2020 (6) TMI 368 - AT - Income Tax

Capital gain computation - application of Sec. 50 - Short Term Capital Gains - whether the profit on sale of immovable property is liable to tax as short term capital gains STCG or long term capital gains LTCG ? - CIT in treating the profit on sale of asset (vacant land) as Short Term Capital Gains holding that it formed part of block of assets in companies' book - HELD THAT - Bench observed that the audited accounts and computation of income is required to appreciate the arguments of the ld. AR of the assessee but the ld. AR insisted on hearing the appeal without the said documents. In the absence of any documentary evidence in support of assesee s claim that the property sold in question was not a depreciable asset, we find no reason to interfere in the order of the ld.CIT(A). Appeal of the assessee is dismissed.

Issues:
1. Classification of profit on sale of asset as Short Term Capital Gains (STCG) by DCIT and CIT(A).
2. Application of Section 50 of the Income Tax Act, 1961 to the asset sale.
3. Opportunity given to the appellant to demonstrate the nature of the building on the land.
4. Claim of the asset being a part of a block of assets under Sec.50.
5. Determination of the asset as a long term capital asset for tax purposes.

Issue 1: Classification of profit on sale of asset as Short Term Capital Gains (STCG)
The appeal contested the classification of the profit on the sale of an asset as STCG by the DCIT and CIT(A). The appellant argued that the property was primarily vacant land, while the authorities asserted that it included a building, thus falling under the provisions of Section 50 of the Income Tax Act, 1961. The appellant claimed that the building was a small structure for storage and service lines, not a depreciable asset, and that no depreciation had been claimed on the property. However, the authorities maintained that the property was correctly classified as a block of assets under Sec.50, leading to the treatment of the profit as STCG.

Issue 2: Application of Section 50 of the Income Tax Act, 1961
The crux of the dispute revolved around the application of Section 50 of the Income Tax Act, 1961 to the sale of the asset. The appellant contended that since no depreciation had been claimed on the property, it did not meet the definition of a block of assets under Sec.50. On the contrary, the authorities argued that based on the description in the partnership and sale deeds, the property included a building and thus fell under the purview of Sec.50. The CIT(A) upheld the application of Sec.50, leading to the classification of the profit as STCG.

Issue 3: Opportunity to demonstrate the nature of the building on the land
The appellant raised concerns regarding the lack of opportunity to demonstrate that the building on the land was a small structure for specific purposes and not a depreciable asset. However, the Tribunal noted that in the absence of documentary evidence supporting the appellant's claim, there was no basis to interfere with the CIT(A)'s order, which upheld the classification of the property as a block of assets under Sec.50.

Issue 4: Claim of the asset being a part of a block of assets under Sec.50
The appellant argued that the property did not conform to the definition of a block of assets under Sec.50 since no depreciation had been claimed on it. However, the authorities maintained that the property, including the building, fell within the definition of a block of assets, justifying the application of Sec.50 and the consequent treatment of the profit as STCG.

Issue 5: Determination of the asset as a long term capital asset for tax purposes
The appellant contended that the sale of the land should have been treated as a long term capital asset since it had been held for over three years. However, the authorities applied Sec.50, treating the profit as STCG, leading to the disagreement between the appellant and the tax authorities on the appropriate tax treatment of the transaction.

In conclusion, the Tribunal dismissed the appeal, upholding the classification of the profit on the sale of the asset as Short Term Capital Gains based on the application of Section 50 of the Income Tax Act, 1961. The decision was supported by the description of the property in the partnership and sale deeds, which indicated the presence of a building on the land, thereby justifying its treatment as a block of assets under Sec.50.

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