IT : Where assessee incurred loss on sale of car and claimed same as business loss, since assessee had claimed depreciation on its block of assets under section 32(1)(ii) and said car formed part of block of assets and said block had ceased to exit on sale of car, loss was short-term capital loss in terms of section 50
■■■
[2014] 41 taxmann.com 47 (Cochin - Trib.)
IN THE ITAT COCHIN BENCH
Assistant Commissioner of Income-tax, Circle -1, Kannur
v.
Santhosh Hospital*
N.R.S. GANESAN, JUDICIAL MEMBER
AND B.R. BASKARAN, ACCOUNTANT MEMBER
AND B.R. BASKARAN, ACCOUNTANT MEMBER
IT APPEAL NO. 315 (COCH.) OF 2012
[ASSESSMENT YEAR 2006-07]
[ASSESSMENT YEAR 2006-07]
SEPTEMBER 13, 2013
Section 50, read with section 32 of the Income-tax Act, 1961 - Capital gains - Computation in case of depreciable assets [Block of assets] - Assessment year 2006-07 - Assessee incurred loss on sale of car and claimed same as business loss - Assessing Officer having noticed that assessee had claimed depreciation on its block of assets under section 32(1)(ii) and said car formed part of block of assets and said block had ceased to exit on sale of car, held that loss was short-term capital loss in terms of section 50 - Whether Assessing Officer was right in invoking provisions of section 50 in treating loss as short-term capital loss - Held, yes [Para 5.4] [In favour of revenue]
FACTS
| ■ | The assessee incurred loss on sale of car and claimed the same as business loss. | |
| ■ | The Assessing Officer having noticed that the assessee had claimed depreciation on its block of assets under section 32(1)(ii) and the said car formed part of block of assets and the said block had ceased to exist on sale of car held that the provisions of section 50 became applicable in the instant case. Therefore, the loss incurred by the assessee was short-term capital loss in terms of section 50. Accordingly, he disallowed the claim of loss on sale of car. | |
| ■ | On appeal, the assessee contended that the loss on sale of car was allowable under section 32(1)(iii). The Commissioner (Appeals) accepted the contention of the assessee and directed the Assessing Officer to delete the impugned disallowance. | |
| ■ | On second appeal : |
HELD
| ■ | A perusal of the provisions of section 32(1) show that it is divided into two parts. Clauses (i) and (ii) of the first part describes the class of assets eligible for depreciation. As per this first part, the class of assets eligible for depreciation has been classified into two categories, viz., building, machinery, plant or furniture, being tangible assets, and know-how, patents, copyrights, etc., being intangible assets. The second part prescribes the manner of computation or allowing the depreciation. As per clause (i) of the second part, the depreciation is allowable on the assets of the undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee, as may be prescribed. As per clause (ii) of the second part, all other business undertakings are covered and the depreciation is allowed on the written down value of block of assets at such percentage as may be prescribed. [Para 5.1] | |
| ■ | A careful reading of clause (iii) of section 32(1) shows that the said clause is applicable only if the depreciation is claimed and allowed under clause (i) of the second part, being the computation portion of section 32(1). As already noted, clause (i) of second part is applicable to an undertaking engaged in generation or generation and distribution of power. [Para 5.2] | |
| ■ | Admittedly the assessee is not engaged in the business of generation or generation and distribution of power. Hence it has not claimed depreciation under section 32(1)(i). It has claimed depreciation on its block of assets only under section 32(1)(ii). [Para 5.3] | |
| ■ | The provisions of section 50 shall be applicable, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed. In the instance case, the car sold by the assessee was forming part of block of asset and depreciation was also allowed thereon. It is also an admitted fact that the concerned block has ceased to exist on sale of car. Hence, the Assessing Officer was right in invoking the provisions of section 50 in treating the loss as short term capital loss. [Para 5.4] | |
| ■ | In this regard, a gainful reference can be made to the return form ITR-5. Under Item 16 of Schedule DPM, an assessee is expected to declare the capital gains/loss under section 50 and the same is required to be carried forward to Schedule DCG and then to Schedule CG. The said return form supports the view taken by the Assessing Officer. [Para 5.6] | |
| ■ | Therefore, the decision rendered by the Commissioner (Appeals) was liable to be set aside. [Para 6] |
CASE REVIEW
Mukand Global Finance Ltd. v. Dy. CIT [2008] 20 SOT 82/[2009] 117 ITD 20 (Mum.) (para 5.1) distinguished.
CASES REFERRED TO
Mukand Global Finance Ltd. v. Dy. CIT [2008] 20 SOT 82/[2009] 117 ITD 20 (Mum.) (para 3) and J.K. Chemicals v. ACIT [IT Appeal Nos. 8206 and 8648 (Mum.) of 1989] (para 3).
T.M. Sreedharan for the Appellant. Smt. S. Vijayaprabha for the Respondent.
ORDER
B.R. Baskaran, Accountant Member - The appeal filed by the revenue is directed against the order dated 5.9.2012 passed by the ld CIT(A)-II, Kozhikode and it relates to the AY 2006-07. The revenue is assailing the decision of the ld CIT(A) in holding that the loss incurred on sale of car is deductible as terminal depreciation u/s 32 (1)(iii) of the Act.
2. The facts relating to the issue are stated in brief: In the Profit and Loss account filed along with the return of income filed, the assessee claimed the loss on sale of car amounting to Rs. 11,64,149/- as expenditure. The sais return of income was initially processed u/s 143(1) of the Act. Later, on noticing the above said claim, the AO issued notice u/s 148 of the Act on 11.2.2009 as he found that the above said claim is not allowable as expenditure.
3. Before the AO, the assessee claimed that the loss on sale of depreciable asset is deductable u/s 37 of the Act by placing reliance on the following case laws:
| (i) | Mukand Global Finance Ltd. v. Dy. CIT [2008] 20 SOT 82/[2009] 117 ITD 20 (Mum) | |
| (ii) | J K Chemicals v. ACIT [IT Appeal Nos. 8206 and 8648(Mum.) of 1989]. |
It was also argued that the loss on sale of car has to be considered as business loss. The assessee also put an alternative contention that the short term capital loss can be set off against the business income of the same year u/s 71(1) of the Act.
3.1 The AO noticed that the assessee has claimed depreciation on Car and the said block as ceased to exist on sale of car. Hence, the AO held that the provisions of sec. 50 of the I T Act become applicable in that case. Accordingly the AO held that the loss incurred by the assessee is short term capital loss in terms of sec. 50 of the Act. The AO further held that the short term loss cannot be set off against business income in terms of sec. 71 of the Act. Accordingly, he rejected all the contentions of the assessee and disallowed the claim of loss on sale of car. Aggrieved, the assessee carried the matter with an appeal before the CIT(A) and pleaded before him that the loss on sale of car is allowable u/s 32(1)(iii) of the Act by placing reliance on the decision of Mumbai Benches of the Tribunal in the case of Mukund Global Finance Ltd (supra). The ld CIT(A) accepted the said contention of the assessee and directed the AO to delete the impugned disallowance. Aggrieved, the revenue has filed this appeal before us.
4. The Ld DR submitted that the provisions of section 32(1)(iii) is applicable only to undertakings, which are engaged in generation or generation and distribution of Electricity, where the depreciation is allowed on the Actual cost of the assets u/s 32(1)(i) of the Act. The assessee herein is claiming depreciation under section 32(1)(ii) of the Act. Under sec. 32(1)(ii) of the Act, the depreciation is allowed on block of assets at the prescribed rate on written down value thereof. The ld DR further submitted that the provisions of sec. 50 of the Act shall apply whether capital assets is an asset forming part of the block of assets in respect of depreciation has been allowed. The ld DR submitted that in the instant case, the car sold by the assessee was forming part of block of assets and depreciation was allowed on it. Accordingly, the ld DR submitted that the ld CIT(A) was not right in invoking the provisions of sec.32(1)(iii) of the act for adjudicating the issue, which are not applicable to the facts of the instant case.
4.1 The ld AR however, strongly placed reliance on the decision rendered by the Mumbai Benches of the Tribunal in the case of Mukand Global Finance Ltd (supra).
5. We have heard the rival contention and carefully perused the records. The controversy before us, in our view, revolves around sec. 32(1) of the Act. For the sake of convenience, we extract below the provisions of sec. 32(1) as applicable to the dispute before us:
"32 Depreciation—(1) In respect of depreciation of—
| (i) | buildings, machinery, plant or furniture, being tangible assets; | |
| (ii) | know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, |
owned wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed-
| (i) | in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; | |
| (ii) | in the case of any block of assets, such percentage on the written down value thereof as may be prescribed. | |
| | Provided…….. | |
| (iii) | in the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof :" |
5.1 A perusal of provisions of section 32 (1) show that it is divided into two parts. The clause (i) and (ii) of the first part describes the class of assets eligible for depreciation. As per this first part, the class of assets eligible for depreciation has been classified into classified into two categories, viz., building, machinery, plant or furniture, being "tangible assets", and know-how, patents, copyrights etc., being "intangible assets". The second part prescribes the manner of computation or allowing the depreciation. As per clause (i) of the second part, the depreciation is allowable on the assets of the undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee, as may be prescribed. As per clause (ii) of the second part, all other business undertakings are covered and the depreciation is allowed on the Written down value of block of assets at such percentage as may be prescribed.
5.2 A careful reading of section 32(1)(iii) shows that the said clause applicable only if the depreciation claimed and allowed under clause (i), i.e., clause (i) of second part, being the computation portion of the sec. 32(1) of the Act. We have already noted that the clause (i) of second part is applicable to an undertaking engaged in generation or generation and distribution of power.
5.3 Admittedly, the assessee herein is not engaged in the business of generation or generation and distribution of power and hence it has not claimed depreciation u/s 32(1)(i) of the Act. The assessee has claimed depreciation on its block of assets only u/s 32(1)(ii) of the Act.
5.4 We have also gone through the provisions of sec. 50 of the Act. As submitted by the ld DR, the provisions of section 50 shall be applicable, where the capital asset is an asset forming part of block of assets in respect of which depreciation has been allowed. In the instance case, there is no dispute with regard to the fact that the Car sold by the assessee was forming part of block of asset and depreciation was also allowed thereon. It is also an admitted fact that the concerned block has ceased exist on sale of Car. Hence, in our view, the ld DR was right in law in contending that the AO was right in law in invoking the provisions of section 50 of the Act in treating the loss as short term capital loss.
5.5 The ld AR placed heavy reliance on the decision of the Mumbai Benches of the Tribunal in the case of Mukand Global Finance Ltd.(supra). We have gone through the said decision and noticed that the fact that the provisions of section 32(1)(iii) shall be applicable only to the undertaking engaged in the business of generation or generation distribution of electricity was not brought to the notice of the Bench. Hence, we are not inclined to follow the said decision, as it was rendered without noticing that the provisions of sec. 32(1)(iii) shall not be applicable to the assessee therein.
5.6 In this regard, a gainful reference can be made to the return of Income prescribed under Income tax Rules, say ITR-5. Under Item 16 of Schedule DPM, an assessee is expected to declare the capital gains/loss under section 50 of the Act and the same is required to be carried forward to Schedule DCG and then to Schedule CG. The Income tax return form prescribed in the Income tax Rules supports the view taken by the AO.
6. In view of the forgoing decision, in our view, the decision rendered by the ld CIT(A) is not in accordance with the mandate of the provisions of the Act. Accordingly, we set aside the order of the ld CIT(A) and restore that of the AO.
7. In the result, the appeal filed by the revenue is allowed.
S.K.J.*In favour of revenue.
Change in Definition of "Governmental Authority"
Ministry of Finance amends definition of 'governmental authority' under Mega Exemption Notification No. 25/2012-ST dated June 20, 2012; As per amendment, 'Governmental Authority' means board / authority set up either by Act of Parliament / State Legislature or established by Govt, with 90% equity control; Earlier, such authority was required to be set by Govt and Act of Parliament / State Legislature : Finance Ministry Notification.
VMVSR
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)]
Government of India
Ministry of Finance
(Department of Revenue)
Notification No. 02/2014 - Service Tax
New Delhi, 30th January, 2014
G.S.R....(E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.25/2012-Service Tax, dated the 20th June, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide G.S.R. 467 (E), dated the 20th June, 2012, namely:-
In the said notification, in the paragraph 2, for clause (s), the following shall be substituted, namely:–
'(s) "governmental authority" means an authority or a board or any other body;
(i) set up by an Act of Parliament or a State Legislature; or
(ii) established by Government,
with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution;'.
[F.No. 354 /236/ 2013-TRU]
(Raj Kumar Digvijay)
Under Secretary to the Government of India
Note.- The principal notification was published in the Gazette of India, Extraordinary, vide notification No. 25/2012 - Service Tax, dated 20th June, 2012, number G.S.R. 467 (E), dated the 20th June, 2012 and was last amended by notification No.01/2014- Service Tax, dated the 10th January, 2014 G.S.R. 15(E), dated the 10th January,2014.
__________________________________________________________________
Notification No. 25/2012-Service Tax
New Delhi, the 20th June, 2012
2. Definitions (Definition Prior to Amendment)
(s) "governmental authority'' means a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution;
Best Wishes
CA. V.M.V.SUBBA RAO
Chartered Accountant
Door No.24-2-1885,
I Floor, Flat No.5,
Siddivinayaka Residency, I Cross,
Central Avenue, MSR Nagar,
Magunta Layout,
Nellore-524 003
Andhra Pradesh
India
Mobile:+91 - 0 9390221100
+91 - 0 9440278412
e-Mail: vmvsr@rediffmail.com
vmvsr@yahoo.co.uk
http://pdicai.org/MyPage/203038.aspxhttp://vmvsraoco.icai.org.in/
COMPANY CASES (CC) HIGHLIGHTS
F Investor, member u/s. 41(2) of 1956 Act, CLB treating such investor as member proper : Umesh Kumar Baveja v. IL and FS Transportation Network Ltd. (Delhi) p. 309
F Where question of maintainability of combined petition alien to controversy involved, not necessary to decide whether allottee of shares had tight of appeal u/s. 111A(2) of 1956 Act : Umesh Kumar Baveja v. IL and FS Transportation Network Ltd. (Delhi) p. 309
F Where dispute arose out of articles of association but articles of association not containing arbitration clause and entered into by different parties, s. 8 of A and C Act, 1996 not attracted : Umesh Kumar Baveja v. IL and FS Transportation Network Ltd. (Delhi) p. 309
F Appellants not raising any contention for adjudication before CLB, cannot maintain appeals u/s. 10F of 1956 Act : Gulbarga Airport Developers P. Ltd. v. IL and FS Transportation Network Ltd. (AP) p. 331
F Investor treated as member by CLB and recognised by company has right to maintain petition u/s. 397/398 of 1956 Act : Gulbarga Airport Developers P. Ltd. v. IL and FS Transportation Network Ltd. (AP) p. 331
F Winding up court has jurisdiction to decide application by landlord u/s. 535 of 1956 Act on proof of company in liquidation having interest in property : Wellman Wacoma Ltd. v. Tivoli Park Apartments P. Ltd. (Cal) p. 347
F Where company in liquidation trespasser on property, official liquidator to disclaim property : SST Media P. Ltd. (in liquidation) v. Official Liquidator, High Court, Calcutta (Cal) p. 360
F Circulars :
SEBI Circulars :
CIR/CFD/POLICY CELL/11/2013, dated 21st October, 2013-Formats under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Regulations) P. 71
CIR/IMD/DF/16/2013, dated 18th October, 2013-Gold Exchange Traded Fund Scheme (Gold ETFs) and Gold Deposit Scheme (GDS) of banks P. 71
CIR/MIRSD/10/2013, dated 28th October, 2013-Standardisation and Simplification of procedures for transmission of securities P. 78
CIR/MRD/DSA/32/2013, dated 4th October, 2013-Facilitating transaction in mutual fund schemes through the stock exchange infrastructure P. 69
F Regulations :
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) (Fifteenth Amendment) Regulations, 2013 P. 65
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) (Seventeenth Amendment) Regulations, 2013 P. 66
Securities and Exchange Board of India (Investor Protection and Education Fund) (Amendment) Regulations, 2014 P. 80
F Notifications :
Securities Contracts (Regulation) Act, 1956 : Notification under section 4 : Renewal of recognition to stock exchanges P. 68
F Bringing piercing back into fashion-Vishal Mishra and Payal Puri P. 95
F The concepts of company, body corporate, corporation and person under the Companies Act-Dr. K. Chandratre P. 82
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INCOME TAX REPORTS (ITR) HIGHLIGHTS
F Notifications :
Income-tax Act, 1961 : Notification under section 90 : Agreement between the Government of the Republic of India and the Council of Ministers of Republic of Albania for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital p. . . . 1
F Cancellation of registration of trusts to be with reference to objects satisfying definition of charitable purpose, as at time of registration and not by subsequent amendment to section 2(15) : Tamil Nadu Cricket Association v. Director of Income-tax (Exemptions) (Mad) p. 633
F Donation to society running school in backward area where assessee's factory was situate : Amount could not be disallowed under section 40A(9) : CIT v. Wipro Ltd. (No. 2) (Karn) p. 658
F Depreciation not allowable on goodwill in AY 1987-88 : CIT v. Wipro Ltd. (No. 2) (Karn) p. 658
F Contributions for religious functions and social clubs and donation to municipality for digging borewell : No evidence that expenditure incurred for purposes of business : Expenditure not allowable : CIT v. Wipro Ltd. (No. 2) (Karn) p. 658
F Expenditure on shifting machinery to make way for installation of new machinery : Capital expenditure : CIT v. Wipro Ltd. (No. 2) (Karn) p. 658
F Expenditure on painting to improve working environment : Revenue expenditure : CIT v. Wipro Ltd. (No. 2) (Karn) p. 658
F Assessee not entitled to deductions under sections 80HH and 80-I : CIT v. Wipro Ltd. (No. 2) (Karn) p. 658
F Debt written off in accounts deductible : CIT v. Wipro Ltd. (No. 2) (Karn) p. 658
F Reference to Departmental Valuation Officer only where value of capital asset shown by assessee less than its fair market value : CIT v. Daulal Mohta (HUF) (Bom) p. 680
F Deduction not claimed in return but in revised computation of income allowable : CIT v. Sam Global Securities Ltd. (Delhi) p. 682
F Value adopted by assessee much more than fair market value : Reference to Valuation Officer could not be made : CIT v. Puja Prints (Bom) p. 697
F Agent of non-resident ship belonging to Iranian company taken on charter by company in Netherlands : Agreement between assessee and charterer : Assessee was agent of owner of ship : Marine Links Shipping Agencies v. CIT (Karn) p. 709
F Amount paid to National Securities Depository Ltd. under statutory obligation : Expenditure deductible : CIT v. Infosys Technologies Ltd. (Karn) p. 714
F Expenditure on installing traffic signals to enable employees to reach place of work early deductible : CIT v. Infosys Technologies Ltd. (Karn) p. 714
F Assessee not able to specify post-sales expenses : Tribunal not justified in granting deduction : CIT v. Infosys Technologies Ltd. (Karn) p. 714
F Donation for charitable purposes : Benefit can be claimed both under sections 10A and 80G : CIT v. Infosys Technologies Ltd. (Karn) p. 714
F Return and revised return filed and notices under sections 143(2) and 142(1) issued before filing of application for advance ruling : Particulars of transaction shown in return in form of details of TDS : Application barred : J and P Coats Ltd., In re p. 686
F Return of income filed before application for advance ruling but notice under section 143(2) issued thereafter : Question not already pending before income-tax authorities : Advance ruling not barred : Aircom International Ltd., In re p. 693
F Advance ruling : Jurisdiction : Mere filing of return not bar where jurisdiction where notice not issued : Mitsubishi Corporation, In re p. 704
F C. B. D. T. Circulars :
Circular No. 1 of 2014, dated 13th January 2014-TDS under Chapter XVII-B of the Income-tax Act, 1961 on service tax component comprised in the payments made to residents-Clarification regarding . . . 53
F Rules :
Income-tax (First Amendment) Rules, 2014 . . . 43
F Schemes :
Rajiv Gandhi Equity Savings Scheme, 2013 : Gazette reference . . . 54
F Notifications :
F Income-tax Act, 1961 :
Directorate of Income-tax (Risk Assessment) : Establishment . . . 54
Notification under section 35AC(1), Expln., clause (b) :
Eligible projects or schemes . . . 54
Notification under section 80D(2)(a) :
Contributory Health Service Scheme of the Department of Space notified for the purpose of clause (a) . . . 43
Notification under section 90 :
Agreement between the Government of the Republic of India and the Government of Belize for the exchange of information with respect of taxes . . . 44
F Setting up short-term tax administration reform commission-Apparently a futile exercise with obscure role-T. N. Pandey, Retd. Chairman, CBDT . . . 45
F Transfer pricing under Income-tax Act, 1961 comparability in functions performed with respect to purchase of CKD kits and components-Vishal Mishra and Rahul Singh, Advocates . . . 57
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