[Opinion] Capital Gains on Depreciable Assets u/s 50

Anil Chachra – [2025] 175 taxmann.com 498 (Article)

1. Section 45 is the charging section for the ‘Capital gains’ which states that any profits or gains arising from the transfer of a ‘capital assets’ effected in the previous year shall, save as other -wise provided in sections of Exemptions [54] be chargeable to income-tax under the head Capital gains and shall be deemed to be the income of the previous year in which the transfer took place.

2. Capital assets are defined in section 2(14) of the Act which means-

“Property of any kind held by an assessee, whether or not connected with his business or profession”;

3. It is submitted that property has not defined in the Act. Reference may be placed in Explanation (d) of section 56(vii) of the Act, wherein property has been defined as follows:

(i) Immovable property being land or building or both

(ii) Shares and securities

(iii) ……………………

In this analysis the we will deal with the depreciable assets which are covered under the Explanation (d) of section 56(vii) of the act as immovable property being land or building or both. By way of this inclusion the depreciable assets are the property and gain/ loss arise on the sale of such assets would be covered under the head Capital gains.

4. Identification of the nature of capital assets i.e. long term or short term is very crucial for the determination of tax on Capital gains as the rate of tax is different for both the capital gains. Section 2 of the Act has defined the long term and short -term capital assets which are as follows:

Section 2(29AA) “Long-term capital asset” means a capital asset which is not a short-term capital asset

Section 2(42A) “short term capital asset means a capital asset held by an assessee for not more than twenty-four [substituted with thirty-six months by Finance Act, 2024 w.e.f 23-07-2024] months immediately preceding the date of its transfer.

Provided that in the case of a security listed in a recognised stock exchange in India or unit of the Unit Trusts of India established under the Unit Trust of India Act, 1963 or a unit of an equity- oriented fund or a zero- coupon bond, the provisions of this clause shall have effect as if for the words, twenty-four months, [substituted with thirty-six months by Finance Act, 2024 w.e.f 23-07-2024] the words, “twelve months’ had been substituted.

Explanation-2 For the purposes of this clause, the expression “security” shall have a meaning assigned to it in clause (h) of section 2 of section 2 of the Securities Contracts (Regulation) Act, 1956.

5. Section 48 is the machinery provisions which states about the mode of computation wherein, it was held that the income chargeable under the head “Capital gains” shall be computed by deducting from the full value of consideration received or accruing as a result of the transfer of the ‘capital asset’ the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and the cost of improvement thereto;

6. In this write up we will analyse the capital gains on the sale of depreciable assets [as’capital assets’] which are part of block of assets, what would be the nature of the capital gains whether short term or long-term u/s 50 of the act and we will interplay section 50 with other sections of the Act.

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