Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether Short-term or Long-term Capital Gains On Depreciated Assets?

QUERY: Assets being land and building acquired on 1-8-1978 for Rs. 2,00,000/- and being used in business on which year to year Depreciation allowed W. D. V. as on 1-4-2009 come to Rs. 20,000/-. The Assessee sold the entire depreciated property on 25-3-2010 for consideration of Rs. 10,00,000/-.

What will be taxable income as business income, long term capital gain, short term capital gain and tax liability.
ANSWER: From the query, it is not clear whether the building forms a part of block of assets, as no depreciation is allowable on the land as per CIT vs. Alps Theatre 165 ITR 377 (SC). Followed by the Delhi Tribunal in Dy. CIT vs. Capital Caps (P) Ltd. 114 ITD 286.

Be that as it may, once an asset falls under a block of assets and on which depreciation is allowed, on the sale of said asset, section 50 would apply. So Rs. 9,80,000/- would be assessed as short term capital gain.

Sections 41(2) and 50A, would apply when depreciation is claimed under section 32(1)(i) i.e., in the case of assets of an undertaking engaged in generation and generation and distribution of power. Other assets falling under the “block of assets” provisions of section 50 would apply.
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