2014 (6) TMI 1043 - AT - Income Tax

Tax on capital gain - sale of a capital asset as held as a business asset and depreciation was claimed on it - charged at 20% OR at the normal tax rate - computation of capital gain u/s 50 r.w, s 50C - HELD THAT - We are of the opinion that whenever depreciation is claimed on and assessed it has to be treated as STCG as per the provisions of the Act. But while calculating the tax liability of the assessee as per the provisions of section 112 of the Act the asset has to be taken as long term asset if same is hold for more than three years by the assessee in the case of Smita Conductors Ltd. 2013 (9) TMI 1056 - ITAT MUMBAI held that if the flat is held for more than three years the tax rate has to be applied as provided in section 112 of the IT Act applicable in respect of capital gain arising from transfer of long term capital asset. We therefore held that for the purpose of computation of capital gain the flat has to be treated as short term capital gain u/s 50 of the IT Act but 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. - Decided in favour of assessee.

Summary

Issues involved:
1. Applicability of tax rate on capital gain from the sale of a capital asset claimed as a business asset with depreciation.
2. Treatment of assets held by a notified person under the Special Court Act and the computation of income.

Analysis:

Issue 1: Applicability of tax rate on capital gain:
The primary issue in this case revolved around the determination of the tax rate applicable to the capital gain arising from the sale of a capital asset that was treated as a business asset with claimed depreciation. The Assessee contended that the tax on capital gain should have been charged at 20% instead of the normal tax rate. This additional ground raised by the Assessee was not decided initially, leading to the matter being recalled for adjudication on this specific issue. The argument put forth was that even if an asset is assessed in a particular manner for depreciation purposes, for tax calculation, it should be treated as a Long Term Capital Asset. The Assessee relied on relevant case laws and contended that the asset's holding period should determine the tax rate. The Tribunal, in line with previous judgments, held that while depreciation claimed on an asset should be treated as Short Term Capital Gain, for tax liability calculation under section 112 of the Act, the asset should be considered a long-term asset if held for more than three years. Consequently, the Tribunal decided in favor of the Assessee on this issue, allowing the appeal.

Issue 2: Treatment of assets held by a notified person under the Special Court Act:
The Assessee, a notified person under the Special Court Act, had its assets and bank accounts attached and vested in the custodian's hands. The assessment revealed discrepancies related to the sale of a property and the computation of income, including depreciation claims and indexation issues. The Assessing Officer treated the capital gains as Short Term Capital Gains due to the depreciation claimed on the property. The Assessee's appeal before the First Appellate Authority did not raise the issue of the applicable tax rate for capital gains. However, the additional ground raised before the Tribunal focused on the tax rate for the transaction in question. The arguments presented by both the Authorised Representative and the Departmental Representative centered on the interpretation of provisions related to exemptions and tax calculation. Ultimately, the Tribunal's decision on the tax rate issue resolved the matter in favor of the Assessee, allowing the appeal and directing the Assessing Officer to compute the capital gain and apply the appropriate tax rate based on the asset's holding period.

In conclusion, the judgment by the ITAT Mumbai addressed the issues of tax rate applicability on capital gains from the sale of a business asset with depreciation claimed, and the treatment of assets held by a notified person under the Special Court Act. The decision provided clarity on the computation of capital gains and the determination of tax rates based on the asset's holding period, ultimately ruling in favor of the Assessee and allowing the appeal.