Sections 50, 54F – Deemed short term capital gains, calculated u/s. 50, arising on transfer of a depreciable asset, which asset was held for more than 36 months before the date of transfer qualify for exemption u/s. 54F, subject to satisfaction of other conditions mentioned in section 54F. Assessee having utilised the net consideration by the due date as specified u/s. 139(4), is entitled to exemption u/s. 54F though he failed to deposit the net consideration in the capital gain account scheme within the time specified u/s. 139(1).

Sections 50, 54F – Deemed short term
capital gains, calculated u/s. 50, arising on transfer of a depreciable asset,
which asset was held for more than 36 months before the date of transfer
qualify for exemption u/s. 54F, subject to satisfaction of other conditions
mentioned in section 54F. 

Assessee having utilised the net
consideration by the due date as specified u/s. 139(4), is entitled to
exemption  u/s. 54F though he failed to
deposit the net consideration in the capital gain account scheme within the
time specified u/s. 139(1).

FACTS

The assessee, an individual, carrying on his
proprietorship business under the name and style of MM sold his factory shed on
which depreciation had been claimed. Accordingly, the income earned thereon was
shown as short-term capital gain u/s. 50. However, in the return of income the
assessee had claimed exemption u/s. 54F against the short-term capital gain on
the ground that same was invested in purchase of residential property.

The Assessing Officer (AO) held that the
exemption is available u/s. 54F, only on transfer of a long-term capital asset.
The impugned factory shed was subject to depreciation u/s. 32 therefore, the
gain earned on the sale of such factory shed was liable to be taxed u/s. 50
being short-term capital gain. Once, the gain was held as short-term by virtue
of the provision of section 50, same could not be subjected to exemption under
section 54F.  The Assessing Officer also
observed that the object for enacting the provision of section 50 was to avoid
the multiple benefits claimed by the assessee. He held that the assessee was
not eligible for exemption u/s. 54F.  
Besides above, he also observed that the assessee had violated the
provision of section 54F(4) as he failed to deposit the amount of net sale
consideration in the capital gain account scheme. Therefore, the assessee could
not be allowed exemption u/s. 54F.

Aggrieved, the assessee preferred an appeal
to the CIT(A) who upheld the order passed by the AO.

Aggrieved, the assessee preferred an appeal
to the Tribunal.

HELD

The Tribunal noted that It is undisputed
fact that the period of holding of factory shed, on which depreciation was
claimed and which has been sold, was exceeding 36 months. Thus, the gain
arising on sale was held as short term by virtue of the provision of section
50.

The Tribunal on a combined reading of the
sections 50 and 54F noted that all the provisions of the two sections are
mutually exclusive to each other. There is no mention under section 50
referring to the provision of section 54F and vice versa. Therefore, the Tribunal
held that the provision of one section does not exclude the provision of other
section. It held that both the provisions should be applied independently in
the instant case. The Tribunal held that the capital gain earned by the
assessee on the sale of depreciable assets being factory shed is eligible for
exemption u/s. 54F as it is long-term capital assets as per the provision of
section 2(42A).  The Tribunal observed
that it has no hesitation in deleting the addition made by the AO by
disallowing the exemption available to the assessee.