29. (2009) 31 SOT 38 (Mum.)
Dr. (Mrs.) Sudha S. Trivedi v. ITO
A.Y. : 2002-03. Dated : 20-2-2009
S. 50 r.w. S. 54EC — Since depreciation was never claimed
by assessee on the building sold, S. 50 was not applicable.
For the relevant assessment year, the assessee claimed
exemption u/s.54EC in respect of capital gains arising to her from sale of her
business premises on which she had not claimed any depreciation in the past.
The Assessing Officer held that even if no depreciation was allowed to the
assessee in the earlier years, the mandate of Explanation 5 to S. 32(1) would
be attracted since the building sold by the assessee was falling within the
‘block of asset’ and the resultant capital gain would be covered u/s.50 being
taxable as short-term capital gain. The Assessing Officer, therefore, denied
the exemption u/s.54EC and computed the short-term capital gain. The CIT(A)
upheld the order of the Assessee Officer.
The Tribunal, relying on the decision in the case of CIT
v. Ace Builders (P.) Ltd., (2006) 281 ITR 210/ (2005) 144 Taxman 855, held
that the assessee was eligible for exemption u/s.54EC. The Tribunal noted as
under :
2. In order to be covered within the provisions of S. 50,
the following two conditions should be simultaneously fulfilled :
à the capital asset transferred should be an asset
forming part of the ‘block of assets’; and
à the capital asset is such in respect of which
depreciation has been allowed under this Act.
3. Explanation 5 to S. 32(1) was inserted by the Finance
Act 2001 w.e.f. 1-4-2002. It is, therefore, clear that from the A.Y. 2002-03
the deduction in respect of depreciation shall be granted automatically,
notwithstanding the fact that the assessee has not claimed this deduction.
4. Therefore, from the A.Y. 2002-03, Explanation 5 to S.
32(1) would apply only if the assessee has not claimed depreciation. If,
however, the asset has been sold in the previous year, relevant to the A.Y.
2003-03 and there is no other asset in that block, then there cannot be any
question of allowing depreciation on the asset sold and, as such, the
application of Explanation 5 would be ruled out.
5. Since the assessee had not claimed depreciation on the
building in any of the earlier years, the denial of exemption u/s.54EC on the
ground that Explanation 5 to S. 32(1) would apply was out of place. Further,
since the second condition of S. 50, being ‘in respect of which depreciation
has been allowed under this Act’, was wanting in the instant case, the
provisions of S. 50 treating the capital gains arising from the transfer of
such capital asset as short-term capital gain would not be applicable.
