S. 50 : Capital gains-depreciable assets-Block of assets-Sale of depreciable asset-Long-term capital asset-Short term capital gains- Tax is leviable at 20% as long term under seecti0n 112 of the Act and not at 30% which is applicable to short term capital gains. [S. 2(11), 2(29AA), 2(29B), 2(42A), 2(42B), 2(45), 43(6), 48, 49, 50(1), 50(2), 50A, 54, 54EC, 74, 112 (1)]
Assessee held a depreciable asset. It sold the asset and had gains. It declared the gains as short term capital gains u/s 50, but paid tax at the rate of 20% as long term u/s 112. Assessing Officer disagreed with the view and levied tax at 30% which should be applied in short term gain and did not follow Bombay high court decision but followed ITAT order in own case in earlier year where gain on depreciable asset was assessed and taxed at 30% Since conflicting decision the appeal was referred to special bench. The question before the Special Bench was “Whethe, on the given facts and circumstances of the case and in law, the capital gains under section 50 of the Act arising out of sale of long term capital asset is chargeable at the rate applicable to short term capital gains or rates applicable to long term capital gains under section 112 of the Act?” By a 2:1 majority, the Mumbai ITAT Special Bench held as under :
1. Fiction created by the legislature in sec 50 has to be confined to the purpose for which it is created
2. ⁠Section 50 was enacted with the object of denying multiple benefits to the owners of a depreciable asses, however that restriction is limited to the computation of capital gains and not to the exemption provision
3. ⁠if depreciation has been availed on long term capital asset, then the capital gains has to be computed in the manner u/s 50
4. ⁠For the purpose of granting exemption u/s 54 , which is applicable to long term capital gains , the high court has held that for the purpose of exemption it is to be treated as long term capital gains
5. ⁠Once the high court has held that S. 50 does not convert a long term capital asset to a short term capital asset, then the rate of tax is applicable for the transfer of long term capital asset which has to be in accordance with S. 112. Deeming fiction of S. 50 cannot be imported in S. 112
6. ⁠Even in the context of set off against brought forward long term capital loss, high court in another case has held that deeming fiction is restricted only to the mode of computation of capital gains and does not change character of capital asset
7. ⁠S. 112 uses the word long term capital asset, and S. 50 only deems the capital gain as short term capital gain and does not deem the asset as short term
8. ⁠Thus tax on S. 50 assets, if held for more than 36 months would be taxed at 20% and applicable surcharge Contra view. Dissenting view

1. If interpretation as above is accepted, then the entire provision of S. 50 will be rendered otiose. Then there is no purpose of keeping of S. 50 in the statute
2. ⁠The entire purpose of introducing the deeming fiction is not to grant concessional rate of tax to a depreciable asset as depreciation has been treated as a revenue expenditure
3. ⁠Section 50 was introduced with the objective of level playing field for both
4. Intention was not to allow Multiple benefits of deduction
5. ⁠The incentive was to sell a depreciable asset and buy another depreciable capital asset and this was the purpose of Bombay High Court in granting 54 E benefit
6. ⁠Section 112 cannot decide character of capital gain whether it would be short term or long term
7. ⁠If the view is to be followed, then an anomalous situation may arise, where the income under the head capital gains determine u/s 50 would be only as an ornamental item, undermining the purpose of exercise for computing short term capital gain Such an interpretation would contradict the legislative intent.
Contra view was not accepted by the majority who held that concessional rate of tax would be applicable on Section 50 capital gains too. (AY. 2000-01) (ITA No.7544 of 2011 dt. 3-10-2024 )
SKF India Ltd. v. Dy. CIT (SB) (Mum)(Trib) www.itatonline.org
(Coram : Hon’ble Shri Amit Shukla Judicial Member, Hon’ble Shri Vikas Awasthy, Judicial Member & Hon’ble Shri Om Prakash Kant, Accountant Member)