DCIT 19(3), MUMBAI vs. DAYAL TAHILRAM PARWANIAN ENTERPRISES, MUMBAI

आयकर अपील�य अ�धकरण “डी” �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI �ी डी. म�मोहन, उपा�य� एवं �ी संजय अरोड़ा, लेखा सद�य के सम� । BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM आयकर अपील सं./I.T.A. No. 3194/Mum/2013 (�नधा�रण वष� / Assessment Year: 2009-10) Dy. CIT-19(3), Dayal Tahilram Parwani बनाम/ Room No. 305, 3rd Floor, 4th Floor, Brijbala Building, 21st Road, Bandra (W), Piramal Chambers, Parel, Vs. Mumbai-400 012 Mumbai-400 050 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. AACPP 6013 C (राज�व /Revenue) (�नधा�रती/Assessee) : & आयकर अपील सं./I.T.A. No. 3545/Mum/2013 (�नधा�रण वष� / Assessment Year: 2009-10) बनाम/ Dayal Tahilram Parwani Dy. CIT-19(3), Mumbai-400 050 Mumbai-400 012 Vs. (�नधा�रती/Assessee) (राज�व /Revenue) : राज�व क� ओर से/Revenue by : Shri Jasbir S. ChauhanLove Kumar �नधा�रती क� ओर से / Assessee by : Shri Sanjay R. Parikh सुनवाई क� तार�ख / : 18.09.2015 Date of Hearing घोषणा क� तार�ख / : 09.10.2015 Date of Pronouncement आदेश / O R D E R Per Sanjay Arora, A. M.: These are the cross appeals, i.e., by the Assessee and Revenue, arising out of the Order by the Commissioner of Income Tax (Appeals)-30, Mumbai (‘CIT(A)’ for short) dated 26-2-2013, partly allowing the assessee’s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 (the ‘Act’ hereinafter) for the assessment year (AY) 2009-10 vide order dated 26-12-2011.

2 ITA Nos. 3194/Mum/2013 & 3545/Mum/2013 (A.Y. 2009-10) Dayal Tahilram Parwani 2. The short question arising in the instant case is the taxability of the capital gain arising to the assessee on the transfer, by way of assignment, of lease-hold rights in land, together with structure thereon, during the relevant year.

3.1 The assessee, an individual, acquired lease-hold rights in 3404 sq. mtrs. of land at Kalwa, together with structure thereon, covering, as stated, 641.88 sq. mtrs., from one, Shri Ramesh Tahilram Parwani, vide assignment dated 02.04.1990 (who had in fact acquired the same from MIDC vide lease deed dated 26.10.2008, for Rs.5 lakhs, incurring a further expenditure of Rs.15,000/- (PB pgs. 4-11). The entire bundle of rights, so acquired, was assigned for a consideration of Rs.395 lakhs during the relevant previous year (PB pgs. 12-38). The entire capital gain arising thus, was returned as long-term capital gain at Rs.3,24,02,482/-, further claiming deduction u/s.54EC at Rs.100 lakhs toward investment thereof in eligible bonds. The said treatment, however, did not find favour with the Assessing Officer (AO) for the following reasons :- (a) what the assessee had transferred was only the superstructure as the land did not belong to the assessee; (b) that, in any case of the matter, what had been transferred was one composite asset, so that it is a single asset, relying on the decision by the Tribunal Delhi (‘C’ Bench) in the case of CIT v. Alps Theatre [1967] 65 ITR 377 (SC); (c) that no depreciation was claimed on the relevant asset was, in view of the Explanation to Section 32(1), inserted by the Financial Act, 2001 w.e.f. 1- 4-2000, of little consequence. As such, whether any depreciation was claimed was not per the return of income as filed, the same is to be allowed thereunder; (d) that the capital asset being an immovable property, section 50C would apply, so that the value as per the stamp valuation, at Rs.4,51,61,500/-, being in excess of the disclosed sale consideration, shall prevail. However, there was no occasion or purpose in allocating the said deemed consideration as between the constituent assets, i.e., the land and building; (e) that the capital asset transferred being a depreciable asset, section 50 shall apply, so that irrespective of period of holding, the capital gain shall be

3 ITA Nos. 3194/Mum/2013 & 3545/Mum/2013 (A.Y. 2009-10) Dayal Tahilram Parwani computed in the manner provided thereby, treating the gain as a short term capital gain; and (f) section 54EC shall consequently not apply in-as-much as the capital gain arising is deemed u/s. 50 as arising on transfer of a short term capital asset, while s. 54EC admittedly applies qua capital gains where the capital (original) asset transferred is a long term capital asset.

He, accordingly, computed the short term capital gain at Rs.4,35,34,350/-, as under :- Market Value u/s.50C 4,51,61,500 Less Brokerage paid 8,51,000 4,43,10,500 Less: cost of property 5,15,000 4,37,95,500 Less : Stamp duty & Registration 2,61,150 Short Term Capital Gain 4,35,34,350

3.2 In appeal, the ld. CIT(A) was of the view that the composite asset, comprising land and building, fell under different categories of assets. The deemed consideration of Rs.451.615 lakhs would, therefore, require being apportioned as under:- i) Value of Land : Rs.4,08,48,000/- ii) Value of factory building : Rs. 43,13,500/-

Aggrieved, both the Revenue and the Assessee are in appeal. While the Revenue seeks the restoration of the assessment order, the assessee claims indexation benefit in the computation of long term capital gain, besides exemption u/s.54EC, i.e., against short term capital gains, assessed under section 50.

4 ITA Nos. 3194/Mum/2013 & 3545/Mum/2013 (A.Y. 2009-10) Dayal Tahilram Parwani is being acquired by the transferee, these would constitute transfers of two separate capital assets under the Act. The law in the matter is well settled, and toward which we may cite the decision by the Hon’ble Apex Court in the case of CIT v. Alps Theatre [1967] 65 ITR 377 (SC), the Tribunal decision in which case stands relied upon by the AO; and CIT v. Citi Bank N.A. [2003] 261 ITR 570 (Bom), besides that decided by the Tribunal, as for example in Our Lady of Band Engg. Pvt. Ltd. vs. Asst. CIT (in ITA No. 3109/Mum/2012 dated 29.06.2015). As a corollary, the sale consideration accruing on the assignment/transfer would require being allocated, on some reasonable basis, between the two capital assets. The AO has caused the same through the valuation report by a registered valuer, as noted by the ld. CIT(A) in his order. The Revenue has not disputed the said valuation, which, therefore, stands crystallized, and would stand to be adopted for computing the capital gains on the said transfer, which is otherwise patent. We may though add that the brokerage (of Rs.8.51 lakhs), deductible from the sale consideration, would require being apportioned between the two assets and, being on the consolidated amount, is directed to be apportioned on the basis of individual sale consideration, i.e., as allocated.

4.2 The next issue is the manner of computation of capital gains. With regard to land, or rights therein, we are unable to see as to why, what is transferred being a long-term capital asset (LTCA), the cost of acquisition shall not be suitably indexed in terms of section 48 of the Act. We direct accordingly. As regards building, we firstly observe that the cost of building, stated to be a factory shed, has not been separately arrived at in computing the capital gains (PB pgs. 1-3). There being no estoppel against law, we direct the allowance of the same as reflected in the assessee’s accounts. If, however, the assessee does not lead any material toward bifurcating the total cost of Rs. 5.15 lacs between land and building, as appears to be the case (PB pg. 39, 40), the value of the building be taken on the

5 ITA Nos. 3194/Mum/2013 & 3545/Mum/2013 (A.Y. 2009-10) Dayal Tahilram Parwani basis of that determined on sale, i.e., by applying the rate(s) as obtaining as on the date of acquisition, discounting the value for depreciation. Further, for the purpose of section 50, what is required is that the capital asset transferred forms part of a block of assets on which depreciation has been allowed. That no depreciation has been either claimed or allowed, which is a precondition for the applicability of section 50 of the Act, is admitted. How could then, we wonder, the Revenue seek to invoke section 50, and deny the assessee the benefit of indexation u/s.48 in computing the capital gains chargeable u/s. 45 of the Act? True, building is a depreciable asset and, further, depreciation is liable to be allowed even where not claimed by the assessee per its return of income. However, the same has to be allowed in assessing the income under Chapter IV-D, which admittedly has not been for any of the intervening years, i.e., since the acquisition of the asset. As such, denial of the indexation benefit on building, being a long-term capital asset u/s. 2(29A) r/w s. 2(42A), is not proper in law and, accordingly, directed for being allowed. 4.3 The next issue is with regard to the allocation of deduction u/s.54EC against the capital gains arising on the transfer of the superstructure, denied by the Revenue on the ground of it being short-term capital gain (STCG) in terms of s. 50. The assessee, on the other hand, claims to have the right to apportion the deduction u/s.54EC under either capital gain, i.e., qua land and/or qua building. The assessee is entitled to benefit of exemption u/s. 54C on long-term capital gain. We have already found s. 50 as not applicable to the building under reference (para 4.2). The assessee, thus, clearly has a right to apportion, in whatever manner it chooses to, the exemption u/s.54EC against either long-term capital gain, i.e., against land as well as qua building, which we consider as para materia, i.e., without difference in their nature and, thus, with no difference. The fact of the building being a depreciable asset would, we may further add, only impact its valuation, which has been determined at Rs.43.135 lacs (refer para 3.2), and on which we observe no dispute. The said value, we believe, would have been arrived at only by factoring in the age of the building, being depreciable,

6 ITA Nos. 3194/Mum/2013 & 3545/Mum/2013 (A.Y. 2009-10) Dayal Tahilram Parwani with a limited life, for which there are specific rates in the value guidelines. We, accordingly, confirm the applicability of section 54EC on the capital gain arising on the building (super-structure), being only a LTCA u/s. 2(29A). In fact, the Hon’ble High Court in CIT vs. Ace Builders P. Ltd. [2005] 281 ITR 210 (Bom) has held that section 54EC benefit shall be available even on depreciated assets, i.e., on the short- term capital gain computed u/s. 50 of the Act, where the asset under reference otherwise satisfies the test of being a long-term capital asset. The said decision, relied upon by the ld. CIT(A), is noted only by way of abundant caution in-as-much as we have found section 50 as not applicable in the facts of the case. We decide accordingly. 5. In the result, the assessee’s appeal is allowed the Revenue’s appeal is dismissed. Order pronounced in the open court on this October 09, 2015 Sd/- Sd/- (D. Manmohan) (Sanjay Arora) उपा�य� / Vice President लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 09.10.2015 Pkm, �न.स/ PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai