Prepared by Mandar Vaidya- Advocate (High Court) ISSUES IN CAPITAL GAINS WITH REFERENCE TO SECs.50,50C, 54 & 54F Section 50. 1) Applicable only when depreciation has been allowed on the asset- It has no application where depreciation has neither been claimed nor been allowed- Divine Construction Co. V/s. ACIT ITA No. 5396/Mum/09. Decided on 20 th Dec 10. Even if depreciation is claimed in any one year but not claimed in subsequent years, still the asset would continue forming part of the block and capital gain would be assessable u/s. 50 of the Act- Sakthi Metal Depot 232 CTR (Ker.) 279. Same view of the Special Bench in case of Chhabria Trust 87 ITD 181 (Mum.) (SB). It is irrelevant whether depreciation has been allowed rightly or wrongly- Narotamdas Bhau 15 SOT 629 (Mum.) 2) In order to adjust the acquisition of the new asset (which is required to be adjusted u/s. 50) there is no requirement that the new asset should be put to use.- Oceanic Investment Co. 57 TTJ (Mum.) 549. 3) Applicability of Sec.50 where both land and buildings are sold {A.Y.- 1989-90}- Land & the structure standing on it are both separate properties- Hindustan Hotels 237 CTR (Bom.) 32. Once land forms part of the asset, section 50 can have no application since it is not possible to bifurcate the consideration into land and the building.-raka Food Products 277 ITR 261 (Mad). In this case the assessee had sold his bakery along with land & buildings, plant for
Rs.25 Lacs and claimed the transaction to be a case of long-term capital gains and claimed exemption u/s. 54E. The Assessing Officer held that the sale effected by the assessee was of a single unit consisting of depreciable assets, and hence the entire gains arising therefrom were short-term capital gains in view of sec.50. The Dept. contended that the sale is supported by two separate documents and separate values have been assigned for transfer of movable and immovable assets, and liabilities have not been taken over, and therefore, it was to be considered as a case of sale of individual items of assets, movable and immovables being sold separately. HELD- 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. Section 50 of the Act applies only when depreciable assets alone are transferred. Although separate value was assigned for immoveable property and moveable items, it was only for the reason that immoveable property required registration and the Registrar was required to adopt the guideline value. It was not a case where moveables and immoveables were separately transferred. Same view in Coimbatore Lodge 328 ITR 69 (Mad.). Union Motor Co. (2006) 283 ITR 445 (Mad.) - The assessee 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 longterm 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. HELD- The purchaser of the property had sought permission to demolish the superstructure and had so demolished. It is, therefore, evident that the purchaser had paid consideration for land and there is no value for the building. Consequently what remains is only the land which is not a 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. 4) Section 50 provides that cost of acquisition of the block of assets shall be 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. The section does not say that cost of acquisition of the block of assets shall be taken on the date of transfer of the old machinery. Only requirement is that addition to the machinery must have been made during the previous year itself. -Eastman Industries 174 Taxman 344 (Del.) - Same view in DCIT V/s. Everest Woollen Mills 83 TJ 1057 (Chd.). 5) Applicability of Sec.50 and exemptions u/s. 54/54F -The assessee is entitled to exemption under section 54E, even if the asset is a shortterm capital by virtue of section 50. CIT V/s. ACE Builders 281 ITR 210 (Bom) {A.Y. 1992-93}. This is because section 50 deems a transaction as a short term capital gain and does NOT deem an otherwise long term asset as a short term asset.
6) Section 50C- Special Provision to compute Full Value of Consideration- Valuation done by the State agency for the purpose of Stamp Duty would not ipso facto substitute the actual consideration as being passed on to the seller by the purchaser in absence of any admissible evidence. A.O. is obliged to bring on record positive evidence supporting the price assessed by the State Govt. for the purpose of stamp duty.- CIT V/s. Chandni Bhuchar (2010 229 CTR 190 (P & H).Ravi Kant 110 TTJ (Del) 297- Where the value as per Stamp valuation authorities exceeds the disclosed consideration, only the onus shifts to the assessee. The circle rates adopted under the stamp Act are merely guidelenes & not final for the person subjected to pay the stamp duty- Ramesh Chand Bansal V/s. District Collector (1999) 5 SCC 62 ; Jawajee Naganathan V/s. Revenue Divisional Ofiicer (1994) 4 SCC 595 7) Provisions of section 50C shall not apply to business assets. Thiruvengadam Investments Pvt. Ltd. 229 CTR 284 (Mad)View in Inderlok Hotels 122 TTJ (Mum) 145 : 32 SOT 419 affirmed. 8) Meghraj Baid (2008) 23 SOT 25 (URO) (Jodh.)- By virtue of section 50C(2), if the A.O. does not agree with the assessee, he has no choice but to refer the matter to the DVO. Manju Rani Jain 24 SOT 24 (Del)- Where DVO has valued the property at less than the Stamp Valuation authorities, then the value adopted by the DVO has to be adopted. Also see Ajmal Fragrances 34 SOT 57 (Mum.) and Bharti Sanghani 128 ITD 345 (Mum.)
9) Where a reference is made to DVO, the A.O. will not be justified if assessment is completed without waiting for the DVO s report. Timelimit for assessment shall stand extended by virtue of section 153 (3)(ii).- N. Meenakshi V/s. ACIT 226 CTR (Mad.) 625. 10) No penalty is leviable where addition is made by virtue of section 50C- Renu Hingorani v/s. ACIT ITA/2210/Mum/2010 decided on 22 nd Dec 10. 11) Right in an immoveable property- The word property is of widest amplitude and this is re-emphasised by the use of the words of any kind. Right acquired under an Agreement to Sale (by the assessee/transferee) is property and capital gains would accrue on its transfer/relinquishment.- Right to get conveyance is a property and cost of acquisition is the price paid for. Tata Services 122 ITR 594 (Bom) 12) When the question comes up for consideration as to which is the relevant date, while computing the capital gain tax in case of transfer of his shares by a person who is a member in a co-operative housing society, the relevant date would be the date on which the member acquires the shares in the co-operative housing society and the date on which the member had sold his shares in the said co-operative housing society. Anilaben Upendra Shah 262 ITR 657 (Guj)- {A.Y. 1983-84} followed in Jinhas Gandhi 279 ITR 552 (Guj.)
13) Where the assessee is allotted a specific flat over which he has acquired domain & control and paid almost the entire consideration, he can be said to have acquired the new premises within the limitation period.. Hilla Wadia 216 ITR 376 (Bom)- {A.Y. 1973-74} 14) No transfer of legal title is necessary for claiming the benefit u/s. 54/54F- T.A. Aravinda Reddy 120 ITR 465 (SC). 15) Whether repairs and other expenditure is permissible for deduction u/s. 54/54F- In given case, the assessee claimed to have incurred repairs and renovation expenditure to the tune of Rs. 17,26,908 and included the same in the cost of the new asset. HELD- The words used about the amount spent on purchase of new asset are 'cost thereto' and not 'price thereto'. The cost includes purchase as well. Consequently, the word used signifies that the amount of purchase will include other necessary expenditure in this behalf to make a residential house habitable and taken together will be the cost of the new asset. If the residential house is in a state of general disrepair and was unhabitable, the necessary repairs carried out to make the same habitable will constitute part of the cost of new house. Gulshanbanoo Mukhi 83 ITD 649 (Mum) 16) - The exemption u/s. 54 is not restricted to one single house. The word a residential house means the house which is of residential nature and does not mean singular. The builder had modified the house to make it one single unit. The fact that it houses two separate tenants is
irrelevant. CIT V/s. Anand Basappa (2009) 309 ITR 329 :223 CTR (Kar) 186. View reiterated in Rukhminiamma 331 ITR 211 (Kar.) 17) Assessee selling property which was in name of HUF and purchased property in personal name. Held not entitled to section 54F exemption. Vipin Malik HUF (2009) 183 Taxman 296 (Del) and Prakash V/s. ITO (2009) 312 ITR 40 (Bom)-Assessee purchasing property in the name of son- Held assessee not entitled to exemption u/s. 54F. 18) Exemption by constructing additional floor in existing house- Narsimhan 181 ITR 101 (Mad); Vidya Prakash Talwar 132 ITR 661 (Del); B.B.Sarkar 132 ITR 150 (Cal).