ITO 29(1)(3), MUMBAI vs. DEVYANI R DOSHI, MUMBAI

1 ITA No.3576/Mum/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E”, MUMBAI

Before Shri Mahavir Singh (JUDICIAL MEMBER) AND Shri G Manjunatha (ACCOUNTANT MEMBER)

I.T.A No.3576/Mum/2015 (Assessment year 2011-12)

ITO-29(1)(3), Mumbai vs Shri Devyani R Doshi Prop of M/s Dreamworks) C/s. Jhulelal Marg, Jai Bharat School Mulund (W), Mumbai 400 082 PAN : AERPD7039M APPELLANT RESPONDEDNT

Appellant by Shri Ram Tiwari Respondent by Shri Bhadresh K Doshi

Date of hearing 24-10-2017 Date of pronouncement 27-10-2017

O R D E R Per G Manjunatha, AM : This appeal filed by the revenue is directed against the order of CIT(A)-40,

Mumbai dated 30-03-2015 and it pertains to AY 2011-12. 2. The brief facts of the case are that the assessee has filed his return of

income declaring total income of Rs.8,21,842. The case has been selected for

scrutiny and accordingly notices u/s 143(2) and 142(1) of the Act were issued.

In response to notices, the authorized representative of the assessee appeared

and filed the details, as called for. The assessment was completed u/s 143(3)

2 ITA No.3576/Mum/2015 on 16-01-2014 determining the total income at Rs.83,82,365 by re-working

capital gain u/s 50 of the I.T. Act, 1961 for sale of depreciable assets.

Aggrieved by the assessment order, the assessee preferred appeal before the

CIT(A). 3. Before the CIT(A), the assessee has raised a fresh claim of exemption u/s

54F of the Act for re-investment of capital gain in purchase of new residential

house property. The CIT(A), for the detailed discussion in his order dated 29-

01-2014 allowed exemption claimed u/s 54F; however, directed the AO to re-

work the amount of exemption on total amount spent by the assessee towards

purchase of new house property upto 30-09-2011. Aggrieved by the order of

CIT(A), the revenue is in appeal before us. 4. We have heard both the parties and perused the material available on

record. The only issue that came up for our consideration is exemption

claimed u/s 54F of the Income-tax Act, 1961 in respect of re-investment of

capital gain derived from sale of depreciable assets. The issue is no longer res

integra. The Hon’ble Bombay High Court in the case of CIT vs Ace Builders Pvt

Ltd reported in 144 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 a short term capital asset and, therefore, it cannot be said that

section 50 converts long term capital asset into short term capital asset, and

3 ITA No.3576/Mum/2015 therefore, exemption u/s 54F is available to depreciable asset as section 54F

does not make any distinction between depreciable asset and a non

depreciable asset. The CIT(A), after considering relevant provisions of the Act

and also relying upon the decision of Hon’ble Bombay High Court in the case of

ACIT vs Ace Builders Pvt Ltd (supra) has directed the AO to allow exemptions

claimed u/s 54F of the Income-tax Act, 1961. The relevant portion of the order

of CIT(A) is extracted below:-

“5.4 I have considered the submission of the Authorised Representative and the order of the Assessing Officer as well as the case laws cited. It is seen that the Hon’ble Bombay High Court has in the case of CIT vs Ace Builders (P) Ltd. 144 Taxman 855 (Born) 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 a short term capital asset and therefore exemption u/s.54E is available to depreciable assets as section 54E does not make any distinction between depreciable asset and a non depreciable asset. Exemption u/s.54E cannot be denied by referring to the fiction created u/s.50.

5.5 The ratio of this decision has been followed by.other Courts as cited by the assessee and also by Hon'ble ITAT, Mumbai 'E' Bench in the case of Dr. Sudha Trivedi 315 SOT 38 (Mum). The head notes of this case are as under: I "Section 50, read with section 54EC, of the Income-tax Act, 1961 - Capital gains - Computation in case of depreciable assets - Assessment year 2002-03 - Assessee, a doctor, had sold her business premises for certain consideration - Assessee held said premises for around 14 years before its transfer and she had not claimed depreciation on this premises in past - She had invested capital gain arising from transfer of said premises on Rural Electrification Corporation Bonds [REC Bonds] - For

4 ITA No.3576/Mum/2015 relevant assessment year 2002-03, assessee declared long-term capital gain at certain amount and claimed same to be exempt from tax under section 54EC - Assessing Officer denied exemption under section 54EC on plea that even if no depreciation was allowed to assessee iz earlier years, mandate of Explanation 5 to section 32(1) would be attracted to building-in-question and resultant capital gain would be covered under section 50 and taxable as short-term capital gain - Whether twin conditions should be simultaneously satisfied so as to fall within ambit of section 50, viz., falling of capital asset in a block of assets and actual allowing of depreciation on such an asset - Held, yes - Whether since assessee had not claimed depreciation on building in any of earlier years, it could be said that second condition of section 50, had not been fulfilled in instant case - Held, yes - Whether therefore, Assessing Officer was not justified in invoking section 50 for taking away assessee 's claim of exemption - Held, yes Section 54EC read with section 50, of Income-tax Act 1961 - Capital gains – Not to be charged on investment in certain bonds - Assessment year 2002-03 - Whether section 54EC is an independent provision not controlled by section 50 - Field, yes - Whether what is relevant for claiming exemption under section 54EC is that whole or any part of capital gain should be invested in long-term specified assets - Field, yes - Whether in view of facts stated under heading 'Capital gains - Computation in case of depreciable assets' since assessee had made investment in eligible bonds out of sale proceeds from transfer of long-term capital asset, it could be said that assessee had satisfied requirement of section 54EC and, accordingly, was entitled to exemption under said section - Held, yes" 5.6 Respectfully following the decisions of jurisdictional ITAT and jurisdictional High Court, it is held that the assessee is entitled to deduction u/s 54F in respect of capital gains assessed u/s.50 in the hands of the assessee. In this view of the matter, it is seen that the Autliorised representative has finally restricted the claim of the deduction u/s.54F in respect of investment in the house property purchased in Zircon Project of Nirmal Lifestyle. The total cost price of the house property was

5 ITA No.3576/Mum/2015 Rs.1,18,99,616/- towards which the assessee has paid a sum of Rs.47,19,884/- till 30-09-2011. Although further payment has been made after this date, no cognizance thereof can be taken while calculating the deduction allowable u/s.54F, as the assessee has not invested the remaining sale proceeds of the to shops in the capital gain a/c scheme, as provided in section 54F(4). It is to be mentioned here that deduction u/s.54F is not restricted to only one long term capital asset as held by Hon'ble Delhi High Court in the case of CIT vs Gita Duggal and Mumbai ITAT in the case of Rajesh Keshav Pillal vs ITO Wd 19(3)(2), Mumbai 44 SOT 617 (Mum) and DCIT vs Ranjit Vithaldas 23 Taxman- corn 226 (Mum).The amount of deduction u/s.54F works out to Rs.42,16,417/- as under:-

Deduction u/s 54F = Investment in new asset x Capital Gain Net consideration = 47,19,884 X 69,67,980 78,00,000 = 42,16,427

The Assessing Officer is directed to allow deduction of Rs.42,16,417/- u/s.54F from the capital gains of Rs.69,67,980/- brought to tax u/s.50 in the assessment. Ground of Appeal No.2 is partly allowed to the above extent.”

contrary decisions against the findings of fact recorded by the Ld.CIT(A).

Therefore, we are of the view that the CIT(A|) was right in allowing exemption

claimed u/s 54F in respect of capital gain derived from sale of depreciable

assets. Hence, we are inclined to uphold the order of CIT(A) and dismiss the

appeal filed by the revenue.

6 ITA No.3576/Mum/2015 Order pronounced in the open court on 27th October, 2017.

Sd/- sd/- (Mahavir Singh) (G Manjunatha) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dt : 27th October, 2017 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order

Asstt. Registrar, ITAT, Mumbai