Capital gain: Sections 10B and 50(2): A.Y. 1993- 94: Assessee eligible for exemption u/s.10B sold assets to sister concern after expiry of period of exemption. Purchase of assets of same rate of depreciation: Assessee entitled to benefit u/s.50(2).

On appeal by the assessee, the Madras High Court reversed the decision of the Tribunal and held as under:

“(i) The assessee carried on the same line of business, both as an export undertaking as well as in domestic trade. The assessee made an addition of 25% in the block of assets, viz., plant and machinery, during the previous year. Given the fact that the depreciation in respect of the assets transferred and purchased carried the same rate of depreciation and, hence, fell under ‘block of assets’, the assessee was justified in his claim on capital gains, that with the cost of the machinery added to the written down value of the machinery and the sale of the machinery during the relevant previous year, he was entitled to relief u/s.50(2).

(ii) Going by the provisions u/s.10B, the Revenue would not be justified in treating the assets of an export-oriented unit in isolation on the expiry of the tax holiday period, particularly when section 10B(4)(iv) recognises deemed grant of the depreciation allowance during the currency of the tax holiday, which means that at the expiry of the period of five years, the written down value of the plant and machinery continues to be available for the business of the assessee, which goes for normal assessment under various provisions of the Act.”