Section 50 depreciation gains can still attract long-term capital gains tax rates where holding period is satisfied.

Gain on transfer of a depreciable asset forming part of a block of assets is deemed short-term capital gain for computation under section 50(1), but that deeming fiction does not alter the asset's underlying long-term character for all purposes of the Act. Accordingly, where the asset was held for more than 36 months, the concessional tax rate for long-term capital gains under section 112 remains available even though the gain is computed under section 50. The combined effect is that computation and taxation rate may be governed by different provisions on these facts.

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Issues: Whether the gain arising on transfer of a depreciable asset forming part of a block of assets is to be treated as short-term capital gain under section 50(1) of the Income-tax Act, 1961, and whether the tax on such gain is nonetheless chargeable at the concessional rate applicable to long-term capital gains under section 112 of the Income-tax Act, 1961.

Analysis: The gain on transfer of a depreciable asset falling within a block of assets is deemed to be short-term capital gain for the limited purpose of computation under section 50(1). The deeming fiction does not convert the underlying long-term capital asset into a short-term capital asset for all purposes of the Act. Relying on binding precedent, the rate of tax under section 112 remains applicable where the asset was held for more than 36 months, even though the gain is computed under section 50.

Conclusion: The gain was assessable under section 50(1) as short-term capital gain, but the tax rate applicable was the concessional rate under section 112. The issue was decided in favour of the assessee.

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