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2010 (12) TMI 815 - AT - Income TaxCapital gain - Lump sum sale - it is noted that the assessee included the property in its schedule of fixed assets for this year at Rs. 8, 91, 460. No depreciation was claimed in this year - It can be noticed that the value of this property as appearing in the balance sheet for assessment year under consideration at Rs. 8, 91, 460 continues to remain the same since its purchase in 1999. It shows that no depreciation was ever claimed or allowed on this property - In that view of the matter the provisions of s. 50 cannot be applied - Decided in favour of the assessee
Issues:
Appeal against treatment of long-term capital gain as short-term capital gain under section 50 of the Income Tax Act. Analysis: The appeal arises from the CIT(A)'s order regarding the assessment year 2006-07. The main contention is the AO's treatment of long-term capital gain on the transfer of an office premises as short-term capital gain under section 50 of the Act. The assessee, a civil engineering contracting firm, sold a property and offered the income as long-term capital gain. The AO invoked section 50, questioning why depreciation was not claimed on the property. The assessee explained that the property was not used for business purposes, and no depreciation was claimed. The AO disagreed, citing section 50 and computed short-term capital gain. The CIT(A) upheld the AO's decision. Upon review, it was crucial to consider section 50, which applies when a capital asset forming part of a block of assets has had depreciation allowed on it. In this case, the property was included in the fixed assets schedule without any depreciation claimed. Merely not claiming depreciation in one year is insufficient to trigger section 50; it must never have been allowed. The balance sheets confirmed that no depreciation had been claimed since the property's purchase in 1999. Consequently, section 50 could not be applied. The impugned order was overturned, and the long-term capital gain declared by the assessee was accepted. No errors were found in the assessee's calculations. In conclusion, the appeal was allowed in favor of the assessee, emphasizing the necessity for fulfilling the conditions of section 50 to treat capital gains as short-term capital gains.
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