PRABODH INVSTS & TRDG. COMPANY PVT.LTD., MUMBAI v. INCOME TAX OFFICER 3(2)(4), MUMBAI

ITA 6557/MUM/2008 | 2004-2005
Pronouncement Date: 28-02-2011 | Result: Partly Allowed

Appeal Details

RSA Number 655719914 RSA 2008
Assessee PAN AAACP4748F
Bench Mumbai
Appeal Number ITA 6557/MUM/2008
Duration Of Justice 2 year(s) 3 month(s) 16 day(s)
Appellant PRABODH INVSTS & TRDG. COMPANY PVT.LTD., MUMBAI
Respondent INCOME TAX OFFICER 3(2)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 28-02-2011
Date Of Final Hearing 10-02-2011
Next Hearing Date 10-02-2011
Assessment Year 2004-2005
Appeal Filed On 11-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI BEFORE SHRI R V EASWAR PRESIDENT AND SHRI R K PANDA ACCOUNTANT MEMBER I T A NO: 6557/MUM/2008 (ASSESSMENT YEAR: 2004-05) PRABODH INVESTMENT & TRADING COMPANY APPELLANT PRIVATE LIMITED MUMBAI (PAN: AAACP4748F) VS INCOME TAX OFFICER 3(2)(4) MUMBAI RESPONDENT APPELLANT BY: SHRI P J PARDIWALLA AND MR NITESH JOS HI RESPONDENT BY: SHRI R K SAHU O R D E R R V EASWAR PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE AND IT PERTAINS TO THE ASSESSMENT YEAR 2004-05. THE ASSESSEE IS A PRIVAT E LIMITED COMPANY ENGAGED IN THE BUSINESS OF INVESTMENT. THE APPEAL ARISES OUT OF THE ASSESSMENT ORDER PASSED ON 28.09. 2006 UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961. 2. THE FIRST ISSUE IN THIS APPEAL RELATES TO THE LO NG TERM CAPITAL GAINS ON THE SALE OF FLAT NO.901 AT PRATIKSHA WORL I. THE ASSESSEE SOLD THE FLAT FOR ` 1 30 00 000/-. IN THE RETURN OF INCOME THE ITA NO: 6557/MUM/2008 2 COMPUTATION OF THE CAPITAL GAINS ON THE SALE OF THE FLAT WAS SHOWN IN THE FOLLOWING MANNER: - SALE PROCEEDS OF FLAT 1 30 00 000 LESS: TRANSFER CHARGES 1 00 000 BROKERAGE 1 30 000 2 30 000 1 27 70 000 LESS: INDEX COST OF ACQUISITION COST OF ACQUISITION X COST INDEX 2003-04 COST INDEX 1987-88 = 29 60 916 X 460 90 80 142 150 LTCG BEFORE EXEMPTION U/S. 54EC 3 6 89 858 LESS: AMOUNT INVESTED IN NHB BONDS 40 00 000 TAXABLE LTCG NIL __________ IT WILL BE SEEN FROM THE ABOVE THAT THE ASSESSEE HA D CLAIMED THE BENEFIT OF COST INDEXATION WHILE COMPUTING THE CAPI TAL GAINS. THE ASSESSING OFFICER HOWEVER TOOK THE VIEW THAT THE FLAT WAS A DEPRECIABLE ASSET AND THEREFORE THE PROFIT ON THE SALE THEREOF HAS TO BE COMPUTED AS SHORT TERM CAPITAL GAINS AND WITH OUT THE BENEFIT OF COST INDEXATION. THE ASSESSEE HOWEVER SUBMITT ED BY PLACING RELIANCE ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ACE BUILDERS P. LTD. (2006) 281 ITR 210 (BOM) THAT THE INDEXATION BENEFIT SHOULD BE GRANTED EVEN IN RE SPECT OF DEPRECIABLE ASSET. THE ASSESSING OFFICER SOUGHT TO DISTINGUISH THE JUDGMENT ON THE GROUND THAT IT WAS CONCERNED ONLY W ITH THE ALLOWABILITY OF THE EXEMPTION UNDER SECTION 54E AND NOT WITH THE ALLOWABILITY OF THE COST INDEXATION BENEFIT. HE TH EREFORE HELD THAT THE AFORESAID JUDGMENT WAS NOT APPLICABLE TO THE ASSESS EES CASE AND FURTHER WENT ON TO POINT OUT THAT IN THE CITED CASE THE COST INDEXATION ITA NO: 6557/MUM/2008 3 BENEFIT WAS DENIED TO THE ASSESSEE AND THE CAPITAL GAINS WERE COMPUTED UNDER SECTION 50 OF THE ACT. 3. THE ASSESSEE THEREUPON POINTED OUT TO THE ASSESS ING OFFICER THAT IT DID NOT CLAIM DEPRECIATION ON THE FLAT FOR THE PAST SEVERAL YEARS. THE LAST YEAR IN WHICH DEPRECIATION HAD BEE N CLAIMED WAS THE ASSESSMENT YEAR 1991-92. IN THE ASSESSMENT YEA RS 1992-93 AND 1993-94 THE ASSESSEE CLAIMED DEPRECIATION ONLY IN THE BOOKS OF ACCOUNT BUT NOT IN THE RETURN OF INCOME. FOR TH E ASSESSMENT YEAR 1994-95 AND ALL SUBSEQUENT YEARS THE ASSESSEE DID N OT PROVIDE ANY DEPRECIATION IN RESPECT OF THE FLAT AS THE SAME WAS NOT USED AS OFFICE PREMISES DURING THE YEAR. FOR THESE YEARS T HE FLAT WAS CLASSIFIED AS A FIXED ASSET IN THE BALANCE SHEET AN D WAS SHOWN AT COST LESS DEPRECIATION. 4. THE ASSESSING OFFICER DID NOT HOWEVER CONSIDER THESE FACTS TO BE IN FAVOUR OF THE ASSESSEE. HE STRONGLY RELIE D ON SECTION 50 OF THE ACT. ACCORDING TO HIM THE FLAT WAS THE ONLY AS SET IN THE BLOCK CLASSIFIED AS OFFICE PREMISES AND THE WRITTEN DOWN VALUE OF THE BLOCK WAS REDUCED TO ZERO ON ACCOUNT OF THE SALE DURING T HE RELEVANT PREVIOUS YEAR. THEREFORE SECTION 50(1) WAS APPLIC ABLE. ACCORDING TO THE ASSESSING OFFICER IN THE CONCEPT OF BLOCK O F ASSETS THE INDIVIDUAL WRITTEN DOWN VALUE OF THE ASSETS FALLING IN THE BLOCK ARE NOT DIFFERENTIABLE FOR GRANT OF COST INDEXATION. I N HIS VIEW SECTION 50 DOES NOT ENVISAGE INDEXATION AT ALL. HE THEREFORE HELD THAT THE CAPITAL GAINS ARISING FROM THE SALE OF THE FLAT WIL L BE TAKEN AS SHORT ITA NO: 6557/MUM/2008 4 TERM CAPITAL GAINS. THE BENEFIT OF SECTION 54EC WA S HOWEVER ALLOWED. ULTIMATELY THE SHORT TERM CAPITAL GAINS W ERE COMPUTED BY HIM IN THE FOLLOWING MANNER: - SALE CONSIDERATION 1 30 00 000 LESS: TRANSFER CHARGES 1 00 000 BROKERAGE 1 30 000 2 30 000 LESS: WDV AS ON 31.03.2003 COST OF ACQUISITION 29 60 916 LESS: DEPRECIATION 4 99 975 24 60 941 SHORT TERM CAPITAL GAIN U/S.50 1 03 09 059 LESS: DEDUCTION U/S. 54EC 40 00 000 TAXABLE SHORT TERM CAPITAL GAIN 63 09 059 ========= PENALTY PROCEEDINGS U/S 271(1)(C) IS BEING INITIAT ED. IT WILL BE SEEN FROM THE ABOVE COMPUTATION OF THE A SSESSING OFFICER THAT HE DID NOT ALLOW THE COST INDEXATION BENEFIT W HILE COMPUTING THE CAPITAL GAINS SINCE IN HIS VIEW THE CAPITAL GAINS W ERE CHARGEABLE AS SHORT TERM CAPITAL GAINS UNDER SECTION 50 OF THE AC T. 5. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). HE NOTED THAT THE MERE FACT THAT THE ASSESSEE DID N OT CLAIM DEPRECIATION AFTER CLAIMING THE SAME FOR TWO YEARS DOES NOT ALTER THE NATURE OF THE ASSET WHICH CONTINUED TO BE A BUSINES S ASSET PARTICULARLY IN THE ABSENCE OF ANYTHING TO SUGGEST THAT THE ASSESSEE HAD TAKEN A CONSCIOUS DECISION TO TREAT THE FLAT AS INVESTMENT. HE NOTED THAT IN THE BALANCE SHEET THE FLAT WAS DESCRI BED AS FIXED ITA NO: 6557/MUM/2008 5 ASSET AND NOT AS INVESTMENT. THE CIT(A) ALSO CO NSIDERED IT TO BE OF NO EFFECT THAT THE INCOME ARISING FROM LETTING O UT THE FLAT IN SOME OF THE YEARS WAS OFFERED UNDER THE HEAD INCOME FRO M HOUSE PROPERTY. ACCORDING TO HIM THE INCOME OUGHT TO HA VE BEEN ASSESSED AS BUSINESS INCOME SINCE THE FLAT CONTIN UED TO BE A BUSINESS ASSET. ACCORDING TO HIM A MISTAKE COMMIT TED BY THE ASSESSEE AS WELL AS THE ASSESSING OFFICER CANNOT PR ODUCE THE RESULT THAT THE NATURE OF THE PROPERTY WAS CHANGED FROM BUSINESS ASSET TO INVESTMENT. THE CIT(A) THEREFORE HELD THA T THE FLAT FORMED PART OF THE BLOCK OF ASSETS AND THE SALE THEREOF GA VE RISE ONLY TO SHORT TERM CAPITAL GAINS BY VIRTUE OF SECTION 50 OF THE ACT. AS REGARDS THE COST INDEXATION BENEFIT HE HELD THAT S ECTION 50 DOES NOT ENVISAGE THE SAME AND THE BENEFIT WAS AVAILABLE ONL Y WHERE AN ASSET HELD AS INVESTMENT IS REALIZED. IT WOULD APP EAR THAT THE ASSESSEE HAD CITED AN ORDER OF THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF SAKTHI METAL DEPOT VS. ITO (2005) 3 SOT 368 (COCH) WHEREIN IT WAS HELD THAT A LONG TERM CAPITAL ASSET EVEN THOUGH USED AS A DEPRECIABLE ASSET IN THE PAST STILL COULD BE A LONG TERM CAPITAL ASSET FOR THE PURPOSE OF TAXATION IF THE PROPERTY WAS NOT TREATED AS A DEPRECIABLE ASSET AT THE TIME OF THE SALE. THIS ORDER WAS DISTINGUISHED BY THE CIT(A) ON THE GROUND THAT IN T HE SAID DECISION THE PROPERTY WAS SPECIFICALLY TREATED BY THE ASSESS EE AS AN INVESTMENT IN ITS BOOKS OF ACCOUNT. AS REGARDS THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF ACE BUILDERS P. LT D. (SUPRA) THE CIT(A) AGREED WITH THE ASSESSING OFFICER THAT IN TH IS DECISION THE HIGH COURT DID NOT ALLOW THE BENEFIT OF COST INDEXA TION IN RESPECT OF ITA NO: 6557/MUM/2008 6 SHORT TERM CAPITAL GAINS. HE ACCORDINGLY ENDORSED THE DECISION OF THE ASSESSING OFFICER. 6. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRI BUNAL. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL C ONTENTIONS. IN THE CASE OF ACE BUILDERS P. LTD. (SUPRA) THE HONBLE B OMBAY HIGH COURT HELD THAT THE FICTION CONTAINED IN SECTION 50 IS LIMITED TO COMPUTATION OF CAPITAL GAINS ONLY AND NOT TO THE EX EMPTION PROVISIONS SUCH AS SECTION 54E FOR WHICH PURPOSE N O DISTINCTION CAN BE DRAWN BETWEEN A DEPRECIABLE ASSET AND NON-DE PRECIABLE ASSET. IT WAS ACCORDINGLY HELD THAT THE EXEMPTION UNDER SECTION 54E WAS ALLOWABLE TO A LONG TERM CAPITAL ASSET NOTW ITHSTANDING THAT IT WAS HELD AS A BUSINESS ASSET ON WHICH DEPRECIATI ON HAD BEEN ALLOWED. IN OTHER WORDS IT WAS HELD THAT SECTION 50 CREATED A LEGAL FICTION ONLY FOR A LIMITED PURPOSE NAMELY FOR THE PURPOSE OF SECTIONS 48 AND 49 AND THAT IT CANNOT BE EXTENDED T O SECTION 54E OF THE ACT. IN OUR HUMBLE UNDERSTANDING THE JUDGMENT IS NOT OF ASSISTANCE TO THE ASSESSEE IN THE PRESENT CASE. AS POINTED OUT ON BEHALF OF THE DEPARTMENTAL AUTHORITIES THE RATIO O F THE JUDGMENT IS THAT THE FICTION CONTAINED IN SECTION 50 ONLY AFFEC TS THE COMPUTATION OF THE CAPITAL GAINS IN ACCORDANCE WITH SECTIONS 48 AND 49 BUT DOES NOT AFFECT THE BENEFIT CONFERRED BY SECTION 54E OF THE ACT. HOWEVER THE JUDGMENT ALSO RECOGNIZED THAT WHERE THE LONG TE RM CAPITAL ASSET HAS AVAILED OF DEPRECIATION THEN THE CAPITAL GAIN HAS TO BE COMPUTED IN THE MANNER PRESCRIBED BY SECTION 50 AND THE CAPITAL GAINS TAX WILL BE CHARGED AS IF SUCH CAPITAL GAINS HAD ARISEN OUT OF ITA NO: 6557/MUM/2008 7 THE TRANSFER OF A SHORT TERM CAPITAL ASSET. IF BY LEGAL FICTION THE LONG TERM CAPITAL GAINS IS TO BE TREATED AS SHORT TERM C APITAL GAINS THEN UNDER SECTION 50 THERE IS NO SCOPE FOR ALLOWING THE BENEFIT OF COST INDEXATION. THE JUDGMENT OF THE HONBLE BOMBAY HIG H COURT WAS NOT CONCERNED WITH THE BENEFIT OF COST INDEXATION A ND THE QUESTION WHETHER EVEN WHERE THE CAPITAL GAINS IS TO BE TREAT ED AS SHORT TERM CAPITAL GAINS UNDER SECTION 50 THE ASSESSEE WOULD BE ELIGIBLE FOR THE COST INDEXATION. IN FACT THE OBSERVATIONS OF T HE HONBLE HIGH COURT AT PAGES 219 220 OF THE REPORT DO SHOW THAT THE DECISION IS CONFINED TO THE RELATIONSHIP BETWEEN SECTION 50 AND SECTION 54E OF THE ACT. AT PAGE 218 THE QUESTION WAS POSED AS TO WHETHER THE DEEMING FICTION CREATED UNDER SECTION 50 IS RESTRIC TED TO SECTION 50 ONLY OR IS IT APPLICABLE TO SECTION 54E OF THE ACT AS WELL? WE ACCORDINGLY HOLD THAT THE ASSESSEE CANNOT RELY ON T HE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ACE BU ILDERS P. LTD. (SUPRA) TO CONTEND THAT THE COST INDEXATION BENEFIT SHOULD BE GIVEN EVEN IN THE CASE OF COMPUTATION OF SHORT TERM CAPIT AL GAINS UNDER SECTION 50 OF THE ACT. 7. THE NEXT CONTENTION OF THE ASSESSEE IS THE ONE B ASED ON THE ORDER OF THE COCHIN BENCH OF THE TRIBUNAL CITED SUP RA. IN THAT CASE THE ASSESSEE STOPPED CLAIMING DEPRECIATION ON THE F LAT FROM THE ASSESSMENT YEAR 1995-96 ONWARDS ON THE GROUND THAT IT WAS NO MORE USED FOR THE PURPOSE OF THE BUSINESS. IN THE BOOKS OF ACCOUNT THE FLAT WAS SHOWN AS AN INVESTMENT FROM 01.04.1995 . IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1998- 99 THE FLAT WAS ITA NO: 6557/MUM/2008 8 SOLD AND THE SURPLUS WAS DECLARED AS LONG TERM CAPI TAL GAINS. THE INCOME TAX AUTHORITIES HELD THAT THE CAPITAL GAINS SHOULD BE ASSESSED AS SHORT TERM CAPITAL GAINS ON THE FOOTING THAT THE FLAT MIGHT HAVE BEEN USED FOR BUSINESS PURPOSES EVEN IN THE ASSESSMENT YEARS 1996-97 AND 1997-98. ON FURTHER A PPEAL TO THE TRIBUNAL IT WAS HELD THAT THE FLAT CEASED TO BE A BUSINESS ASSET OR DEPRECIABLE ASSET ON AND WITH EFFECT FROM 01.04.199 5 AND ITS CHARACTER DURING THE ACCOUNTING YEAR ENDED ON 31.03 .1998 WAS THAT OF A LONG TERM CAPITAL ASSET AND THEREFORE THE CA PITAL GAINS SHOULD BE COMPUTED AS LONG TERM CAPITAL GAINS. IN THIS OR DER THE PROVISIONS OF SECTION 50A WERE REFERRED TO. THIS SECTION MAKE S SPECIAL PROVISION FOR COST OF ACQUISITION IN THE CASE OF DE PRECIABLE ASSET. IT SAYS THAT WHERE THE CAPITAL ASSET IS ONE IN RESPECT OF WHICH DEPRECIATION WAS ALLOWED IN ANY PREVIOUS YEAR; THE PROVISIONS OF SECTIONS 48 AND 49 SHALL APPLY SUBJECT TO THE MODIF ICATION THAT THE WRITTEN DOWN VALUE OF THE ASSET AS ADJUSTED SHALL BE TAKEN AS THE COST OF ACQUISITION. RELYING ON THIS PROVISION THE TRIBUNAL HELD THAT BUT FOR THE DIFFERENCE IN THE COST OF ACQUISITION A PAST CLAIM OF DEPRECIATION DOES NOT CHANGE THE CHARACTER OF THE A SSET AS SUCH. THIS ORDER OF THE TRIBUNAL SUPPORTS THE ASSESSEES CASE BEFORE US. IN THE PRESENT CASE ALSO THE ASSESSEE HAD STOPPED C LAIMING DEPRECIATION IN THE INCOME TAX RETURN FOR THE ASSES SMENT YEARS 1992-93 AND 1993-94. IT HAD CLAIMED DEPRECIATION I N RESPECT OF THE FLAT ONLY IN THE ASSESSMENT YEARS 1990-91 AND 1991- 92. FOR THE ASSESSMENT YEAR 1994-95 AND ALL SUBSEQUENT YEARS TH E ASSESSEE HAD MADE A NOTE IN ITS ACCOUNTS FILED WITH THE RETU RNS CLARIFYING THAT ITA NO: 6557/MUM/2008 9 NO DEPRECIATION WAS PROVIDED IN RESPECT OF THE FLAT AS THE SAME WAS NOT USED DURING THE YEAR FOR THE PURPOSE OF THE BUS INESS. FROM THE ASSESSMENT YEAR 1994-95 UP TO THE ASSESSMENT YEAR 2 004-05 THE FLAT WAS CLASSIFIED IN THE BALANCE SHEET AS A FIXED ASSET AND SHOWN AT COST LESS DEPRECIATION. THESE FACTS ARE RECORDE D IN PARAGRAPH 8 OF THE ASSESSMENT ORDER. IN THE ASSESSMENT YEARS 2 000-01 AND 2001-02 THE FLAT HAD BEEN LET OUT AND THE RENTAL I NCOME WAS SHOWN UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT WO ULD THUS APPEAR THAT AFTER THE ASSESSMENT YEAR 1993-94 NO DEPRECIAT ION WAS PROVIDED EVEN IN THE BOOKS OF ACCOUNT AND NO DEPREC IATION HAD BEEN CLAIMED OR ALLOWED IN THE RETURN OR IN THE ASS ESSMENTS. IN THIS FACTUAL SITUATION THE ORDER OF THE COCHIN BENCH OF THE TRIBUNAL CITED SUPRA IS APPLICABLE IN WHICH IT WAS HELD THAT IF N O DEPRECIATION HAD BEEN CLAIMED OR ALLOWED IN RESPECT OF THE ASSET EV EN THOUGH FOR AN EARLIER PERIOD DEPRECIATION WAS CLAIMED AND ALLOWED FROM THE YEAR IN WHICH THE DEPRECIATION CLAIMED WAS DISCONTINUED THE ASSET WOULD CEASE TO BE A BUSINESS OR DEPRECIABLE ASSET A ND IF THE ASSET HAD BEEN ACQUIRED BEYOND THE PERIOD OF THIRTY SIX M ONTHS FROM THE DATE OF SALE IT WOULD BE A CASE OF LONG TERM CAPIT AL GAINS. IN OUR HUMBLE UNDERSTANDING THE RATIO OF THE ORDER APPEAR S TO BE THAT THE ASSET HAD CEASED TO BE A BUSINESS ASSET AND HAD BEC OME AN INVESTMENT. 8. THE ORDER OF THE COCHIN BENCH IN THE CASE OF SAK THI METAL DEPOT (SUPRA) HAS BEEN DISTINGUISHED BY THE CIT(A) ON THE GROUND THAT IN THAT CASE THE PROPERTY WAS SPECIFICALLY TRE ATED IN THE BOOKS ITA NO: 6557/MUM/2008 10 AS AN INVESTMENT WHEREAS IN THE ASSESSEES CASE THE FLAT HAS BEEN SHOWN IN THE BALANCE SHEET AS A FIXED ASSET AND NOT AS AN INVESTMENT. THIS HOWEVER DOES NOT MAKE ANY DIFFERE NCE TO THE RATIO OF THE SAID ORDER FOR THE REASON THAT IN THE CASE B EFORE THE COCHIN BENCH THE ASSESSEE WAS A PARTNERSHIP FIRM AND COULD THEREFORE SHOW THE ASSET AS AN INVESTMENT IN THE BALANCE SHEE T WHEREAS IN THE CASE BEFORE US THE ASSESSEE IS A PRIVATE LIMITE D COMPANY AND THE COMPANIES ACT PROVIDES THAT THE FLAT SHOULD BE SHOWN AS FIXED ASSET EVEN IF IT IS NOT HELD AS A BUSINESS ASSET A ND IS HELD AS AN INVESTMENT. THE CHARACTER OF THE ASSET HAS BEEN CH ANGED FROM THAT OF A BUSINESS ASSET TO AN INVESTMENT SHOWN AS FIXED ASSET IN THE BALANCE SHEET. EVEN OTHERWISE THE MANNER IN WHICH THE ASSET IS SHOWN IN THE ACCOUNTS OF THE ASSESSEE MAY NOT BE CO NCLUSIVE IF THERE ARE FACTS TO SHOW THAT FOR A LONG PERIOD OF T IME THE ASSET HAD CEASED TO BE A BUSINESS ASSET AND NO DEPRECIATION W AS CLAIMED OR ALLOWED THEREON. IN THE PRESENT CASE NOT ONLY WAS THE CLAIM OF DEPRECIATION IN RESPECT OF THE FLAT DISCONTINUED BY THE ASSESSEE AFTER THE ASSESSMENT YEAR 1993-94 BUT THE FLAT HAD BEEN LET OUT FOR RENT FROM THE ASSESSMENT YEAR 1994-95. FOR A FEW Y EARS I.E. FROM THE ASSESSMENT YEARS 1994-95 TO 1999-2000 THE RENT AL INCOME WAS OFFERED AS BUSINESS INCOME. HOWEVER FROM THE ASSESSMENT YEAR 2000-01 THE RENTAL INCOME WAS OFFERED FOR ASS ESSMENT UNDER THE HEAD PROPERTY. THERE IS NOTHING TO SHOW THAT IT WAS ONE OF THE BUSINESSES OF THE ASSESSEE AS PER ITS OBJECT CLAUS E IN THE MEMORANDUM OF ASSOCIATION TO LET OUT FLATS ON RENT . EVEN IF THAT WERE TO BE SO WHEN THERE IS A SPECIFIC HEAD UNDER WHICH THE RENT ITA NO: 6557/MUM/2008 11 HAS TO BE ASSESSED NAMELY INCOME FROM HOUSE PROP ERTY THE FACT THAT IT WAS ASSESSED FOR SOME YEARS AS BUSINESS INC OME CANNOT BE HELD AGAINST THE ASSESSEE. THE QUESTION IS WHETHER THE CHARACTER OF THE ASSET DID CHANGE AND THE ASSET BECAME A FIXE D ASSET OR INVESTMENT AND CEASED TO BE A BUSINESS ASSET. IN O UR OPINION THE MOMENT THE ASSESSEE STOPPED CLAIMING DEPRECIATION I N RESPECT OF THE FLAT AND EVEN LET OUT THE SAME FOR RENT; IT CEA SED TO BE A BUSINESS ASSET. ACCORDINGLY THE ORDER OF THE COCHI N BENCH IN SAKTHI METAL DEPOT (SUPRA) APPLIES IN FAVOUR OF THE ASSESSEE. 9. OUR VIEW IS ALSO FORTIFIED BY ANOTHER ORDER OF T HE MUMBAI BENCH OF THE TRIBUNAL DATED 31.01.2007 IN THE CASE OF M/S GLAXO LABORATORIES (I) LTD. FOR THE ASSESSMENT YEARS 1989 -90 TO 1991-92. THOUGH IN THIS CASE THE CONTROVERSY WAS DIFFERENT THE TRIBUNAL HAS NOTICED AND OBSERVED THAT WHEN CERTAIN FLATS WHICH WERE EARLIER USED FOR BUSINESS PURPOSE CEASED TO BE SO USED AND WERE LET OUT FOR RENT THE CHARACTER OF THE ASSET HAD ALTERED OR CHANGED AND THEREFORE NO DEPRECIATION WOULD BE ALLOWABLE ON THO SE FLATS. THE FACT TO BE NOTICED IN THIS ORDER IS THAT THE ASSESS EE HAD CLAIMED DEPRECIATION ON THE FLATS FOR AN EARLIER PERIOD AND THEREAFTER THE FLATS WERE LET OUT FOR RENT BUT STILL THE ASSESSEE CLAIM ED DEPRECIATION AGAINST THE RENTAL INCOME. THE BASIS OF THE CLAIM WAS THAT THE FLATS CONTINUED TO REMAIN IN THE BLOCK OF ASSETS. THE CL AIM WAS DISALLOWED BY THE TRIBUNAL ON THE GROUND THAT SINCE THE USER OF THE FLATS WAS CHANGED THE CHARACTER OF THE ASSETS ALSO UNDERWENT A CHANGE AND THEY CAN NO LONGER BE CONSIDERED AS BUSI NESS ASSETS. ITA NO: 6557/MUM/2008 12 THE PRINCIPLE OF THIS ORDER THOUGH LAID DOWN IN A DIFFERENT CONTEXT WOULD SUPPORT THE ASSESSEE IN THE SENSE THAT IT IS POSSIBLE FOR A BUSINESS ASSET TO CHANGE ITS CHARACTER INTO THAT OF A FIXED ASSET OR INVESTMENT. 10. IN THE PRESENT CASE THERE IS ALSO NO DISPUTE TH AT THE FLAT UNDER CONSIDERATION WAS PURCHASED BY THE ASSESSEE I N THE YEAR 1987. IT WAS THUS HELD FOR A PERIOD OF MORE THAN T HIRTY SIX MONTHS AND THEREFORE A LONG TERM CAPITAL ASSET. ACCORDING LY THE CAPITAL GAINS IS DIRECTED TO BE ASSESSED AS LONG TERM CAPIT AL GAINS AFTER ALLOWING THE BENEFIT OF COST INDEXATION AS CLAIMED BY THE ASSESSEE. 11. IT WAS ALSO ARGUED ON BEHALF OF THE ASSESSEE TH AT SECTION 112 OF THE ACT WOULD APPLY AND IN CASE THE CAPITAL GAINS ARE ASSESSED AS LONG TERM CAPITAL GAINS THE ASSESSING OFFICER SHOULD BE DIRECTED TO APPLY THE APPROPRIATE RATE OF TAX AS PROVIDED IN THE ABOVE SECTION. SINCE IN OUR VIEW THE CAPITAL GAINS ARE LONG TERM CAPITAL GAINS THE ASSESSEES CONTENTION IS CORRECT . HOWEVER SINCE THE ENTIRE CAPITAL GAINS WILL THEN BE EXEMPT UNDER SECTION 54EC OF THE ACT WHICH EVEN THE ASSESSING OFFICER HAS NOT D ENIED THE CONTENTION IS ACADEMIC. 12. GROUND NO.3 IS AS UNDER: - 3.0 COMPUTATION OF MINIMUM ALTERNATIVE TAX UNDER SECTION 115JB: 3.1 THAT ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED ITA NO: 6557/MUM/2008 13 IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN NOT REDUCING THE PROFIT EARNED BY THE PETITIONER ON SALE OF FLAT FOR THE PURPOSES OF COMPUTING THE BOOK PROFITS UNDER SECTION 115JB. 13. IT IS AGREED BY THE PARTIES THAT THIS GROUND IS COVERED IN FAVOUR OF THE DEPARTMENT BY THE ORDER OF THE SPECIA L BENCH IN THE CASE OF RAIN COMMODITIES LTD. VS. DCIT (2010) 40 SO T 265 (HYD) (SB). ACCORDINGLY THE ORDERS OF THE DEPARTMENTAL A UTHORITIES IN RESPECT OF THIS GROUND ARE CONFIRMED AND THE GROUND IS DISMISSED. 14. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY 2011. SD/- SD/- ( R K PANDA) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI DATED 28 TH FEBRUARY 2011 SALDANHA COPY TO: 1. PRABODH INVESTMENT & TRADING CO. PVT. LTD. 2/12 PUSHPA VIHAR OPP. COLABA POST OFFICE MUMBAI 400 005 2. ITO 3(2)(4) MUMBAI 3. CIT-3 MUMBAI 4. CIT(A)-III MUMBAI 5. DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI