Thursday, February 20, 2014

Scope of sec. 50 limited to compute capital gain; tax rate to be fixed as per holding period of depreciable assets

The Tribunal held as under:
1)  It had been argued by the learned AR that the provisions of section 50, deeming the capital gain as short-term capital gain was only for the purposes of sections 48 and 49 which relates to computation of capital gain;
2)  The view canvassed by the learned AR was supported by the judgment of the Mumbai bench of Tribunal in case of  Manali Investments v.Asstt. CIT [2011] 45 SOT 128/10 293 in which it had been held that the provisions of section 50 were to be extended only to the stage of computation of capital gain and, therefore, capital gain resulting from transfer of depreciable asset which was held for more than three years would retain the character of long-term capital gain for the purpose of all other provisions of the Act;
3)  For the purpose of computation of capital gain, the flat had to be treated as short-term capital assets, but for the purpose of applicability of tax rate it had to be treated as long-term capital assets if held for more than three years;

4) Thus, the AO was to be directed to compute the capital gain from the sale of flat and apply the appropriate tax rate after necessary verification in the light of observations made in this order - Smita Conductors Ltd. v. Dy. CIT [2014] 41 514 (Mumbai - Trib.)