Misses: Capital Asset Essay

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Words: 3563
Pages: 15

11/10/13

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[2013] 38 taxmann.com 244 (Gujarat)

IT: Where capital gain arose out of long-term capital asset was invested in
specified assets, exemption under section 54EC could not be denied on
account of fact that deeming fiction of short-term capital gain was created
under section 50
■■■
[2013] 38 taxmann.com 244 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax-I
v.
Aditya Medisales Ltd.*
M.R. SHAH AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 730 OF 2013†
SEPTEMBER 2, 2013
Section 54EC, read with section 50, of the Income-tax Act, 1961 - Capital gains Not to be charged on investment in certain bonds [Section 54EC v. Section 50] Assessee-company sold automatic electric monitoring system - It invested gain
amount in rural electrification bonds and claimed exemption under section 54EC Assessing Officer found that short term capital gain was offered by assessee
under section 50 and disallowed exemption under section 54EC claimed by
assessee on ground that same was not available on short-term capital gain Whether since capital gain arose out of long term capital asset and same was
invested in specified assets, exemption under section 54EC could not be denied
on account of fact that deeming fiction of short-term capital gain was created
under section 50 - Held, yes [Para 7] [In favour of assessee]
FACTS
■ The assessee-company had sold automatic Electric Load Monitoring System for the sum of Rs. 240
lakh and had invested the gain amount in rural electrification bonds and claimed exemption under
section 54EC.
■ The Assessing Officer found that short-term capital gain of Rs. 30.28 lakh was offered by the
assessee in respect of Automatic Electric Load Monitoring System under section 50 and disallowed
such exemption on ground that same was not available on short-term capital gain.
■ On appeal, the Commissioner (Appeals) deleted the addition made by the Assessing Officer.
■ On revenue's appeal, the Tribunal confirmed the order of the Commissioner (Appeals).
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HELD
■ Capital gain arising of long-term capital asset, if invested in specified asset, the assessee is not to be
charged capital gains and exemption provided under section 54EC cannot be denied to the assessee
only on account of the fact that deeming fiction is created under section 50. In other words, legal
fiction created under section 50 is though restricted to computation of capital gains, such deeming
fiction cannot restrict application of section 54EC which allows exemption of capital gains, if
assessee makes investment in the specified asset.
■ Thus, the assessee cannot be charged to capital gains when short-term gains of long-terms capital
assets get invested in the areas specified under the law. [Para 7]
CASE REVIEW
CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210/[2005] 144 Taxman 855 (Bom.) (para 7) and
CIT v. Assam Petroleum Industries (P.) Ltd. [2003] 262 ITR 587/131 Taxman 699 (Gau.) (para 7)
followed.
CASES REFERRED TO
CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210/[2005] 144 Taxman 855 (Bom.) (para 4.2) and
CIT v. Assam Petroleum Industries (P.) Ltd. [2003] 262 ITR 587/131 Taxman 699 (Gauhati) (para
7).
K.M. Parikh for the Appellant.
JUDGMENT
Ms. Sonia Gokani, J. - The Tax Appeal has been preferred by the revenue challenging the order of
the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') dated 11/01/2013
proposing the following substantial questions of law for our consideration;
"(A) Whether on the facts and in the circumstances of the case and in law, the Tribunal was
correct in law in not appreciating that 'long term assets' referred in Section 54EC of the Act
can only yield long term capital gains and that gain on sale of depreciable asset can only be
short term capital gain?
(B) Whether the Tribunal was correct in allowing exemption under Section 54EC of the Act of
Rs.30,28,732/- on the capital gain