CIT vs Meeta Machine Tools

In this Appeal by the Revenue for the Assessment Year 2006-07 following question has been raised for our consideration.

(a) Whether on the facts and in circumstances of the case and in law, the Tribunal is justified in law and in fact in extending the benefit of exemption amounting to Rs. 78 Lacs u/s 54EC to the short term capital gain in respect of asset on which depreciation is claimed and covered u/s 50 of the Income Tax Act and in the process allowing exemption of Rs. 78 lacs u/s 54EC against the short term capital gain?

(b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in law in holding that the assessee is entitled to deduction u/s 54E in respect of the capital gain arising on the transfer of a capital asset on which depreciation has been allowed and which is deemed as short-term capital gain u/s 50 of the Income Tax Act, 1961?

So far as Question (a) is concerned, the (Respondent-Assessee after demolition of building sold the land for Rs. 78 lacs'' and claimed long term capital gains of Rs. 75.70 lacs. The Respondent-Assessee had claimed benefit of exemption u/s 54EC of the Income Tax Act, 1961 (the said Act) since the entire amounts were invested in the bonds of National Housing Bank. The claim of the Respondent-Assessee u/s 54EC of the Act was not allowed by the Assessing Officer on the ground that the land and the building comprised one block of asset and the assessee having already claimed depreciation thereon regularly, the land and the building were inseparable and, therefore, the profit arising from sale of the said asset was chargeable to tax as short term capital gain u/s 50 and consequently, the assessee was not entitled for exemption u/s 54EC of the Act.

In appeal, the CIT(A) upheld the action of the Assessing Officer in treating the profit arising from the sale of depreciable asset being chargeable to tax u/s 50 of the said Act as a short term capital gain. However, the CIT(A) allowed the claim of the Respondent-Assessee for investments made in bonds of National Housing Bank u/s 54EC of the Act by following the decision of this Court in the matter of The Commissioner of Income Tax Vs. ACE Builders Pvt. Ltd., .

On further appeal to the Tribunal by the Revenue, the Tribunal upheld the order of CIT(A) by applying the principle laid down in Ace Builders (P) Ltd. (supra) rendered in the context of section 54E of the said Act. The Tribunal held that the fiction contained in section 50 of the Act is restricted only to the computation of capital gain and the same cannot be extended beyond that so as to deny the benefit available to the assessee u/s 54EC of the said Act.

Further, the Gujarat High Court in the matter of Deputy Commissioner of Income Tax Vs. Himalaya Machinery (P.) Ltd., , had occasion to consider the availability of section 54EC of the said Act in Respect of profit made on sale of depreciable asset. The Gujarat High Court relied upon the decision of this Court in the matter of Ace Builders (supra) and concluded that the principle laid down therein on applicability of section 54E of the Act is equally applicable to section 54EC of the Act.

In these circumstances, we see no reason to entertain Question (a).

So far as Question (b) is concerned, the same becomes academic in view of our decision on question (a). Hence, we see no reason to entertain the questions (b). Accordingly, appeal is dismissed with no order as to costs.