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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: Shri P K Bansal & Shri Ram Lal Negi
O R D E R Per P K Bansal, Vice-President:
This appeal has been filed by the assessee against the order of the CIT(A) -8, Mumbai, dated 27.03.2015, for A.Y.2011-12. The assessee has raised the following grounds of appeal:
“1. On the facts and in the circumstances of the case, the authorities below have erred, both on facts and in law in rejecting the appellant's claim for long-term capital gain being worked out at Rs.1,96,10,755/-as rightly declared by it and enhancing the same to Rs.2,35,60,000/-illegally by wrongly treating the building as depreciable assets and by denying the adjustment of cost of acquisition by Cost Inflation Index as statutorily required and thereby erred in passing the impugned illegal orders to create illegal demands of tax, interest and penalty against the appellant.
The authorities below have erred in resorting to making wrong computation of the amount of capital gain and thereby enhancing the tax Paid/payable by the appellant and the impugned orders cannot be upheld, in view of no depreciation having been claimed or allowed on the asset to the appellant and Section, 50 being totally inapplicable and the adjustment of cost of the capital asset with Cost Inflation Index cannot be denied nor can the facturn of sale of the asset by Super Leasing on 15.7.2010 when it existed be disregarded at all.
3. The authorities below also erred in ignoring the fact that the appellant company had not sold the capital asset but it was sold by the predecessor company namely, Super Leasing Ltd. on 15.7.2010 and the appellant had not claimed any exemption u/s 47 in respect of capital gain and the appellant being the successor, is sought to be taxed u/s 170 on the capital gain of: the predecessor relating to the year of succession and therefore, the entire approach of the lower authorities is unsustainable.
4. The authorities below also erred in not rectifying the mistake in calculation of tax and interest wrongly worked u/s 115JB as Rs.73,44,900/- and had thereby raised the illegal demands impermissible in law.”
Ground nos. 1 to 3 relate to the issue whether the gain arising to the assessee on the sale of building for a consideration of ` 2,70,00,000/- will be assessable under the head “Long term capital Gains” as claimed by the assessee or will be assessable as per the provisions of section 50 of the Income tax Act.
The brief facts of the case that the assessee while filing income tax return has shown income from house property at ` 11,90,471/-, income from profit and gains at ` Nil and capital gains of ` 1,96,10,755/- computed in the following manner:-
Income from Capital gain (Chapter IV E) 1,96,10,755 Long Term Capital Gain Building 15.07.2010 Sales 2,70,00,000 Consideration Less: Indexed Cost Building 73.89.245 F.Y. 1997-98 - Rs. 73,89,246 34,40,000/331*711 __________________ 1,96,10,755 The Assessing Officer on the basis of the balance sheet relating to the preceding year i.e. 31.03.2010, noted that it does not reflect any immovable property. It was found that in the scheme of demerger under the Income Tax Act and Scheme u/s. 391 to 394 of the Companies Act between M/s.
Super Leasing Ltd. and the assessee company as the resulting company and former is the transferor company. As per this scheme of demerger w.e.f.
01.04.2010, the assessee company has received the property which is let out and building in question which is sold by the M/s. Super Leasing Ltd. However, M/s. Super Leasing Ltd., before passing of the order by the High Court, sold the building on 15.07.2010 for a total consideration of ` 2,70,00,000/-. The assessee while computing Long term capital gain claimed indexation from the F Y 1997-98 as M/s. Super Leasing Ltd. has acquired the property during the F.Y. 1997-98. The Assessing Officer was of the view that the assessee is entitled for indexation from F Y 2010-11 and did not agree with the reply of the assessee that since the assessee acquired the property under the scheme of demerger, it was entitled for determining Long term capital gain and Short term capital gain and for indexation from the date when the capital asset was held by the previous owner. The Assessing Officer noted that M/s. Super Leasing Ltd. prior to demerger was also claiming depreciation on the said asset and, in this regard, he relied on the documents filed by the assessee with reference to the scheme of demerger before the High Court, which includes a statement of depreciation as on 01.10.2010, rejecting assessee’s contention that it has not claimed any depreciation. The Assessing Officer therefore took a view that the provisions of section 50 of the I.T Act are applicable in the case of the assessee as the transferor company has claimed depreciation on the transfer of capital assets being the building and computed the capital gain by deduction of actual cost of ` 34,40,000/- out of the sale consideration. The assessee went in appeal before the CIT(A), who confirmed the order of the Assessing Officer determining the Short term capital gain at ` 2,35,60,000/-
We have heard the rival submissions and carefully considered the same along with the orders of the tax authorities below. We noted that as per the scheme of arrangement u/s. 391 to 394 of the Companies Act to transfer investment and property management business of Super Leasing Ltd. on a going concern basis to the assessee became effective on 19.02.2011 on getting requisite approvals and completion of necessary formalities. The Hon’ble High Court approved the said scheme of demerger vide its order dated 23.12.2010. The said property being C-676, New Friends Colony, New Delhi, was sold for a consideration of ` 2,70,00,000/- which was earlier acquired by M/s. Super Leasing Ltd by virtue of separate sale deed dated 11.12.1997. The sale deed of the said property was executed by M/s. Super Leasing Ltd. on 16.07.2010 i.e. before the date of the High Court order. Due to the scheme of demerger affecting from 19.02.2011 after getting the requisite approvals, the assessee u/s. 170(2) of the I.T. Act was liable for income tax to the same extent as its predecessor i.e. M/s. Super Leasing Ltd. would have been liable. The assessee fled the return for the impugned assessment year and showed capital gain arising from the sale of the said property in its income-tax return. The assessee claimed the profit on sale of said assets as Long term capital gain and claimed indexation taking the year of acquisition to be FY 1997-98 i.e. the year in which M/s. Super Leasing Ltd has acquired the said property. Now the question before us arises whether such capital gain will be assessed as Short term capital gain u/s. 50 of the I.T Act or assessed under the head Long term capital gain. The plea of the Revenue is that since M/s. Super Leasing Ltd. has claimed depreciation on the said property the capital gain is to be assessed u/s. 50 of the Income tax Act.
While the learned AR before us contended that in income tax proceedings M/s. Super Leasing Ltd has not claimed any depreciation. Depreciation has been claimed only for the purpose of the Companies Act and not for the purpose of computing income under the Income tax Act. The provisions of section 170 is explicitly clear that the assessee has to be assessed in respect of the income of the predecessor therefore, the assessment of the income shall be made on the assessee as successor in the same manner as it would have been made on the predecessor and all the provisions of this act shall so far may apply on the assessee in respect of that income as would have been applied on the predecessor.
We have also gone through the provisions of section 50 of the I T Act.
As per the said provision, if the assessee has sold its asset in respect of which depreciation has been allowed under the Income tax act, the gain arising on the sale of such capital asset shall be capital gain arising from the transfer of Short term capital assets. The contention of the Revenue is that the predecessor company M/s Super Leasing Ltd has claimed depreciation while the contention of the assessee is that depreciation has been provided in the balance sheet for the purpose of Companies Act but no depreciation has been claimed in respect of the said asset under the Income tax Act. We noted that the Assessing Officer has applied the provisions of section 50 on the basis of the statement of deprecation as on 01.10.2010, which according to the assessee represent the depreciation claimed under the Companies Act.
We, therefore, in the interest of justice and fair play to both the parties set aside this issue and restore the matter to the file of the Assessing Officer with the direction that the Assessing Officer shall re-decide the issue after going through the facts of the case i.e. whether M/s. Super Leasing Ltd. has claimed depreciation under the Income tax Act in respect of the said property sold by the assessee or not. In case, it is found that M/s. Super Leasing Ltd. has claimed depreciation under the Income tax Act, the provisions of section 50 would apply and the gain arising from the said property will be assessed under the head Short term capital gain. In case it is found that the said company has not clamed any depreciation under the Income tax Act, the gain so arising shall be assessed under the head Long term capital gain.
Now the next question arising in this appeal is in case of the gain so arising as to be assessed under the head Long term capital gain, whether the assessee shall be eligible for cost of indexation as per the provisions of section 48 of the Income tax Act or not. We noted that in this case, the assessee is liable for considering the said income in its income tax return in view of the provisions of section 170 of the Income tax Act. The provisions of section 170(2) stipulates as under:
(2) Notwithstanding anything contained in sub- section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly.
From the reading of this provision, it is apparent that the assessment of the said income shall be made on the assessee in the like manner and the same extent as it would have been made on the predecessor i.e. M/s. Super Leasing Ltd, the demerger company. Now the question arises if the return has to be filed by M/s. Super Leasing Ltd, naturally it would have been entitled to claim indexation in view of the provisions of section 48 from the financial year in which it had purchased the said property. The reliance on Explanation 3 to section 48 by the Revenue, in our view, will not assist the Revenue. It is case where the said property has not been sold by the assessee but, in fact, it has been sold by M/s. Super Leasing Ltd. vide sale deed executed on 16.07.2010 i.e. date prior to the order passed by the Hon’ble Bombay High Court. It is a fact that Bombay High Court has approved the scheme of demerger by order dated 23.12.2010. In view of the provisions of section 170, the assessee shall be liable on the said income as would be M/s. Super Leasing Ltd. It is not denied that the said property is held by M/s. Super Leasing Ltd from the F Y 1997-98. We accordingly, direct the Assessing Officer to allow the benefit of cost of indexation to the assessee from the F Y 1997-98, in case it is found that M/s. Super Leasing Ltd has not claimed any depreciation in income tax proceedings.
So far as ground no.4 is concerned, after carefully hearing the parties and considering their submissions along with the orders of the authorities below, we restore the issue to the file of the Assessing Officer with the direction that that he shall recalculate the tax levied u/s.115JB and, consequently, interest shall also be recalculated in accordance with law. The assessee is also directed to submit the correct calculation before the Assessing Officer. Thus, this ground is allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 11th day of October, 2017.