Section 50 deeming fiction limited to computation, allowing set-off of deemed short-term gains against long-term capital losses.

Capital gains from transfer of depreciable assets, though deemed short-term under Section 50 of the Income-tax Act for computation purposes, were held not to lose their character for all purposes. The Court applied its earlier ruling that the Section 50 deeming fiction is confined to computation of capital gains and does not extend beyond that limited field. On that basis, it accepted that such deemed short-term capital gains could be set off against brought-forward long-term capital losses under Section 74. The Revenue's objection to the set-off was rejected, and the assessee's entitlement to the adjustment was upheld.

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Issues: Whether capital gains arising on transfer of depreciable assets, deemed to be short-term capital gains under Section 50 of the Income-tax Act, 1961, can be set off against brought-forward long-term capital losses under Section 74 of the Income-tax Act, 1961.

Analysis: The Court noted that the issue was covered by its earlier decision in which the deeming fiction under Section 50 was held to operate only for the purpose of computation of capital gains and not to extend beyond that limited field. Applying the same principle, the Court found no distinguishing feature warranting a different view in the present case. It accepted that the character of the gain as deemed short-term under Section 50 did not prevent the assessee from claiming set-off under Section 74 against long-term capital loss.

Conclusion: The issue was answered in favour of the assessee, and the Revenue's challenge to the set-off was rejected.

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