ITO vs. United Marine Academy (ITAT Mumbai – Special Bench)

S. 50C applies to depreciable assets

The assessee sold an office building for Rs. 49.43 lakhs. As the WDV of the said building was also Rs. 49.43 lakhs, no STCG was offered to tax. The AO held that as the stamp duty valuation of the building was Rs. 76.49 lakhs, the consideration had to be taken at that figure u/s 50C. The AO also held that the entire block of assets had not ceased to exist. On appeal, the CIT (A) reversed the AO on the ground that the deeming provisions of s. 50 & s. 50C operate in distinct fields and s. 50C could not apply to depreciable assets. It was also held that the block of assets had ceased to exist. On appeal by the department, the matter was referred to the Special Bench. HELD by the Special Bench, allowing the appeal:

(i) There are two deeming fictions created in s. 50 and s. 50C for computing capital gains on building. While s. 50 modifies the “cost of acquisition” for purposes of s. 48, s. 50C modifies the term “full value of the consideration received or accruing as a result of transfer of the capital asset”. The two deeming fictions operate in different fields and there is no conflict between them. As s. 50C was inserted to prevent assessee’s indulging in under-valuation, there is no logic why it should not be applied to a depreciable building;

(ii) The assessee’s alternate argument that as the AO had held that the block of asset had not ceased to exist in the year and was in existence, s. 50 could not apply as held in Roger Pereira Communications 34 SOT 64 is not acceptable because the assessee itself had considered the entire block of buildings as having been sold/transferred during the year and the same was upheld by the CIT (A). The assessee was not aggrieved by the finding and could not file an appeal nor was it permitted to raise it as a Respondent under Rule 27 of the Tribunal rules to raise the issue (Hukumchand Mills 63 ITR 232 (SC) and Mahalakshmi Textile Mills 66 ITR 710 (SC) distinguished)