IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 01/02/2006
CORAM
THE HON'BLE MR.JUSTICE P.D.DINAKARAN
AND
THE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA
T.C.(A) No.55 of 2006
The Commissioner of Income Tax
Chennai. .. Appellant
Vs.
M/s. Union Co (Motors) Ltd.
118, Anna Salai
Chennai 600 002. .. Respondent
Appeal under Section 260A of the Income Tax Act, 1961 against the
order of the Income Tax Appellate Tribunal, Madras 'B' Bench dated 16.6 .2005
in ITA No.2361/Mds/92 for the assessment year 1989-90.
!For Appellant : Mr.T. Ravi Kumar, Jr.S.C.
:JUDGMENT
(Delivered by P.D.DINAKARAN, J.)
The above tax case appeal is directed against the order of the
Income-tax Appellate Tribunal in ITA No.236/Mds/92 dated 16.6.2005.
2. The brief facts of the case are stated as follows:
The assesee owned 20,365 sq.ft. of land in Bangalore with an
equivalent built up area and the same was treated as business asset and
claimed depreciation. The assessee sold the property and claimed the gains
arising therefrom as a long term capital gains. But the assessing officer
treated the same as a short term capital gain under Section 50 of the Income
Tax Act on the ground that the consolidated value was given to the land and
building and no break up was possible and accordingly, the difference between
the written down value and the sale consideration was treated as short term
capital gains. Hence, the assessee filed an appeal before the Commissioner of
Income Tax ( Appeals), who allowed the appeal finding that the purchaser of
the property sought permission to demolish the superstructure and therefore,
there is no value for the building and consequently, what remains is only the
land which is not depreciable asset, as no depreciation could be taken on the
land and thus held that Section 50 of the Act should not have been applied to
the case of the assessee. The said order was also confirmed by the Income Tax
Appellate Tribunal on the appeal preferred by the revenue. Hence, the above
appeal.
3. The learned counsel for the appellant, under the facts and
circumstances of the case, raises the following substantial question of law.
“Whether on the facts and circumstances of the case, the Tribunal was right in
holding that the capital gains arising on sale of land and building on which
depreciation had been claimed would not be hit by Section 50 of the Act?”
4. In this regard, it is apt to refer Section 50 the Act, which reads
as under.
“Special provision for computation of capital gains in case of depreciable
assets.- Notwithstanding anything contained in clause (42A) of section 2,
where the capital asset is an asset forming part of a block of assets in
respect of which depreciation has been allowed under this Act or under the
Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49
shall be subject to the following modifications:-
(1) where the full value of the consideration received or accruing as a result
of the transfer of the asset together with the full value of such
consideration received or accruing as a result of the transfer of any other
capital asset falling within the block of assets during the previous year,
exceeds the aggregate of the following amounts, namely:-
(i) expenditure incurred wholly and exclusively in connection with
such transfer or transfers;
(ii) the written down value of the block of assets at the beginning of
the previous year; and
(iii) the actual cost of any asset falling within the block of assets
acquired during the previous year,
such excess shall be deemed to be the capital gains arising from the
transfer of short-term capital assets;
(2) where any block of assets ceases to exist as such, for the reason
that all the assets in that block are transferred during the previous year,
the cost of acquisition of the block of assets shall be the written down value
of the block of assets at the beginning of the previous year, as increased by
the actual cost of any asset falling within that block of assets, acquired by
the assessee during the previous year and the income received or accruing as a
result of such transfer or transfers shall be deemed to be the capital gains
arising from the transfer of short-term capital assets.”
5. This Court in ASST. COMMISSIONER OF INCOME TAX v. RAKA FOOD
PRODUCTS (277 ITR 261), interpreting the scope and applicability of Section 50
of the Act in a transaction relating to the land and building, of course along
with machinery therein, treated the said transaction as a long term capital
gains and held as follows:
“Land is not a depreciable asset. Section 50 of the Act deals only with
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 to a particular asset. As
already observed above, Section 50 of the Act applies only when depreciable
assets alone are transferred.”
6. It is, therefore, a settled law that even though the transaction
involved land and building, once the land forms the assets of the undertaking,
the transfer is of entire undertaking as a whole and it is not possible to
bifurcate the same, as suggested by the assessing officer in the instant case.
All the more, in the instant case, the fact remains that the purchaser had
applied for demolition of the building and also demolished the building, which
was taken into consideration by the Commissioner and the Tribunal, while
arriving at a conclusion that Section 50 of the Act is not attracted, as,
under the facts and circumstances of the case, it is clear that the sale
consideration made by the purchaser is only for the land, since the building
had no value and therefore, got demolished.
Finding no error in the order of the authorities below, the appeal
stands dismissed.
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