M/S. SAINT MARY'S EDUCATIONAL & CHARITABLE SOCIETY,GHAZIABAD vs. ACIT (E), GHAZIABAD

The brief facts of the case are that the assessee was a society registered under the Societies Registration Act, 1860 and was engaged in running a school in the name of St. Mary’s Christian Senior Secondary School at B-Block, Shalimar Garden, Extn.II, Sahibabad. During the assessment year under consideration, the assessee sold a plot of land situated at B-Block, Shalimar Garden, Extn.II, Sahibabad to Saint Joseph Capuchin Service Society, Ghaziabad for Rs. 4.50 crores. Assessee says that the building on the said plot of land was sold free of cost. The circle rate of plot of land at the time of sale was Rs. 4,36,44,420/-. The circle rate of the building as on that date was Rs. 1,55,60,580/-. Thus the aggregate circle rate of the property was determined at Rs. 5,92,05,000/- on which stamp duty was duly paid by the assessee. The AO, however, computed the long term capital gains on sale of land and building in terms of section 50C of the Income Tax Act, 1961 (“the Act”) after taking into account the aggregate circle rate of Rs. 5,92,05,000/- as the sales consideration and reducing only the cost of acquisition of the land, as declared by the assessee.

Against the said action of the AO, the Assessee appealed before the Ld. CIT(A), who upheld the computation of long term capital gains on sale of land declared by the assessee after taking into account the actual sales consideration of Rs. 4.50 crores. Ld. CIT(A) further held that out of aggregate circle rate of Rs. 5,92,05,000/- adopted for the purpose of section 50C of the Act, Rs. 4.50 crores was attributable to land and the balance Rs. 1,42,05,000/- be attributed towards sale of building and the 2 same be reduced from WDV of the block. Since the block of assets does not cease to exist on such reduction, no capital gains raise on sale of building. Accordingly, Ld. CIT(A) disallowed the excess depreciation of Rs. 15,56,058/- claimed by the assessee in this regard.

Aggrieved with the Ld. CIT(A)’s action, the assessee challenged the disallowance of excess depreciation to the tune of Rs. 15,56,058/- by preferring the (AY 2010-11). However, at the time of arguments, Ld. AR submitted that the assessee may be permitted to not press the Appeal. Revenue does not raise any objection to this proposition of the Ld. AR of the assessee. Hence, the preferred by the Assessee stands dismissed as not pressed.

Now coming to the Appeal preferred by the Revenue, Ld. DR heavily relied upon the assessment order of the AO, whereas Ld. AR submitted that the order of the Ld. CIT(A) does not suffer from any illegality or irregularity as such the appeal of the Revenue has no merits and further that inasmuch as the findings of the Ld. CIT(A) are perfectly justified, though initially challenged the disallowance of Rs. 15,56,058/- being the 10% of the excess depreciation, the assessee concedes such a finding and not pressed his appeal.

We have carefully gone through the record and duly considered the submissions on either side. On the issue relating to deletion of addition of Rs. 1,42,05,000/- out of total addition of Rs. 5,20,38,500/- made by the AO out of long term capital gain, it could be seen from the impugned order that Ld. CIT(A) observed as per the claim of section 50C of the Act, the depreciable assets are to be subject to short capital gain or loss if the block of assets has ceased to exist and if not then the sale consideration has to be reduced from the WDV and in the present case it is an admitted fact that the said building is part of block of assets under the head buildings and the block has not ceased to exist. Therefore, merely because the assessee did not reduce the sale consideration from block would not mean that the asset would be subject to the long term capital gain, that too, without any benefit of cost of acquisition. On this premise, Ld. CIT(A) held that the building being the part of block of assessment subjected to depreciation, and provisions of Section 50 of the Act would apply in this case. Accordingly, Ld. CIT(A) held that the question of long term capital gains does not arise and it would be correct to reduce the sale consideration from the WDV of the block building of Rs. 1,55,60,580/-. Since the block does not cease to exist, the assessee is not liable for any short term capital gain. Ld. CIT(A) attributed a sum of Rs. 4.50 crores to the land out of the total sale consideration of Rs. 5,92,05,000/- u/s. 50C and the balance of Rs. 1,42,05,000/- attributable to the building does not suffer any capital gain tax. Ld. CIT(A) on this premise, deleted the addition on account of capital gain to the tune of Rs. 1,42,05,000/-, but at the same time disallowed the excess depreciation of Rs. 1,55,60,580/-.

Having considered the matter in its entirety, we find the above conclusions reached by the Ld. CIT(A) are perfectly legal and justice and do not suffer any illegality or irregularity. Therefore, we uphold the impugned order and consequently find that the Appeal by the Revenue is also liable to be dismissed. Accordingly, we dismiss the same.

In the result, both the Appeals filed by the Assessee and Revenue stand dismissed.