Applicability of section 50 on motor cars where past depreciation was not claimed Explanation 6 cannot trigger retrospective recomputation; addition deleted.

Applicability of section 50 was examined in the context of motor cars for which depreciation was not claimed; because depreciation was never actually allowed, capital gains computation under section 50 could not be invoked, and the Assessing Officer lacked power to retroactively insert depreciation for concluded years by relying on Explanation 6 to section 43(6). The re-computation of depreciation and written down value for earlier assessment years was held unsustainable and the addition made under section 50 was deleted, with the appeal allowed.

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Issues: (i) Whether section 50 of the Income-tax Act, 1961 is invocable where depreciation has not been actually allowed in earlier years and whether Explanation 6 to section 43(6) permits retrospective recomputation of depreciation and WDV for concluded assessment years to attract section 50; (ii) Whether short-term capital loss on sale of motor cars can be set off against long-term capital gains on sale of immovable property in the facts of the case.

Issue (i): Whether section 50 applies and whether Explanation 6 to section 43(6) authorises retrospective recomputation of depreciation and WDV for concluded years to invoke section 50.

Analysis: Section 50 applies only to assets forming part of a block of assets in respect of which depreciation has been allowed. It is an explicit statutory condition requiring actual allowance of depreciation. Explanation 6 to section 43(6) is a machinery provision for computing WDV where depreciation has been allowed or ought to have been allowed under the Act. Explanation 6 cannot be used to rewrite concluded assessments by forcing depreciation into years where neither claimed nor allowed, particularly where no corresponding lease/hire income was disclosed in earlier returns. Binding authority from the High Court (Swetha Realmart LLP) supports non-invocation of section 50 in absence of any instance of depreciation actually allowed.

Conclusion: Section 50 is not invocable because depreciation was not actually allowed in earlier years; Explanation 6 to section 43(6) does not permit retrospective imposition of depreciation into finalized assessments to trigger section 50. This conclusion is in favour of the assessee.

Issue (ii): Whether the short-term capital loss on sale of motor cars is allowable to be set off against long-term capital gains on sale of immovable property.

Analysis: Given that section 50 cannot be invoked and the sales of motor cars do not fall within a block attracting section 50 consequences, the characterisation and treatment of the losses remain as capital losses allowable under the normal capital gains set-off rules. The factual record shows no depreciation allowed and no lease/hire income declared in earlier years, supporting allowance of the claimed set-off.

Conclusion: The short-term capital loss on sale of motor cars is allowable to be set off against the long-term capital gains arising from sale of immovable properties. This conclusion is in favour of the assessee.

Final Conclusion: The appeal is allowed by deleting the addition made under section 50 and by holding that Explanation 6 to section 43(6) cannot be employed to retrospectively force depreciation into concluded years; consequentially the claimed set-off of capital loss is permitted.

Ratio Decidendi: Section 50 applies only where depreciation has been actually allowed in respect of the asset; Explanation 6 to section 43(6) cannot be used to retrospectively alter finalized assessments to create a deemed allowance of depreciation and thereby trigger section 50.

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