Court :
ITAT, Mumbai
Brief :
An assessee sold his depreciable business asset (a flat) for 35 Lakhs and computed capital gains u/s 50 at Rs. 12.52 Lakhs after deducting the WDV of the block of assets from the sale price received. However, as per the AO, the stamp duty value of the property was 59 lakhs. Therefore, he applied Section 50 C and computed capital gain accordingly as a short term capital gain. The assessee was of a view that Section 50C isn’t applicable for depreciable assets and also the asset was a long term asset hence the gains should be taxed at LTCG rates. It was held by the Tribunal that 50 C also applies to depreciable assets in view of United Marine Academy.
Also, with respect to the tax rate, it was held that although for the purpose of computing the capital gain, the flat has to be treated as a STCG u/s 50, but for the purpose of the applicability of tax rate, it is to be considered as a LTCG if it is held more than 3 years.
Citation :
M/s Smita Conductors Ltd vs. The Deputy Commissioner of Income Tax, Mumbai
Sections covered: Section 50 and 112 of the Income Tax Act’1961
Judgement: IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH,
MUMBAI
[Coram: Shri Rajendra Singh, AM and Shri Amit Shukla, JM]]
I.T.A. No.:4004/Mum/2011
Assessment year: 2006-07
M/s Smita Conductors Ltd. ...............…….….Appellant
Vs.
Deputy Commissioner of Income Tax ....………Respondent
Appellant by: Shri Vijay Mehta & Shri Sunil Hirawat
Respondent by: Shri Ashutosh Rajhans
Date of concluding the hearing: Sep 17, 2013
Date of pronouncing the order: Sep 17, 2013
Facts of the case: The assessee had a flat at Khar which was his business asset. This flat was sold by the assessee for Rs. 35,00,000 and the capital gain was computed as follows:-
Sale price received: - Rs. 35, 000, 00
Less: The WDV of the block u/s 50:- (22, 47,889)
= Capital Gain computed: - 12, 52,111.
However, the AO noted that stamp value of the flats sold was Rs. 59, 27,784. Therefore, the assessee was asked to explain as to why the stamp duty value shouldn’t be taken the sale consideration which computing such capital gains.
The assessee submitted that the provision of Section 50 C weren’t applicable to depreciable assets.The assessee also stated that the flat sold was held for a period exceeding 3 years and hence, the capital gain so computed even if it is computed under section 50 of the Act, has to be treated as a long term capital gain as was held in Ace Builders Ltd. [281 ITR 410] by the Hon’ble High Court of Bombay.
However, the AO rejected the submission of the assessee and adopted the stamp duty value as the sale consideration as follows:-
Sale consideration:- Rs 59, 277, 94
Less: The WDV of the block u/s 50:- (22, 47,889)
Less: Capital Gain computed by assesse: (12, 52,111)
= Additional Short term Capital Gain computed: - 24, 27,784
The assessee further went in appeal before CIT (A) and submitted that the provisions of Section 50 C weren’t applicable in case of this flat as this was a depreciable asset. The CIT (A) upheld the order of AO. The assessee further appealed to the Tribunal.
The Decision made is as under:
The Tribunal held that the stand of the assessee that Section 50 C doesn’t apply to depreciable assets is not acceptable as was held in United Marine Academy [130 ITD 113]. However, the tribunal accepted the arguments of the assessee and agreed that in case of capital gain, LTCG has to be computed and applied as per the provisions of Section 112 of the Income Act. The argument that the computation of capital gain as short term capital gain is limited to Sections 48 & 49 only was accepted by the Tribunal in view of ACE Builders 281 ITR 410 (Bom) & Manali Investment 139 TTJ 411 (Mum).
Therefore, the appeal of the assessee was partially allowed and it was held that although the stamp duty value was to be adopted for the sale consideration price but since the asset was held for more than 3 years, the capital gain has to be computed at the rates specified under Section 112.
Summary: Therefore, it can be concluded that for the purposes of computation of capital gain, the flat is to be treated as STCG under Section 50 but for the purpose of applicability of tax rate it has to be treated as long term capital gain as the flat is held for more than 3 years.
Full Judgement file has been attached herewith.
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