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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA & SHRI T.R. SENTHIL KUMAR
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER
These are appeals filed by the assessee against orders of the ld. Commissioner of Income-tax (Appeals)-6, Vadodara of even date i.e. 28.3.2017, under section 250(6) of the Income Tax Act, 1961 (“the Act” for short) pertaining to the assessment years 2009-10, 2011-12, 2012-13 and 2004-05 respectively.
At the outset itself, it was common ground that in all the appeals there was one common issue , of disallowance of expenses u/s 57(iii) of the Act, arising in the backdrop of identical facts in all the years. to 1255 and 1273 /Ahd/2017 (4 Appeals) 2 Besides, it was stated, there was another issue raised in appeals for two years only i.e. Asst.Year 2011-12 and 2012-13, and was with respect to claim of the assessee for the income returned to tax under the head short-term capital gains to be treated as income from long term capital gains and concessional rate of tax levied thereon under section 112(1) of the Act.
Considering the commonality of issues raised in all the appeals before us , they were all taken up for hearing together and are being disposed off by this common consolidated order.
5. We shall be dealing with each issue, and applying our decision to the respective appeals where the issue has been raised accordingly.
Taking up the first issue of a claim of expenses under section 57(iii) of the Act.
ISSUE NO.1
The ld.counsel for the assessee pointed out that the common issue arising in all the appeals pertained to the claim of expenses under section 57(iii) of the Act against the income from other sources earned by way of interest income on fixed deposits.
Brief background of the case is that the assessee is a cooperative credit society, a joint venture of the Government of India and cooperative societies engaged in the manufacturing of polyester filament yarn. Keeping in view heavy losses incurred by the assessee- society, the Central Registrar of the Cooperative Societies had appointed a Liquidator to wind up the assessee-society vide order dated 11.4.2001. For the impugned years before us, A.Y 2004-05, 2009-10, 2010-11 & 2011-12, the assessee filed return of income to 1255 and 1273 /Ahd/2017 (4 Appeals) 3 disclosing interest income earned from funds of liquidator deposited in bank and claimed expenses against the same. The interest income being taxable u/s 56 of the Act under the head “Income from other Sources”, the AO held all the expenses to be not allowable in terms of the provisions of section 57(iii) of the Act, since they were not incurred for the business of the assessee which had closed and were found to be capital in nature having been incurred in respect of closure of business of the assessee. As the assessee had not established any direct or indirect nexus between the income earned by way of interest and the alleged expenditure, therefore, the AO disallowed the entire expenditure incurred by the assessee except a meagre amount of Rs.36,000/- treating the same as reasonable expenditure for earning the interest income.
In Asst.Year 2004-05 and 2009-10, the matter travelled to the ITAT, and the ITAT first dealt with the issue in Asst.Year 2004-05 and reiterated its decision in Asst.Year 2009-10. The ITAT noted that all the facts relating to the expenditure incurred by the assessee needed to be re-examined in the light of the provisions of section 57(iii) of the Act as interpreted by the Hon’ble Madras High court in the case of CIT Vs. Gannon Dunkerley and Co. P.Ltd. 243 ITR 646 (Mad) and Palani Sri Murugan Textiles Ltd. Vs. ACIT, (2002) 254 ITR 333 (Mad). Accordingly, the issue was restored back to the AO for reconsideration. In the second round the AO confirmed the disallowance which was confirmed by the ld.CIT(A) in the assessee’s appeal before him. Aggrieved by the same , the assessee has come up in appeal before us in A.Y 2004-05 & A.Y 2009-10 in second round..
In the remaining two years, the issue has travelled upto us in the first round itself, but the order of the ld.CIT(A) confirming disallowance of expenditure under section 57(iii) of the Act is a reiteration of his order in the case of the assessee for Asst.Year 2004- to 1255 and 1273 /Ahd/2017 (4 Appeals) 4
Therefore, the ld.counsel for the assessee stated that the issue of allowance of expenditure under section 57(iii) of the Act needed to be adjudicated in the light of the facts relating to the Asst.Year 2004-05.
10. The facts on record reveal that in Asst.Year 2004-05, the interest income earned by the assessee was to the tune of Rs.37,32,077/-. The interest income was earned from funds deposited in bank, which funds were found to be provided by the Government of India for the purpose of liquidation. The expenses claimed against the same were to the tune of Rs.1,79,48,000/-The break-up of which is reproduced at page no.5 of the order of the ITAT as under:
RECEIPT EXPENDITURE i) Interest on FDR 3732077 Legal & 519000 deposited from Prof.charges funds provided by Govt. ii) Rent & other 850135 Bank charges 1000 income Car/Taxi running 836000 exp. Computer hiring 118000 charges Travelling & 99000 conveyance Data processing 466000 charges Electricity & water 319000 charges Entertainment 9000 expenses Salary & benefits 3269000 Insurance 7000 Int.on Govt.of India 3480000 loan Repair & 82000 maintenance Postage, telegram & 14000 fax exp. Security charges 3685000 Printing & 36000 stationery Telephone expenses 172000
The contention of the ld.counsel for the assessee before us was that the entire claim of expenses was allowable to the assessee since the assessee had demonstrated that both the interest income and the to 1255 and 1273 /Ahd/2017 (4 Appeals) 5 expenses were incurred in the process of liquidation, and therefore, as per the decision of the Hon’ble Madras High Court in the case of CIT Vs. Gannon Dunkerley and Co. P.Ltd. and Palani Sri Murugan Textiles Ltd. Vs. ACIT, (supra), the entire expenses were allowable against the interest income earned.
The contention of the ld.DR, on the other hand, was that the Ld.CIT(A) had rightly upheld the disallowance noting the issue squarely covered by the decision of the Hon’ble Apex Court in the case of Vijaya Lakshmi Sugar Mills Ltd., 191 ITR 641 (SC) [1991] 59 Taxman 22 (SC) wherein the Hon’ble Apex Court had clearly held the claim of expenses incurred in the process of liquidation not allowable unless and until a nexus, direct or indirect, was established between the incurrence of expenditure and the income by way of interest.
We have heard both the parties; gone through the decisions cited before us as also documents placed before us.
There is no denying the fact that the claim of expenses in the present case is to be adjudicated in terms of provisions of section 57(iii) of the Act. The interest income earned by the assessee, against which such claim of expenditure has been made, has been taxed under section 56 of the Act, under the head “income from other sources”, and there is no dispute with respect to this aspect.
Going forward, we have perused the order of the ITAT in the first round in the case of the assessee for Asst.Year 2004-05, copy of which was placed before us, which judgment was rendered in order dated 13.1.2012. To understand the directions of the ITAT, it is relevant to go through its finding and directions contained in para-7 and 7.1 of the order as under: to 1255 and 1273 /Ahd/2017 (4 Appeals) 6
“7. Having heard the submissions of both the sides, in our considered opinion, both the issues, i.e. the claim of expenditure of interest on Government of India loan of Rs.34,80,000/- and the other expenditure, such as, legal expenses, car running expenses, traveling, repair and maintenance, etc. are required to be re-examined by the Assessing Officer because of the requirement of the provisions of section 57(iii) of the I.T.Act have not been thoroughly examined and scrutinized at the time of assessment. Section 57(iii) states that the income chargeable under the head “income from other sources” shall be computed after making the deduction of the expenditure, not being in the nature of capital expenditure, laid out wholly and exclusively for the purpose of making or earning such income. Meaning thereby if the assessee had incurred expenditure on payment of interest, then he is firstly required to establish that those very loans which were raised from Government of India have eventually being invested in FDRs on which interest was earned. The assessee has to place on record that when all those Government loans were released and how those loans were deposited in the shape of FDRs. If the assessee is able to furnish that the earning of interest was directly linked with the liability of interest, then naturally the assessee is in a position to say that the expenditure was incurred wholly and exclusively for earning of interest. We have taken this view after carefully perusing the order of the Hon'ble Madras High Court pronounced in the case of CIT vs. Gannon Dunkerley and Co.(P.) Ltd. 243 ITR 646 (Tax Case No.1263 of 1985) as cited by the ld.AR. In this decision, the Hon'ble Court has held that the expenditure was incurred in performance of the duties by an official liquidator. The expenditure was incurred to protect and preserve the assets. In the said decision, it was noted that there was a finding of the Appellate Tribunal that the expenditure was incurred to maintain the infrastructure for earning or making interest income and that without incurring the said expenditure it would not have been possible to earn income by way of interest. It was noted that the finding of the Tribunal had clearly showed that there was a nexus between the expenditure and the interest earned. On account of those factual finding the Hon'ble Court has finally decided that the Tribunal was correct in holding that the expenditure was deductible under the provisions of section 57(iii) of the I.T.Act. The relevant portion is reproduced hereinbelow:-
“But, on the facts of the case, it is found that the expenses were incurred to preserve the assets and to maintain the source which yielded the income. The facts found by the Tribunal clearly show that the official liquidator has incurred expenditure for the purpose of protecting the source of income. In addition thereto, the earning of interest income by the official liquidator cannot be construed in isolation or apart from other activities of the official liquidator. The official liquidator performed his statutory duties and during the course of his performance of duties, he incurred certain expenditure and earned the interest income. Therefore, we are of the view that there is a connection or nexus between the expenditure incurred and the interest income earned by the official liquidator. We are of the view that the decision of this Court in CIT vs. Dwarka Chit Funds (P) Ltd. (supra) would apply to the facts of the case and this Court after noticing the decision of the Kerala High Court in Wandoor Jupiter Chits (P) Ltd. (In Liquidation), In re (1992) 195 ITR 244 (Ker) : TC 41R.697, the decision of the Calcutta High Court in United Provinces Electric Supply Co. Ltd. vs. CIT (1992) 92 CTR (Cal) 155 : (1993) 204 ITR 794 (Cal), to 1255 and 1273 /Ahd/2017 (4 Appeals) 7 and the decision of the Supreme Court in Vijaya Laxmi Sugar Mills Ltd. vs. CIT [1991] 191 ITR 641 held as under: …. ….
Following the said decision, we hold that the decision in each case would depend upon the facts of its own case and according to the facts of the present case, the Tribunal recorded a clear finding that the expenses were incurred by the official liquidator to maintain the infrastructure for the earning of the interest income and without incurring the expenditure, it would not have been possible for the official liquidator to earn the interest income. We are of the view that the finding of the Tribunal clearly shows that there is a nexus between the expenditure and the interest income earned and that finding regarding the nexus, in our opinion, is a finding of fact. In view of the finding of the Tribunal, we hold that the Tribunal was correct in holding that the entire expenditure incurred by the assessee is deductible under the provisions of s. 57(iii) of the Act.” 7.1. Likewise, in cited decision of Palani Sri Murugan Textiles Ltd. vs, Asst.CIT 254 ITR 333 (Mad.) the view expressed was that the receipt of the income by way of interest and dividends was made possible by reason of the pendency of the winding up proceedings. The deposits and investments being the amounts which were part of the amounts to be distributed among creditors and to the extent of any surplus among the contributors for which expenses had to be incurred was continuing with the winding up proceedings. It was held that the expenses so incurred, therefore, were required to be given deduction for the purpose of determining the net taxable income of the company in liquidation.”
A bare perusal of the above would reveal that the ITAT had restored the matter back to the AO, primarily noting the fact that the expenses incurred by the assessee had not been thoroughly examined and scrutinized at the time of assessment in the light of provisions of section 57(iii) of the Act. Interpreting the said provisions, the ITAT held that the assessee has to establish that the earning of interest income was directly linked with liability of interest paid on the government loans which were invested in FDs and interest income earned thereon. The ITAT held that only then the assessee would in a position to say that the expenditure was incurred, wholly and exclusively for earning of interest. The order goes on to cite, the decisions of the Madras High Court in the case of Palani Sri Murugan Textiles Ltd. Vs. ACIT (supra) for having taken this view.
to 1255 and 1273 /Ahd/2017 (4 Appeals) 8 What arises from the order of the ITAT in the first round, therefore, is that the facts relating to the expenditure were noted to be not clear so as to establish nexus between the earning of interest income and incurrence of expenses, for determining the allowability of expenses against interest income. Therefore, the issue was restored back to the AO to examine the facts of the case and to adjudicate in the light of the provisions of section 57(iii) of the Act, which were noted to be interpreted by two decisions of the Hon’ble Madras High Court as noted above.
We have gone through the order of the AO in the second round. We find that the AO went on to hold that the assessee was unable to establish any such nexus while confirming the disallowance of expenditure, and the ld.CIT(A), we have noted, confirmed the order of the AO, following the decision of the Hon’ble Apex Court in the case of Vijaya Lakshmi Sugar Mills Ltd., (supra).
The assessee’s contention, though before us was that the claim was allowable, since the assessee has established the factum of incurrence of expenditure for liquidation in the course of which the interest income was earned, and therefore, the decision of the Hon’ble Madras High Court, stated above, was applicable in its case.
We have gone through the decisions of both the Hon’ble Apex Court in the case of Vijaya Lakshmi Sugar Mills Ltd., (supra) and also two decisions of the Madras High Court referred by the ITAT in the first round, and relied upon by the ld.counsel for the assesse before in support of its claim of entire expenses under section 57(iii) of the Act. These decisions cited by both the parties are not, in any way, contradictory. In fact the principle of allowability of claim of expenditure incurred in liquidation against the interest income earned on deposits made by the liquidator has been laid down by the to 1255 and 1273 /Ahd/2017 (4 Appeals) 9 Hon’ble Apex Court in the Vijaya Lakshmi Sugar Mills Ltd.(supra) very clearly, wherein in the facts of the case before it, where the assessee’s claim was with respect to the expenses incurred by the assessee’s liquidator in the process of liquidation, the same were held clearly to be not allowable, since the Hon’ble Supreme Court noted that the said expense could not be said to have been incurred solely for the purpose of earning interest income. The Hon’ble Apex Court held that there should be some nexus between the expenditure and earning of income, and noted no such evidence to show that the expenditure incurred by the liquidator were to facilitate the earning or atleast for protecting of its income. The Hon’ble Apex Court held that the expenses were not allowable in terms of section 57(iii) of the Act. The Hon’ble Apex Court went on to add that even if the expenses were found to have been incurred to preserve or acquire the assets and/or to maintain source from which the interest income was so earned, it would have been allowable in terms of section 57(iii) of the Act. Noting the absence of any such fact in the case before it, the Hon’ble Apex Court held the expenses incurred by the liquidator not allowable in terms of section 57(iii) of the Act. The finding of the Hon’ble Apex Court at para-8 of its order in this regard are as under:
“8. The next submission of the learned counsel for the assessee was that in the course of effecting the winding up of the assessee-company the Liquidator has been incurring expenses on items such as, salaries, legal fees, travelling expenses and other liquidation expenses and that those expenses are allowable deduction from income earned by way of interest from fixed deposits in the relevant year. In computing the income chargeable under the head 'Income from other sources', section 57(iii) provides that deduction is to be made in respect of expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income. The question for consideration, therefore, is whether the expenses of the type incurred by the Liquidator in this case can be said to have been incurred solely for the purpose of earning the interest income. It is true that the connection between the expenditure and the earning of income need not be direct and it may be indirect. But since the expenditure must have been incurred for the purpose of earning that income, there should be some nexus between the expenditure and the earning of the income. There is not even some sort of an evidence to to 1255 and 1273 /Ahd/2017 (4 Appeals) 10 show that the expenses incurred by the Liquidator were to facilitate the earning or at least for protecting of the income. The interest accrues sui generis. The interest is payable by the bank, whether it is claimed or not and whether there is any establishment or not. Normally there was no necessity for spending anything separately for earning the interest. However we may hasten to add that if any expenditure was incurred like commission for collection or such similar expenditures which may be considered as spent solely for the purpose of earning that income, the position may be different. But that was not so in this case. It could not also be said that the expenditure incurred was to preserve or acquire the asset. Nor could it be said that the expenses were incurred for the purpose of maintenance of the source. The requirement under section 57(iii) that the expenditure should have been incurred 'for the purpose of making or earning such income' shows that the object of spending or the end or aim or the intention of such spending was for earning the interest income. There could be no doubt that the expenditure incurred by the Liquidator in this case can by no stretch be said to have been incurred with the object or for the purpose of earning the interest income. The Tribunal was, therefore, right in holding that the expenses claimed are not related to the interest income and was not a deductible expenditure under section 57.”
The Hon’ble Madras High Court, in both cases i.e. in the case of CIT Vs. Gannon Dunkerley and Co. P.Ltd. and Palani Sri Murugan Textiles Ltd. Vs. ACIT (supra) allowed the claim of liquidation expenses under section 57(iii) of the Act against the interest income earned, considering the decision of the Hon’ble Apex Court in the case of Vijaya Lakshmi Sugar Mills Ltd., (supra). The Hon’ble High Court noted that in the facts of the case before it, there was a clear finding of the fact that the expenses were incurred to maintain the infrastructure for earning interest income, and without incurring the expenditure, it would not have been possible for the liquidator to earn interest income. The Hon’ble Madras High Court noted the decision of Hon’ble Apex Court in the case of Vijaya Lakshmi Sugar Mills Ltd. (supra) and applied the same to the facts of its own case while allowing the claim of liquidation expenses. The decision of the Hon’ble Madras High Court, therefore, was rendered, following the decision of the Hon’ble Apex Court in the case of Vijaya Lakshmi Sugar Mills Ltd., (supra), applying it to the facts of the case of the Hon’ble Madras High Court.
to 1255 and 1273 /Ahd/2017 (4 Appeals) 11 20. Having said so, what derives from the above is that allowability of claim of expenses in the present case under section 57(iii) of the Act, is to be construed in the light of the principles laid down by the Hon’ble Apex Court and Madras High Court read together. And the underlining principle for the same undoubtedly is as laid down by the Hon’ble Apex Court in the case of Vijaya Lakshmi Sugar Mills Ltd.,(supra),which is that for the allowability of expenses there has to be a nexus between the incurrence of expenditure, and the earning of interest income. The expenses ought to have been incurred directly and/or indirectly for the purpose of earning interest income. It is for the purposes of determining this fact that the matter was restored to the AO by the ITAT in the first round in A.Y 2004-05 & 2009-10.
Applying the above proposition to the facts of the case before us, we find that as far as the claim of interest expenditure is concerned, the same has been stated to have been incurred on interest bearing loans granted by the Government to the assessee to meet its liquidation expenses. In this regard several copies of letters from the Government of India, Ministry Chemical and Fertilizers for releasing funds to the assessee for liquidation purpose were filed before us in PB Page No.42 to 55. The contents of the same reveal that the interest bearing funds were granted for meeting the expenditure for running the office of the Liquidator. The assessee contends that the surplus remaining out of these loans granted, were deposited by the Liquidator in FDs till utilization of funds for the stated purpose, and interest income earned thereon. There is no stipulation from the government that even the interest earned on the loans granted to the assessee deposited in banks is to be utilized for meeting the liquidation expenses. It is only the unsecured loans given which are to be utilized for meeting the liquidation expenses. Therefore, purpose of taking unsecured loans or being granted to 1255 and 1273 /Ahd/2017 (4 Appeals) 12 unsecured loans from the government was for meeting the liquidation expenses. The purpose clearly was not to earn interest income there from. Therefore, the interest expenditure incurred on these unsecured loans has nexus only with the incurrence of liquidation expenses, and has no nexus with the earning of interest income.
The same follows for all different expenses which were incurred by the liquidator which admittedly were incurred only for the purpose of carrying out the process of liquidation. The purpose of incurring the expenses definitely was not to earn any interest income. Therefore, even with respect to the expenses of liquidation, there is no nexus, direct or indirect, with the earning of interest income. Therefore, on the touch-stone of the conditions to be fulfilled under section 57(iii) of the Act, for allowability of claim of expenses incurred by the liquidator against the interest income earned during liquidation, we find that, all the claims of the assessee fail ,with no nexus established between incurrence of expenditure and earning of interest income.
The assessee’s contention before us is that the liquidator, in the process of liquidation, has earned interest income and also incurred liquidation expenses, and both being earned/ incurred in the process of liquidation therefore, the liquidation expenses are allowable against the interest income.
We do not find any merit in this contention of the ld.counsel for the assessee. The allowability of any claim, whether of income or expense, is to be determined as per the provisions of law. In the present case only expenses which were incurred for the purpose of earning interest income are allowable as per section 57(iii) of the Act. Merely because the incidence of both the income and expenses happen in the same process of liquidation does not establish nexus of the expenses incurred with the earning of interest income. Interest to 1255 and 1273 /Ahd/2017 (4 Appeals) 13 income has been earned on deposits of funds while expenses are incurred for liquidation process. If the directive of granting interest bearing loan included, besides the loan also the interest earned therefrom to be utilised for meeting expenses of liquidation, it could be said that the interest expenses had a nexus with the earning of interest income, because the purpose of incurring interest expenses in that case would be to meet liquidation expenses out of loan and to earn interest again for meeting liquidation expenses. In such circumstance the interest expense would be allowable u/s 57(iii) of the Act having nexus with the earning of interest income. But that is not the case before us.
In the present case, it was the duty of the liquidator to have retained a portion of interest income to meet the income-tax liability arising as per law, and to use only the balance for the purpose of incurring the liquidation expenses.
In the light of the same, we find no merit in the contentions of the assessee that all the expenses incurred, including the interest paid on the loan obtained from the Government for carrying out the liquidation process, were allowable in terms of section 57(iii) of the Act against the interest income earned on deposits from the surplus remaining with liquidator out of unsecured loans given to it to meet the liquidation claims.
In view of the above the issue of allowability of expenses incurred during liquidation as per 57(iii) of the Act stands decided against the assessee.
The assessee has also raised a connected ground before us of claim of set off of losses under the head “income form other sources” against the income returned to tax under other heads. This ground to 1255 and 1273 /Ahd/2017 (4 Appeals) 14 also needs to be dismissed since we have disallowed the claim of expenses under the head “income from other sources” and there arises consequently no losses to the assessee under the head Income from Other sources .
ISSUE No.2
Taking up next issue relating to the levy of concessional rate of tax of deemed short term capital gains earned by the assessee under section 50 of the Act.
Briefly stated the facts pertaining to the issue are that in Asst.Year 2011-12 and 2012-13, the assessee had returned to tax rental income, dividend income and interest income. The assessee had also offered huge amounts to tax of long term capital gains and short term capital gains earned. The details of the same for the two years , A.Y 2011-12 & 2012-13 are as under:
Long Term Capital Gains Short term Capital Gains
Asst.Year 2011-12 Rs.138,78,46,687/- Rs.16,50,19,578/- Asst.Year 2012-13 Rs.26,63,48,890/- Rs.11,06,67,054/- The assessee had adjusted the deficit in the liquidator’s account arising on account of the expenses of the liquidator far exceeding his income earned by way of interest, against income from house property and capital gains. The balance of short term capital gains and long term capital gain was adjusted against brought forward unabsorbed depreciation. Both these set offs were not allowed by the AO.
In the appeal before us, while dealing with issue No.1, we have held the claim of expenses against “income from other sources” to be not allowable, meaning in effect that, there is no loss arising to the assessee in liquidator’s account to be set off against the capital gains
ITA No.1253 to 1255 and 1273 /Ahd/2017 (4 Appeals) 15 earned. As for the issue of unabsorbed depreciation, the ld.CIT(A) had allowed the set off of the same against the capital gains, against which the Revenue had gone in appeal to the ITAT, who in turn confirmed the order of the ld.CIT(A) in its order in & Others dated 27.11.2019.
The assessee’s plea before us is that the concessional rate of tax leviable on long term capital gains in terms of provisions of section 112(1) of the Act, be applied to short term capital gains earned on the sale of depreciable assets in terms of provisions of section 50 of the Act. His plea is that the short term capital gains includes assets held for more than 36 months. That gain on sale of such assets are to be treated as long term capital gains entitled to levy of taxes at a concessional rate in terms of section 112(1) of the Act.
He drew our attention to the order of the ld.CIT(A) denying this claim for the reason that the provisions of the Act are very clear, treating the capital again arising on sale of depreciable to be short term capital gain, and there was no question, therefore, for re- characterizing them as long term capital gains and levying tax at a concessional rate in terms of section 112(1) of the Act.
The ld.counsel for the assessee pointed out that in a series of decisions the ITAT has held that the depreciable assets held for a period of more than 36 months qualified as long term capital gains and are entitled to benefits to which the LTCG are entitled in terms of provisions of the Act. He drew our attention to the decision of the ITAT, Mumbai in the case of Smita Conductors Ltd. Vs. DCIT, (2014) 41 taxmann.com 514 and drew our attention to the finding of the ITAT in that case, categorically holding that prescriptions of section 50 are to be extended only to stage of computation of capital gains, resulting in transfer of depreciable assets, which was held for to 1255 and 1273 /Ahd/2017 (4 Appeals) 16 more than three years would retain the character of long term capital gain for purposes of all other provisions of the Act. He pointed out that the ITAT in the said case relied on the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Ace Builders Ltd. (2006) 281 ITR 210 (Bom). Our attention was drawn to para 2.4 to 2.6 of the order as under:
“2.4 We have perused the records and considered the matter carefully. The dispute is regarding applicability of provisions of section 50C to the computation of capital gain in case of depreciable asset u/s 50 of the IT Act. As per the provisions of section 50C in case of computation of capital gain from sale of building and land appurtment thereof, the value of the property assessed for stamp duty purpose has to be adopted as the sale consideration. The authorities below have taken the view that provisions of section 50C would also apply in case of computation of capital gain from depreciable assets. The view taken by the authorities below is supported by the special bench of Tribunal in case of ITO v. United Marine Academy [2011] 130 ITD 113/10 taxmann.com 320 (Mum.). Therefore, we confirm the order of CIT (A) holding that the stamp duty value assessed by the stamp duty authorities is required to be adopted as sale consideration in case of sale of the flat under reference in this case.
2.5 The assessee has also raised an additional ground that for the purpose of application of tax rate, the capital gain in case of the assessee has to be assessed as long term capital gain as the flat had been held by the assessee for more than three years. It has been argued that provisions of section 50 deeming the capital gain as short term capital gain is only for the purposes of section 48 and 49 which relate to computation of capital gain. The deeming provisions has, therefore, to be restricted only to computation of capital gain and for the purpose of other provisions of the Act, the capital gain has to be treated as long term capital gain. The view canvassed by the learned AR is supported by the judgment of Hon'ble High Court of Bombay in case of Ace Builders (P.) Ltd. (Supra) in which it has been held that for the purpose of other provisions of the Act such as section 54EC the capital gain has to be treated as long term capital gain, if the asset is held for more than three years. The same view has been taken by the Mumbai bench of Tribunal in case of Manali Investments v. Asstt. CIT [2011] 45 SOT 128/10 taxmann.com 293 in which it has been held that the prescriptions of section 50 are to be extended only to the stage of computation of capital gain and, therefore, capital gain resulting from transfer of depreciable asset which was held for more than three years would retain the character of long term capital gain for the purpose of all other provisions of the Act. In this case the Ld. AR for the assessee submitted that flat had been held for 15 to 20 years which is supported by the fact that cost of the flat as shown in the balance sheet was only Rs. 1,30,000/-. Therefore, if the flat is held for more than three years the tax rate has to be applied as provided in section 112 of the IT Act applicable in respect of capital gain arising from transfer of long term capital asset. to 1255 and 1273 /Ahd/2017 (4 Appeals) 17 2.6 We, therefore, held that, for the purpose of computation of capital gain, the flat has to be treated as short term capital gain u/s 50 of the IT Act, but for the purpose of applicability of tax rate it has to be treated as long term capital gain if held for more than three years. We accordingly direct the AO to compute the capital gain from the sale of flat and apply the appropriate tax rate after necessary verification in the light of observations made in this order.
Thereafter, the ld.counsel for the assessee pointed out that this decision was followed in several other decisions by the ITAT as under:
i) Poddar Brothers Investment P.Ltd., dated 25.3.2015; ii) DCIT Vs. Eveready Industries India Ltd., ITA No.159/Kol/2016 dated 18.10.2017; Copies of the orders were placed before us.
The ld.DR, on the other hand, though heavily relied on the order of the ld.CIT(A), however, was unable to point out any contrary decision either of the ITAT or of other higher judicial authority on the issue.
In view of the above, we have no hesitation in holding that the short term capital gains returned by the assessee in terms of provisions of section 50 of the Act on assets held for a period of more than 36 months be treated as long term capital gains and taxes be levied thereon at the concessional rate prescribed under section 112(1) of the Act.
This issue, therefore, stands decided in favour of the assessee.
Having decided all the issues, raised in the present appeals before us, we shall now proceed to deliver our judgment on each appeal:
i) A.Y 2004-05: In this appeal, the following grounds are raised: to 1255 and 1273 /Ahd/2017 (4 Appeals) 18
“1.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the action of the Assessing Officer in restricting the claim of the Administrative Expenses to Rs.36,000/- only and disallowing the entire balance amount of expenditure on the ground that the same are not allowable from other income assessed as Income from Other Sources. 1.1 The learned Commissioner (Appeals) ought to have held that the interest received is not the income of the assessee as the Government had given the loans to undertake the process of liquidation and the interest has been earned by the user of its money with the assessee and if the same is taxable in the hands of the assessee then the assessee is entitled to deduct the interest payable to the Government on the loans taken by the assessee.” Ground No.1.0 and 1.1 relates to the issue no.1 dealt with by us and decided against the assessee at para 13-26 of our order above. These grounds are accordingly dismissed.
In the result, appeal of the assessee is dismissed. ii) A.Y 2009-10: In this appeal similarly worded identical grounds are raised by the assessee as in ITA No.1273/Ahd/2017.Our decisions rendered therein applies mutatis mutandis in this appeal also. Therefore, this appeal of the assessee is dismissed. iii) A.Y 2011-12: The grounds raised therein are as under: “1.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the action of the Assessing Officer in restricting the claim of the Administrative Expenses to Rs.1,20,000/- only and disallowing the entire balance amount of expenditure on the ground that the same are not allowable from other income assessed as Income from Other Sources. 1.1 The learned Commissioner (Appeals) ought to have held that the interest received is not the income of the assesses as the Government had given the loans to undertake the process of liquidation and the interest has been earned by the user of its money with the assessee and if the same is taxable in the hands of the assessee then the assessee is entitled to deduct the interest payable to the Government on the loans taken by the assessee. to 1255 and 1273 /Ahd/2017 (4 Appeals) 19 2.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of the Assessing Officer in not computing the loss under the head "Income from Other sources" (by disallowing the Administrative expenses) and thereby not allowing set off of such loss from the Income under the head "Income from House Property" and "Income from Capital gains" as per section 71(2) of the I T Act. 3.0 Without prejudice to the Ground No.1 and 2 above, the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the non-allowance of any relief of concessional rate of tax leviable under section 112(1) of the I T Act in respect of the deemed short term capital gain computed under section 50 of the Act on the assets held for more than 36 months which are long term capital assets.” Ground No.1.0 and 2.0 relate to the issue no.1 dealt with by us and decided against the assessee at para 13-26 of our order above. These grounds are accordingly dismissed.
Ground no.3 relates to issue no.2 dealt with by us and decided in favour of the assessee at para-27-34 of our order above. Ground No.3 is therefore allowed.
In effect appeal of the assessee for Asst.Year 2011-12 is partly allowed. i) In this appeal similarly worded identical grounds are raised by the assessee as in ITA No.1254/Ahd/2017.Our decision rendered therein applies mutatis mutandis in this appeal as well. Therefore, this appeal of the assessee is partly allowed. Order pronounced in the Open Court on 29th May, 2024 at Ahmedabad.