2022 (11) TMI 827 - AT - Income Tax

Capital gains arising out of sale of property under the head short term capital gain u/s 50 - appellant has disclosed the asset under Companies Act as business asset and not claiming of depreciation under IT Act does not change the character of asset - assessee submitted that as per basic requirement for invoking section 50 of the Act the property must form in the block of assets and the depreciation should be allowed but in the case of the assessee, the property in question was never included in the block of assets and that depreciation has not been allowed - HELD THAT - We observe from the reading of section 50 of the Act that the capital asset has to be part of block of assets in respect of which depreciation has been allowed. Before us, the parties have agreed that the matter may go back to the file of the ld. A.O for verification whether at all depreciation has been allowed in respect of the property in question and then the matter may be decided in accordance with the provision of section 50 - In the interest of justice, we set aside the order of the ld. CIT(A) and remand the matter to the file of the ld. A.O to verify as per above terms whether the assessee has been allowed depreciation and then re-adjudicate the issue as per law in terms of section 50 of the Act. Grounds of appeal are allowed for statistical purposes.

Summary

Issues:
1. Addition made under the head capital gains arising from the sale of property as short term capital gain under section 50 of the Income-tax Act.

Analysis:
The appellant challenged the addition made by the Assessing Officer (AO) under the head "capital gain" arising from the sale of property as "short term capital gain" under section 50 of the Income-tax Act. The appellant contended that the property was never included in the block of assets and no depreciation had been claimed, thus arguing against the application of section 50. The AO, however, held that the property, previously used for business purposes and on which depreciation had been claimed, continued to be a depreciable asset. The AO concluded that the property was part of the block of assets and assessed short term capital gain. The appellant further argued before the Commissioner of Income Tax (Appeals) that the property was never used for business purposes, no depreciation was claimed under section 32, and the sale proceeds should be treated as long term capital gain. The CIT(A) relied on a Bombay High Court decision and upheld the AO's assessment as short term capital gain under section 50.

The appellant then appealed to the Appellate Tribunal, arguing that for section 50 to apply, the property must be part of the block of assets and depreciation must have been allowed. Both parties agreed to remand the matter to the AO to verify if depreciation had been allowed on the property. The Tribunal observed that section 50 requires the capital asset to be part of a block of assets with allowed depreciation. In the interest of justice, the Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for verification. The Tribunal allowed the appeal for statistical purposes.

In summary, the issues revolved around the application of section 50 of the Income-tax Act regarding the addition made under the head of capital gains from the sale of property as short term capital gain. The dispute centered on whether the property was part of the block of assets and had depreciation allowed. The AO assessed short term capital gain, which was upheld by the CIT(A) based on a Bombay High Court decision. The Tribunal remanded the matter to the AO for verification of depreciation allowance on the property before re-adjudicating the issue in accordance with section 50 of the Act. The appeal was allowed for statistical purposes.