Exemption of capital gain - investment in securities

[HIMANSHU JARIWALA]

Mr. X has sold immovable property after claiming depreciation and earned short term capital gain. The asset was purchased long time before and was long term by nature as it was held for more then 36 months. Now can Mr.x invest in securities mentioned U/s 54EC and Exempt capital gain? Pls inform there is any case law?

[Surender Gupta]

By virtue of section 50 which is overriding provision, makes it mandatory that any gain from sale of capital asset on which depreciation has been availed shall be treated as capital gains from sale of short term capital assets or in other words short term capital gains. Therefore, I do not agree with the proposal that you can avail the benefit of exempiton under section 54EC.

[DEV KUMAR KOTHARI]

Have asearch and U will find case law.

[DEV KUMAR KOTHARI]

This is a helpful judgment on similar provision of S. 54E [2003] 131 Taxman 699 (Gau.) High Court of Gauhati Commissioner of Income-tax v. Assam Petroleum Industries (P.) Ltd. P.P. Naolekar, Cj. and Amitava Roy, J. IT Appeal No. 30 of 2001 June 24, 2003 section 54E, read with  section 50, of the Income Tax Act, 1961.  - Capital gains - Not to be charged in certain cases - Assessment year 1991-92 - Whether  section 50 nowhere says that depreciable asset shall be treated as short-term capital asset and section 54E has an application where long-term capital asset is transferred - Held, yes - Whether capital gain may have been received by assessee on depreciable asset, and if conditions necessary under section 54E are complied with by assessee, he will be entitled to benefit under section 54E - Held, yes

AI Summary

Deemed short-term capital gains may preclude reinvestment exemption in specified bonds, though analogous case suggests possible exception.
Whether a taxpayer who sold a depreciable immovable and claimed depreciation can claim reinvestment exemption under section 54EC depends on the deeming effect of section 50 treating gains as short term, potentially precluding exemption; a cited High Court decision on an analogous reinvestment provision suggests exemption may still be available where reinvestment conditions are met.