2021 (12) TMI 1539 - AT - Income Tax

Capital gain on sale of land: treated as long term where no depreciation or block recoupment; appeal allowed

Capital gain arising from sale of land was characterised as long term capital asset because the land was shown as vacant land in financial statements, no ... Capital gain on sale of land - LTCG OR STCG - Applicability of section 50C - Characterisation of asset as block of assets and effect of non-claim of depreciation - conversion of the firm to Pvt. Ltd. company, HELD THAT:- We note that the alleged asset was brought in as initial capital to the Partnership firm. On subsequent conversion of the firm to Pvt. Ltd. company, the alleged land was shown as fixed asset in the Balance Sheet. Further it is noted that the impugned asset has been nomenclatured as vacant land in the Balance Sheet. There is nothing on record to establish that the sheds standing on the impugned asset formed part of block of assets on which depreciation was claimed. The basis for the Ld. AO to hold the impugned land to be STCA instead of LTCA as considered by assessee in our view is on a wrong basis. Since there was shed on the alleged land, the view of Ld.AO was upheld without verifying the records. Though the sheds on the land was depreciable assets, the financial statements for year under consideration and preceding assessment year suggests that no depreciation was claimed by assessee. Further land was transferred by assessee to the purchaser on as is where is basis. There was no bifurcation of cost in respect of the land and the sheds. The sale agreement was composite in nature. Section 50 of the Act cannot be applied to the present facts of the case. Assessee appeal allowed. Issues: Whether the provisions of Section 50 of the Income-tax Act, 1961 apply to the sale of the subject property (land with negligible sheds) where no depreciation was claimed and the asset was shown as a vacant site in the books.Analysis: The records show the asset was brought in as initial capital and consistently shown in the balance sheet as a vacant site with a nominal fixed asset value. The built-up area (two sheds) constituted approximately 0.615% of the total land area. There is no material to demonstrate that depreciation was claimed on the asset or that the sheds formed part of any block of assets for which depreciation had been allowed. Section 50 applies only to an asset forming part of a block of assets in respect of which depreciation has been allowed. Authoritative tribunal and court decisions establish that where no depreciation has been claimed and land (or an asset not subject to depreciation) is shown separately, Section 50 is inapplicable. The sale was on an as-is-where-is composite basis without bifurcation of cost between land and sheds, and the negligible built-up area does not convert the asset into a depreciable block.Conclusion: Section 50 of the Income-tax Act, 1961 is not applicable; the appeal is allowed in favour of the assessee.