****Sonu Nigam - Failed in Tax Planning*****

Famous Singer Sonu Nigam, miserably failed in Tax Planning and get trapped into his own Block of Asset. Here's the entire story :-

What was the Issue?
  • Sonu Nigam had sold 2 flats in Amarnath Towers for Rs.161,75,480 out of which his was share was 50% that is Rs.80,87,740.
  • WDV of block of those depreciable asset was only Rs.3,81,661 
  • Therefore, as per Section 50 of Income Tax Act,1961 short-term capital gains of Rs.67,06,074 were assessable.
Objections raised by Sonu Nigam against the Assessment:-
  • The said Blocked was not extinguished as during the year he had purchased property worth Rs.1,24,68,460 in Lakhani Centrium (Let's name this "Property A")
  • He was also using a part of his residential premises for office purposes which was purchased in earlier years for Rs.10,24,90,407 and cost of this building was also part of Depreciable Block( Let's name this "Property B").
  • Sonu Nigam's contention was that the Property A and Property B even though they are not depreciable would still form part of the depreciable block of asset and by that contention even after the sale of the Amarnath Property block would have a WDV
Views taken by Assessing Officer:
  •  AO noted that the Income from Property A was chargeable under the head Income from House Property.
  •  Sonu Nigam had not claimed any depreciation in the past or in the present. 
  • The AO concluded that the provisions of Section 50 was attracted as the block of assets ceased to exist.
Sonu Nigam moved for an Appeal before CIT(Appeals):-
CIT(A) confirmed the action of the Assessing Officer and further said that:-
  • With reference to Section 2(11), 43(6) and 50.
  • Section 50 begins with the non-obstante clause that the capital asset should form part of a block of assets in respect of which depreciation has been allowed.
  • What is common between all the three sections, is that Asset should be depreciable. If an asset is not depreciable, it would not come within the definition of block of assets as it would not have any rate of depreciation.
  • Section 50 would not apply to Non- depreciatble assets.
And then Sonu Nigam went in Appeal before Mumbai Tribunal (ITAT):-
 ITAT observation was:-

  • Property B was treated as Self Occupied Property and it could not be enter into block of depreciable asset.
  • Since the Assessee had not claimed any depreciation on the same even in earlier period the assessee's claim of the part of the building used for official purposes can only be said to be an afterthought.
  • Income from Property A was chargeable under Income from House Property.
  • When the income from the new flat was being offered as income from house property by no stretch of imagination it could be said that it would fall into the block of depreciable asset.
  • Property A and Property B never entered the block of depreciable asset as income from them was falling under the head income from house property.
 Accordingly Tribunal Confirmed the order of CIT(A) and Sonu Nigam was trapped into his own Block of Assets :) 

[Reference:- Sonu Nigam V Asstt.CIT(2019)]
***Thank you***


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