Section 50 cannot apply to land; long-term capital gain on its sale qualified for Section 54EC relief.

Land is not a depreciable asset and cannot be brought within Section 50 merely because it was sold with a building; depreciation had never been allowed on it, so the gain attributable to land could not be treated as short-term capital gain. The land, being held for more than 36 months, generated long-term capital gain under Section 45, and the assessee was therefore entitled to Section 54EC exemption on investment in eligible bonds. The Court held Section 50 inapplicable to the sale of land and allowed the assessee's claim on both issues.

---

---

Issues: (i) Whether Section 50(2) of the Income-tax Act, 1961 could be invoked to treat the gain from sale of land and building as short-term capital gain on the footing that the land formed part of a depreciable block of assets; (ii) Whether the assessee was entitled to exemption under Section 54EC of the Income-tax Act, 1961 in respect of the capital gain arising from sale of the land.

Issue (i): Whether Section 50(2) of the Income-tax Act, 1961 could be invoked to treat the gain from sale of land and building as short-term capital gain on the footing that the land formed part of a depreciable block of assets.

Analysis: Section 50 applies only to a capital asset forming part of a block of assets on which depreciation has been allowed. A block of assets under Section 2(11) and depreciation under Section 32(1) do not extend to land, since no depreciation is prescribed or allowable on land. The land was separately reflected in the accounts, no depreciation had ever been allowed on it, and it could not be treated as part of the depreciable block merely because it was sold along with the building.

Conclusion: Section 50(2) was inapplicable and the gain attributable to the land could not be treated as short-term capital gain; the finding is in favour of the assessee.

Issue (ii): Whether the assessee was entitled to exemption under Section 54EC of the Income-tax Act, 1961 in respect of the capital gain arising from sale of the land.

Analysis: The land was held for more than 36 months and the surplus on its transfer constituted long-term capital gain under Section 45. Once the gain was correctly treated as long-term capital gain, investment in eligible REC bonds attracted Section 54EC relief.

Conclusion: The assessee was entitled to exemption under Section 54EC; the finding is in favour of the assessee.

Final Conclusion: The Court held that land is not a depreciable asset, Section 50 could not be applied to the sale in question, and the resulting gain on the land qualified as long-term capital gain eligible for Section 54EC exemption, so the Revenue's appeal failed.

Ratio Decidendi: Section 50 applies only where the transferred asset forms part of a depreciable block of assets on which depreciation is actually allowable and cannot be extended to land, which is not a depreciable asset.

---