S. 50/ 112: Though gains on depreciable assets held for more than 3 years have to be treated as STCG u/s 50, the gains have to be taxed at the rate applicable to a LTCG

The assessee sold a flat at Khar for Rs. 35 lakhs. Since the flat was a business asset and had been shown as part of the block of assets, the assessee computed capital gains u/s 50 at Rs. 12.52 lakhs after deducting the WDV of block of assets from the sale price. AO held that as the stamp value of the flats sold was Rs. 59 lakhs, s. 50C applied and the said value had to be substituted for the consideration received. The CIT(A) upheld the AO’s stand. Before the Tribunal, the assessee claimed that (ii) s. 50C did not apply to depreciable assets and (ii) for the purpose of application of tax rate, the capital gain has to be assessed as long-term capital gain as the flat had been held for more than three years. HELD by the Tribunal:

The assessee’s stand that s. 50C does not apply to depreciable assets is not acceptable in view of United Marine Academy 130 ITD 113(Mum) (SB). As regards the rate of tax, s. 50, which deems the capital gains as short-term capital gain is only for the purposes of sections 48 and 49 which relate to computation of capital gain. The deeming provisions have to be restricted only to computation of capital gain and for the purpose of other provisions of the Act the capital gain has to be treated as long-term capital gain. Consequently, though for the purpose of computation of capital gain, the flat has to be treated as short-term capital gain u/s 50, for the purpose of applicability of tax rate it has to be treated as long-term capital gain if held for more than three years (ratio of Ace Builders 281 ITR 410(Bom) & Manali Investments 139 TTJ 411(Mum) followed)