Commissioner of Income Tax vs Coimbatore Lodge

F.M. Ibrahim Kalifulla, J.—The Revenue has come forward with the above appeal raising the following substantial questions of law: 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in confirming the order of the Commissioner of income tax (Appeals) holding that only the capital gains on the building had to be computed as short-term capital gains and the balance value of the land should be treated as long-term capital gains, even though the land and building being one composite asset and the assessee having claimed depreciation on the said asset, as per the provisions of section 50, the entire profit was assessable as short-term capital gains?

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was entitled to exemption u/s 54EC of the income tax Act?

The issue is directly covered by the decision of a Division Bench of this court in The Assistant Commissioner of Income Tax Vs. Raka Food Products, wherein the Division Bench had taken a view that where once land forms part of the assets of the undertaking and the transfer was of the entire undertaking as a whole, it was not possible to bifurcate the sale consideration to a particular asset. It was further held that section 50 of the Act would apply only when depreciable assets alone are transferred.

In the case on hand, the assessee, who was running a lodge, is stated to have sold the property situated at No. 22/44, Venkatrao Road, Salem along with superstructures, namely, the building constructed thereon. While the assessing authority declined the claim of the assessee for exemption u/s 54EC of the Act, the Commissioner of income tax (Appeals) allowed the assessee''s appeal and granted the relief u/s 54EC of the Act. The Tribunal confirmed the said order of the Commissioner of income tax (Appeals) by applying the ratio of the decision of this court reported in The Assistant Commissioner of Income Tax Vs. Raka Food Products, The Division Bench has held that "land is not the depreciable asset. Section 50 of the Act deals only with the transfer of depreciable assets. Once the land forms part of the assets of the undertaking and the transfer is of the entire undertaking as a whole, it is not possible to bifurcate the sale consideration in a particular asset." As already observed above, section 50 of the Act applies only when depreciable assets alone are transferred. Having regard to the categoric pronouncement of this court in the judgment followed by the Tribunal while confirming the order of the Commissioner of income tax (Appeals), we are not inclined to entertain this appeal. The questions of law raised by the appellant are answered against the appellant and the appeal stands dismissed.