-term capital asset has been converted into a short-term capital asset is also without any merit. As stated hereinabove, the 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 section 50 converts a long-term capital asset into a short-term capital asset.

For all the aforesaid reasons, we concur with the decision of the Gauhati High Court in the case of CIT v. Assam Petroleum Industries (P.) Ltd. [2003] 262 ITR 587 and hold that the Tribunal was justified in allowing the benefit of exemption under section 54E of the Income-tax Act to the assessee in respect of the capital gains arising on the transfer of a capital asset on which depreciation has been allowed."

6.1. Respectfully following the aforesaid decisions, we are of the view that in the light of the accepted factual position that the "short-term capital gain" was computed u/s.50 of IT Act in respect of the assets which were held by the assessee for more than 10 years and on sale of those assets the resultant gain was invested in Rural Electrification Bonds which qualifies for exemption u/s.54EC of IT Act and the which was a legally sustainable exemption in the eyes of law. In the result, we find no force in the grounds of the Revenue, hence dismissed.

DCIT vs. Aditya Medisales Limited Asst.Year - 2007-08 -6-

7. As a result, Revenue's appeal is dismissed.

              Sd/-                                                     Sd/-
           (टȣ.आर.मीणा)                                     (मुकुल कुमार ौावत)
             लेखा सदःय                                         Ûयाियक सदःय
    ( T.R. MEENA )                                  ( MUKUL Kr. SHRAWAT )
ACCOUNTANT MEMBER                                      JUDICIAL MEMBER

Ahmedabad;             Dated          11 / 1 /2013

टȣ.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS
आदे श कȧ ूितिलǒप अमेǒषत/Copy
                     षत      of the Order forwarded to :
1.     अपीलाथȸ / The Appellant
2.     ू×यथȸ / The Respondent.
3.     संबंिधत आयकर आयुƠ / Concerned CIT
4.     आयकर आयुƠ(अपील) / The CIT(A)-I, Baroda

5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / Learned Departmental Representative, ITAT, Ahmedabad

6. गाड[ फाईल / Guard file.

आदे शानुसार/ BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) उप/ आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation ................

2. Date on which the typed draft is placed before the Dictating Member .................. Other Member.....................

3. Date on which the approved draft comes to the Sr.P.S./P.S.................

4. Date on which the fair order is placed before the Dictating Member for pronouncement......

5. Date on which the fair order comes back to the Sr.P.S./P.S.........11.1.13

6. Date on which the file goes to the Bench Clerk..................... 11.1.13

7. Date on which the file goes to the Head Clerk..................................

8. The date on which the file goes to the Assistant Registrar for signature on the order..........................

9. Date of Despatch of the Order..................