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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI B. R. BASKARAN, AM (A.Y:2011-12) The Asst. Commissioner of Income Vs. M/s. Shree Ram Engineering Tax-22 (3), Room No.322, Piramal Works, E/A-6 Nav Monica Chambers, 3rd floor, Parel, Mumbai -12 CHS, Vidyanagari Road, Kalina, Santacruz (E), Mumbai- 400 098 PAN: AACFS 3220J Appellant .. Respondent Appellant by .. Smt. Puja Swaroop, DR Respondent by .. Shri Anil Sathe, AR Date of hearing .. 01-09-2016 Date of pronouncement .. 01-09- 2016 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the Revenue is arising out of t he order of the CIT (Appeals)- 34, Mumbai in appeal No.CIT (A)-34/JCIT 19(1)/IT-105/13-14 dated 28-11-2014. Assessment was framed by the JCIT, Range-19(1) (1), Mumbai for assessment year 2011-12 vide his order dated 06-02-2014 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of the Revenue is against the order of the CIT (A) deleting the disallowance of deduction made by the A O u/s 54EC of the Act. For this, the Revenue has raised the following ground No.1:-
(1) On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in holding that the assessee is entitled to deduction u/s 54 EC of the I. T. Act.
We have heard the rival contentions and gone through the facts and circumstances of the case. Briefly stated facts are that M/s. Shree Ram Engineering Works, the assessee, is a Partnership Firm engaged in the business of doing job work of fabrication and machining for engineering and other firms as per their specification. The assessee firm has a workshop including factory shed which was 1986-87. During the financial year 2010-11 the assessee sold its factory shed for a sum of Rs.2.10 Crores and the book value of the workshop was Nil as on 01-04-2010. Therefore, the workshop being a depreciable asset, the capital gain was computed u/s 50 of the Act. The funds received from sale of this factory was invested in NHAI Bonds amounting to Rs.50 lacs and claimed exemption u/s 54 EC of the Act by the assessee. The assessee paid the balance short term capital gain u/s 50 of the Act. The A O disallowed the claim made by the assessee u/s 54EC of the Act being investment of Rs.50 lacs in NHAI Bonds out of the total sale proceeds of Rs.2.10 Crores being depreciable assets. The CIT (A) allowed the claim of the assessee by following the decision of the Hon’ble Bombay High Court by observing in Para 5.1 of his appellate order as under:-
“5.1 I have duly considered the submissions of the appellant and find that the AO has not disputed that the issue in appeal is covered by the jurisdictional High Court’s decision in the case of M/s. Ace builders Pvt. Ltd. (supra), which is in favour of the appellant. I, also find that the issue has also been decided against the department vide another recent decision dated 13.03.2013 of the Bombay High Court in the case of United Paper Industries [2014] (42 taxmann.com 79). I, therefore, following the above decision of the jurisdictional High Court delete the addition and allow the grounds of appeal of the appellant.” Aggrieved, now the Revenue is in second appeal before the Tribunal.
4. We find that the issue now stands covered by the decision of the Hon’ble Bombay High Court in the case of CIT Vs ACE Builders (P.) Ltd. [2006] 281 ITR 210 wherein it is held 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 depreciation has been availed on long-term capital asset, 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 capital gain shall not be charged under section 45. 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.
The contention of the revenue that by amendment to section 50, the long-term capital asset had been converted into to short-term capital asset was also without any merit. 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 long-term capital asset into a short-term capital asset.
Further, we find that the same was reaffirmed by the Hon’ble jurisdictional Bombay High Court in the case of CIT Vs United Paper Industries [2014] 42 taxmann.com 79 (Bombay), by holding in Para 4 of the said decision as under:- “4. On further appeal, the Tribunal by the impugned order has allowed the claim of the respondent – assessee for exemption under Section 54EC of the Act by following the decision of this Court in the matter of CIT v. Ace Builders (P) Ltd. [2006] 281 ITR 210/ [2005] 144 Taxman 855 (Bom.). Since the Tribunal has followed the decision of this Court and applied the principles laid down therein in respect of Section 54E of the Act to Section 54EC of the Act, we see no reason to entertain the proposed question of law. This Court in the matter of Ace Builders (P) Limited (supra) has held that the deeming fiction of a long term capital gain to be treated as a short term capital gain is restricted only to Section 50 of the Act and would have no application to other provisions such as Section 54E of the Act. The above rationale would be equally applicable to the claim of deduction under Section 54EC of the Act. In view of the above decisions of the Hon’ble jurisdictional High Court, we confirm the order of the CIT (A) allowing deduction u/s 54 EC of the Act. Resultantly, the Revenue’s appeal stands dismissed.
In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 01-09-2016.