2021 (4) TMI 1083 - AT - Income Tax

Computation of capital gains under section 50 - no depreciation had been claimed or allowed in respect of the asset - Whether on Sale of any asset falling in the block of assets the same has to be reduced for the WDV of the said block of Asset any not from the individual asset as done by Assessing Officer? - as per assessee no deprecation was claimed on these 17 units since Financial Year 2011-12 but the Assessing Officer treated the gain on sale of these units as short term capital gain under section 50C of the Act and computed the capital gain - HELD THAT - We noted that the assessee has claimed depreciation on the property sold as Lunkard Sky Max of 17 units in AYs 2010-11 and 2011-12. But from AY 2012-13 i.e. Financial Year 2011-12 out of 17 units 7 units were given on rent and accordingly rental income was shown as income from house property and no depreciation was claimed on this property. We noted that this issue has been decided by Co-ordinate Bench of Mumbai in the case of M/s Prabodh Investment Trading Company Pvt. Ltd 2011 (2) TMI 1433 - ITAT MUMBAI as held if no depreciation had been claimed or allowed in respect of the asset even though for an earlier period depreciation was claimed and allowed from the year in which the depreciation claimed was discontinued the asset would cease to be a business or depreciable asset and if the asset had been acquired beyond the period of thirty six months from the date of sale it would be a case of long term capital gains. In our humble understanding the ratio of the order appears to be that the asset had ceased to be a business asset and had become an investment Once this is a fact that the moment assessee stopped claiming depreciation in respect of property and let out the same for rent it ceases to be a business asset and thus the profit or gain arising out of sale of property is to be considered as long term capital gain after indexation. - Decided in favour of assessee.

Summary

Issues Involved:
1. Computation of capital gains under section 50 of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Computation of capital gains under section 50 of the Income-tax Act, 1961:

The appeal arose from the order of the Commissioner of Income Tax (Appeals) regarding the computation of capital gains under section 50 of the Act. The appellant raised the additional ground concerning the computation of capital gains under section 50, emphasizing the method of reducing the WDV of the block of assets rather than individual assets. The Assessing Officer treated the gain on the sale of units as short-term capital gain under section 50C, resulting in a dispute over the nature of the capital gain.

The CIT(A) upheld the Assessing Officer's decision, invoking sections 50 and 50A for the computation of short-term capital gain. However, the Tribunal noted that once the property was let out and depreciation was not claimed, it ceased to be a business asset. Citing a Co-ordinate Bench decision, the Tribunal held that if no depreciation was claimed or allowed on the asset, it would be considered a long-term capital asset, leading to long-term capital gains upon sale. Therefore, the Tribunal directed the Assessing Officer to treat the gain as long-term capital gain after indexation, ultimately allowing the appeal of the assessee.

In conclusion, the Tribunal's decision clarified the treatment of capital gains under section 50 of the Income-tax Act, emphasizing the significance of depreciation claims and the status of assets as business assets. The judgment provided a detailed analysis of the legal grounds and relevant precedents to determine the nature of the capital gain, ensuring a fair and accurate computation under the Act.

This comprehensive analysis highlights the key details and legal interpretations involved in the judgment, focusing on the computation of capital gains under section 50 of the Income-tax Act, 1961.