Top Stories Capital Gains Arising Out of Sale of Long-Term Capital Assets Shall Be Taxable at Rate of 20% u/s 112 Of Income Tax Act: ITAT [Read Order] The tribunal concluded that the legal fiction established by Section 50 of the Act is limited to the computation of capital gains, thus allowing for the application of the concessional rate for long-term capital gains By Sneha Sukumaran Mullakkal – On October 29, 2024 12:13 pm – 2 mins read The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that capital gains arising from the sale of long-term capital assets shall be taxable at a rate of 20% under Section 112 of the Income Tax Act,1961. SKF India Limited,the appellant-assessee,filed its return of income for the assessment year 2012-13 on September 28, 2012.The return reported capital gains from the sale of several residential properties held for more than 36 months, qualifying them for long-term capital gains treatment under the Act. The Assessing Officer(AO) assessed the return and made certain additions to the capital gains declared by the appellant, noting that the gains should be computed according to Section 50, which treats gains from the transfer of depreciable assets as short-term capital gains. Get a Copy of Handbook To Income Tax Rules, Click here Consequently, the AO applied the normal tax rate instead of the concessional rate provided under Section 112 for long-term capital gains. The AO asserted that Section 50 limited the benefits available under other provisions, including Section 54E, which pertains to exemptions for reinvestment in specified assets.
The Commissioner of Income Tax(Appeals)[CIT(A)] upheld the AO’s findings, agreeing that the capital gains from the sale of depreciable assets were rightly classified as short-term capital gains. The CIT(A) rejected the assessee’s argument that the gains should be treated as long-term capital gains eligible for the concessional tax rate under Section 112, reiterating that Section 50 negated the application of exemptions under Section 54E of the Act. Upon appeal, the tribunal examined the interpretations of Sections 50 and 112, acknowledging the precedent set by the Jurisdictional High Court in CIT Vs Ace Builders. The ITAT noted that while Section 50 creates a legal fiction to classify gains from depreciable assets as short-term capital gains, this does not preclude the applicability of exemptions under Section 54E for investments in specified assets. Get a Copy of Handbook To Income Tax Rules, Click here
The ITAT ruled that the legal fiction created by Section 50 was confined to the computation of capital gains and did not extend to the classification of the capital asset itself. Consequently, it decided that capital gains arising from the transfer of long-term capital assets would be taxable at a flat rate of 20% under Section 112, thereby affirming the assessee’s entitlement to the concessional tax rate. The tribunal issued a split verdict, with differing opinions on the interpretation of Sections 50 and 112. One member supported the view that the gains should be taxed at the concessional rate of 20% under Section 112, while the other concurred with the AO and CIT(A) that the gains remained subject to a higher rate due to Section 50’s application. This divergence highlighted the complexity of tax law interpretations and their implications for capital gains taxation. Ultimately, the ITAT ruled in favor of the assessee, affirming that capital gains arising from the sale of long-term capital assets should be taxable at the rate of 20% under Section 112 of the Act. To Read the full text of the Order CLICK HERE