Deemed STCG under sec. 50 qualifies for sec. 54EC relief as deeming fiction only provides mode of computation

Capital gain computed under section 50 qualifies for exemption if investment is made out of sale proceeds towards prescribed bonds under section 54EC.

In the instant case the issue that arose for consideration of High Court was as under:

Whether the exemption permitted by the statute under Section 54EC shall be available in the case of capital gains arising out of transfer of depreciable asset under section 50?

The High Court held in favour of assessee as under:

1)  The Madras High Court in the case of M. Raghavan v. Asstt. CIT [2004] 134 Taxman 790 has held as under:

The object of introducing section 50 was to disentitle the owners of such depreciable assets from claiming the benefit of indexing. The said provision was never meant to confer such multiple benefits to assessees selling depreciable assets;

2)  Section 50 creates a deeming fiction only for mode of computation of capital gains under sections 48 and 49 and not for other provisions;

3)  Section 54EC does not make any distinction between depreciable assets and non-depreciable assets and, therefore, deduction available under section 54EC shall be available in case of capital gains arising out of transfer of depreciable asset, if investment is made out of sale proceeds towards prescribed bonds under section 54EC;

4) Thus, the appeal of revenue was to be dismissed. – CIT v. Polestar Industries [2014] 41 taxmann.com 237 (Gujarat)