If Period Of Holding Of Plant & Machinery Is More Than 36 Months, it Qualifies As Long-Term Capital Asset As Per Sec 2(42A): Ahmedabad ITAT

The Bench of Waseem Ahmed (Accountant Member) and Siddhartha Nautiyal (Judicial Member) observed that “provisions of section 50 of the Act clearly specify that gain shall be deemed as short-term on the sale of depreciable assets irrespective of the period of holding provided under section 2(42A) of the Act”. (Para 8)

At the same time, the Bench clarified that “for the purpose of set off of the long-term capital loss under the provisions of subsection (3) to section 70 of the Act, there is no such restriction that the deemed short-term capital gain on the sale depreciable assets cannot be set off against the long-term capital loss”.

As per the brief facts of the case, the assessee, engaged in the business of trading pharmaceutical products, has sold its shares held in the subsidiary company and incurred long-term capital loss. Likewise, the assessee has also sold its plant and machinery being depreciable assets and has earned long-term capital gain of ₹ 8,75,97,511.00 but the same was deemed as short-term capital gain in pursuant to the provisions of section 50 of the Act. The assessee subsequently has set off the long-term capital loss on the sale of shares in the return of income against the short-term capital gain on the sale of plant and machineries. However, the AO denied the same i.e. setting off the long-term capital loss on the sale of shares against the short-term capital gain on the sale of plants and machineries. As per the AO, the gain on the sale of plant and machinery is of short-term nature by virtue of the provisions of section 50 of the Act and therefore such gain cannot be set off against the long-term capital loss by virtue of the provisions of subsection (3) to section 70 of the Act.

The Bench found that the plant and machinery sold by the assessee in the year under consideration was acquired in the financial year 2013-14 on which the assessee has been claiming depreciation.

Thus, the Bench observed that the period of holding of the plant and machinery is more than 36 months and therefore the same are long-term capital assets by virtue of the provisions of section 2(29) r.w.s. 2(42A) of the Act.

Since, the impugned plant and machinery was depreciable assets, the Bench clarified that for the purpose of calculating the capital gain in pursuant to the provisions of section 48 and 49 of the Act on the sale of such depreciable assets, it was to be deemed as short-term capital gain in pursuance to the provisions of section 50 of the Act.

Hence, observing that while setting off the long-term capital loss, the same (gain on depreciable assets) has to be tested based on the period of holding of the assets, the ITAT dismissed Revenue's appeal.

Counsel for Appellant/ Revenue: Sudhendu Das

Counsel for Respondent/ Revenue: Tushar Hemani

Case Title: DCIT verses M/s Claris Lifesciences Limited

Case Number: ITA No. 295/AHD/2022

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