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 depreciation had been claimed on sheds in preceding years, and the sale was a composite 'as is where is' transfer without cost bifurcation. The block-of-assets principle and valuation addition rule were found inapplicable where there was no evidence that the sheds formed part of a depreciable block on which depreciation had been claimed; accordingly the provision invoked for treating the transfer as short term was held inapplicable and the appeal was allowed.

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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.

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