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Income Tax Appellate Tribunal, “A” Bench, Mumbai
Before: Shri G.S. Pannu (AM) & Shri Sandeep Gosain (JM)
PAN No.AABCK8639H Appellant Shri Vimal Punmiya Respondent Shri Abhinay Kumbhar Date of Hearing 12.8.2016 Date of Pronouncement 17.8.2016 O R D E R Per Sandeep Gosain, JM :- This appeal by the assessee is directed against the order of learned CIT(A)-22, Mumbai dated 19.7.2010 for A.Y. 2006-07.
Following additional grounds raised by the assessee :- 1) The learned CIT(A) erred in confirming the applicability of section 50 on transfer of building and accordingly calculated short term capital gain against long term capital gain claimed by the appellant. 2) The learned CIT(A) erred in confirming the action of the AO regarding substitution of full value consideration from Rs.1200/- per square meter to 1300/- per square meter without considering the facts that asset is transferred through unregistered document therefore provision of section 50C is not applicable because assessable word is introduced w.e.f. 1.10.2009. 3) The learned CIT(A) failed to consider that the Assessing Officer has not give any opportunity of being heard before using Rs. 1300/- as full value consideration. Hence, enhancement of consideration is bad in law.
2 Khanna Ice & Cold Storage Pvt. Ltd.
Facts of the case are that the assessee is a private limited company engaged in the activities of letting out of property and providing services such as supplying water, continuous electricity, maintenance of garden and other facilities that may be required. The assessee filed its return of income on 17.1.2006 declaring income of Rs. 6,09,698/- which was processed u/s. 143(1) and thereafter the assessment has been completed u/s 143(3) on 30.10.2008 determining total income at Rs. 42,53,560/-. During the course of assessment proceedings the Assessing Officer treated the income from capital gain as short term capital gain instead of long term capital gain as claimed by the assessee by invoking provisions of section 50 and disallowed the claim. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before learned CIT(A) and learned CIT(A) partly allowed the appeal but confirmed the applicability of section 50 on transfer of building and also sustained the findings of the Assessing Officer regarding substitution of full value consideration from Rs. 1200/- per square meter to Rs. 1300 per square meter. Aggrieved by the order of learned CIT(A), the assessee filed the appeal before us on the grounds mentioned herein above.
Ground No. 1:
At the very outset, learned AR appearing on behalf of the assessee submitted that learned CIT(A) grossly erred in confirming the applicability of section 50 on transfer of building and accordingly calculated short term capital gains against long term capital gains. Learned AR submitted that section 50 is applicable only on depreciable asset but the building over the land of the assessee is not a depreciable asset. Section 50 ipso facto cannot covert non- depreciable asset into depreciable asset. Learned AR further submitted that CIT(A) has wrongly confirmed the findings of the Assessing Officer wherein the Assessing Officer has wrongly mentioned that as per Explanation 5 of section 32 deemed depreciation is allowable on business asset applicable in the case of the assessee. Whereas building of the assessee was not being used for the purpose of business and therefore earning of rent from the premises/building
3 Khanna Ice & Cold Storage Pvt. Ltd. was being treated as income from house property. Learned AR referred that rent received from the tenants was shown in the return and the same was being assessed under the head income from house property and the assessee has never claimed depreciation on the building and even no depreciation was allowed by the Department and therefore there is no application of section 50 of the Act. Lastly it was submitted that in those circumstances building cannot be treated as business asset therefore the findings recorded by CIT(A) need to be reversed.
Learned DR appearing on behalf of the Revenue supported the order passed by the tax authorities.
We have considered the rival submissions and perused the material available on record and orders passed by lower authorities. In order to decide the controversy, we feel it is necessary to analyse provisions of section 32 of the Income Tax Act, 1961 which reads as under :-
“Depreciation : In respect of depreciation of : (i) Buildings, machinery, plant or furniture, being tangible assets; (ii) Know-how, patents, copyrights, trademarks, licences, franchisees or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned wholly and partly, by the assessee and used for the purposes of the business or profession the following deductions shall be allowed.”
After analyzing the same, we are of the opinion that depreciation can only be claimed on buildings being tangible assets which are wholly or partly owned by the assessee and used for the purpose of business or profession. In the instant case the building is not being used for business and income derived from rent is being taxed as house property, therefore the assessee is not entitled for deprecation on the building and since the assessee is not entitled for depreciation on the building therefore, provisions of section 50 are not applicable as the same being a special provision for computation of capital gains in the case of depreciable assets. In the present case no asset is 4 Khanna Ice & Cold Storage Pvt. Ltd. depreciable asset, hence provisions of section 50 are not applicable and since plot and construction being an investment, for earning rent therefore, for the purpose of calculating long term capital gain indexed cost is to be calculated for both plot as well as structure. We rely upon the decision in the case of Divine Construction Co. Vs. ACIT (49 SOT 6) wherein it was held that “for application of section 50 it is necessary that depreciation should have never been allowed on such capital asset. Value of this property as appearing in balance sheet for assessment year under consideration at Rs. 8,91,460/- continues to remain the same since its purchase in 1999, which shows that no depreciation was ever allowed or claimed. Thus section 50 cannot be applied. Order impugned is overturned and it is held that long term capital gain declared by the assessee be accepted as such”. We also rely upon the decision in the case of CIT Vs. Santosh Structural & Alloys Ltd. (20 taxmann.com 501)(Punjab & Har), wherein it was held that whether once Tribunal had recorded a categorical finding of fact that plant and machinery, which is covered by section 50, would be a depreciable asset and not one on which no depreciation was ever claimed, then such assets, which were not depreciable, could not ever be assessed under section 50.
Having regard to the facts and circumstances of the case as well as concurring with the principles laid down in the above judicial pronouncement, we hold that learned CIT(A) erred in confirming the applicability of section 50 on transfer of building and calculated short term capital gain against long term capital gain. Therefore we allow this ground of appeal and direct to calculate long term capital gain on transfer of building as it has been held for a period of more than 36 months.
Ground No. 2&3 :
7. Ground No. 2&3 are taken together. Regarding these grounds learned AR submitted that learned CIT(A) erred in confirming the action of the Assessing Officer regarding substitution of full value consideration from Rs.
5 Khanna Ice & Cold Storage Pvt. Ltd.
1200/- per square meter to Rs. 1300/- square meter. The Assessing Officer has no power to substitute value shown by the assessee. Learned AR further submitted that since the asset was transferred through unregistered document therefore provision of section 50C is not applicable because the word ‘assessable’ was introduced w.e.f. 1.10.2009 and without giving opportunity of being heard before using Rs. 1300/- per square meter as full value consideration is bad in law. Therefore findings of learned CIT(A) deserves to be aside. On the other hand learned Departmental Representative supported the orders passed by the tax authorities.
We have considered the rival submissions and perused the record. On perusal of section 50C of the Income Tax Act, 1961 it is apparent on the face of the record that the word ‘assessable’ was introduced w.e.f. 1.10.2009 and the asset in the present case was transferred through unregistered documents therefore from bare perusal the provisions of section 50C are not attracted in the case of the assessee. In the instant case the assessee has transferred the asset through unregistered “Deed of assignment” the said fact is undisputed as the same has been mentioned by the Assessing Officer in the assessment order. Moreover the assessee has also claimed capital gain by relying on its deed of assignment dated 23.6.2005 and since the said deed is unregistered document therefore no stamp duty has been paid by the assessee. Section 50C is only applicable when the assessee sells land or building or both, is less than the value assessed by the stamp valuation authority for the purpose of payment of stamp duty and since the word ‘assessable’ was introduced and made applicable w.e.f. 1.10.2009 therefore the impact of word ‘assessable’ is not applicable in the present case. We find support from the Judgement rendered in the case of Shri Harish B. Shah Vs. ITO (ITA No. 529/Mum/2013), wherein it was held that section 50C was not applicable to the case of the assessee during the relevant period as the sale agreement in question was unregistered document and was not assessed by the stamp valuation authorities. The word “assessable” has been incorporated only w.e.f. 1.10.2009 (Finance Act 2009), therefore, provision of section 50C will not apply
6 Khanna Ice & Cold Storage Pvt. Ltd. on unregistered documents. Hence learned CIT(A) wrongly confirmed the action of the Assessing Officer regarding substitution of full value consideration from Rs. 1200/- per square meter to Rs. 1300/- square meter by applying provisions of section 50C of the Income Tax Act. Even otherwise no opportunity of being heard was granted before switching over from Rs. 1200/- per square meter to Rs. 1300/- per square meter which is even otherwise bad in law and against the principles of natural justice. Considering the factual and legal position we allow both these grounds of the assessee.
In the result, appeal filed by the assessee is allowed.
प�रणामतः �नधा�रती / राज�व क� अपील� �वीकृत / खा�रज / आं�शक �वीकृत / सां�यक�य उ�े�य के �लए �वीकृत / सां�यक�य उ�े�य के �लए आं�शक �वीकृत क� जाती है । Order has been pronounced in the Open Court on 17 . 08.2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 17.08.2016 को क� गई ।