I sold a depreciable asset held for over three years. Can I still claim the capital gains exemption?
Yes. Section 50 is only a special mode of computing gains on depreciable assets, and its deeming fiction is limited to the computation under ss.48 and 49. An asset held for more than thirty-six months stays a long-term capital asset, so exemption under s.54E, and on the same reasoning s.54EC, survives even though the gain is computed as short-term.
Decided by the Supreme Court (Supreme Court of India — A.K. Sikri and Rohinton Fali Nariman JJ, Civil Appeal No. 4797 of 2008) on 2016-09-05, reported as (2016) 387 ITR 354 (SC); 242 Taxman 434 (SC). It bears on section 50, section 48, section 49, section 54E, section 2(29B) of the Income Tax Act 1961, in Capital Gains matters.
It kills the standard objection that a s.50 gain is short-term and therefore outside the reinvestment exemptions, which is otherwise a large addition on the sale of buildings, plant or ships on which depreciation was claimed. The Supreme Court's point is that s.54E draws no distinction between depreciable and non-depreciable assets and looks only to the period of holding. It affirms the Bombay High Court in CIT v ACE Builders and has been applied at Tribunal level to s.54EC.
Binding on every court and authority in India.
Read aloud by your device. Press again to stop.
For assessment year 1989-90 the assessee disclosed that it had sold its loading platform M.V. Priyadarshni for Rs 1,37,25,000, on which it had earned capital gains, and claimed exemption under s.54E. The asset had been bought in 1972 and sold in 1989, so it was about seventeen years old and, on the definition in s.2(29B), a long-term capital asset. Depreciation had been claimed on it. The Assessing Officer rejected the s.54E claim because s.50 applied, the Commissioner (Appeals) upheld him, the Tribunal allowed the assessee's appeal, and the Bombay High Court dismissed the Revenue's appeal following its own decision in ACE Builders.
The Revenue's appeal was dismissed. The Court agreed with the Bombay High Court that s.50 creates a deeming fiction whose application is limited to the mode of computing capital gains under ss.48 and 49, and that the fiction cannot be carried across to deny exemption under s.54E, which draws no distinction between depreciable and non-depreciable assets. The asset here, bought in 1972 and sold in 1989, was on any view a long-term capital asset within s.2(29B), so exemption under s.54E was available notwithstanding that the gain fell to be computed under s.50.
The Supreme Court gave no reasoning of its own. Its order sets out the Bombay High Court's analysis, itself taken from that Court's earlier decision in ACE Builders, and then records agreement with it in one sentence. That analysis runs: nothing in s.50 suggests the fiction extends beyond ss.48 and 49, and s.50 makes explicit that the fiction is restricted to the mode of computation in those sections; a fiction created by the legislature must be confined to the purpose for which it was created; and s.54E draws no distinction between depreciable and non-depreciable assets, so the exemption cannot be denied by invoking the s.50 fiction. The Court recorded that the Gujarat High Court in Polestar Industries and the Gauhati High Court in Assam Petroleum Industries had taken the same view, and that it was informed no appeal had been filed against either.
We are in agreement with the aforesaid view taken by the High Court.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppYes. Section 50 is only a special mode of computing gains on depreciable assets, and its deeming fiction is limited to the computation under ss.48 and 49. An asset held for more than thirty-six months stays a long-term capital asset, so exemption under s.54E, and on the same reasoning s.54EC, survives even though the gain is computed as short-term. This was decided by the Supreme Court (Supreme Court of India — A.K. Sikri and Rohinton Fali Nariman JJ, Civil Appeal No. 4797 of 2008) and bears on section 50, section 48, section 49, section 54E, section 2(29B) of the Income Tax Act 1961. It is reported as (2016) 387 ITR 354 (SC); 242 Taxman 434 (SC). It kills the standard objection that a s.50 gain is short-term and therefore outside the reinvestment exemptions, which is otherwise a large addition on the sale of buildings, plant or ships on which depreciation was claimed. The Supreme Court's point is that s.54E draws no distinction between depreciable and non-depreciable assets and looks only to the period of holding. It affirms the Bombay High Court in CIT v ACE Builders and has been applied at Tribunal level to s.54EC. If it applies to you, the first step is this: Claim the exemption on the return and set out the actual period of holding, showing it exceeds thirty-six months.
For assessment year 1989-90 the assessee disclosed that it had sold its loading platform M.V. Priyadarshni for Rs 1,37,25,000, on which it had earned capital gains, and claimed exemption under s.54E. The asset had been bought in 1972 and sold in 1989, so it was about seventeen years old and, on the definition in s.2(29B), a long-term capital asset. Depreciation had been claimed on it. The Assessing Officer rejected the s.54E claim because s.50 applied, the Commissioner (Appeals) upheld him, the Tribunal allowed the assessee's appeal, and the Bombay High Court dismissed the Revenue's appeal following its own decision in ACE Builders. The matter was decided on 2016-09-05 by the Supreme Court (Supreme Court of India — A.K. Sikri and Rohinton Fali Nariman JJ, Civil Appeal No. 4797 of 2008). On those facts the Supreme Court held as follows. The Revenue's appeal was dismissed. The Court agreed with the Bombay High Court that s.50 creates a deeming fiction whose application is limited to the mode of computing capital gains under ss.48 and 49, and that the fiction cannot be carried across to deny exemption under s.54E, which draws no distinction between depreciable and non-depreciable assets. The asset here, bought in 1972 and sold in 1989, was on any view a long-term capital asset within s.2(29B), so exemption under s.54E was available notwithstanding that the gain fell to be computed under s.50.
The Supreme Court gave no reasoning of its own. Its order sets out the Bombay High Court's analysis, itself taken from that Court's earlier decision in ACE Builders, and then records agreement with it in one sentence. That analysis runs: nothing in s.50 suggests the fiction extends beyond ss.48 and 49, and s.50 makes explicit that the fiction is restricted to the mode of computation in those sections; a fiction created by the legislature must be confined to the purpose for which it was created; and s.54E draws no distinction between depreciable and non-depreciable assets, so the exemption cannot be denied by invoking the s.50 fiction. The Court recorded that the Gujarat High Court in Polestar Industries and the Gauhati High Court in Assam Petroleum Industries had taken the same view, and that it was informed no appeal had been filed against either. In the words reproduced by the source cited on this page: "We are in agreement with the aforesaid view taken by the High Court." The decision followed or applied CIT v. ACE Builders Pvt. Ltd. (2006) 281 ITR 210 (Bom); CIT v. Polestar Industries (2014) 41 taxmann.com 237 / 221 Taxman 423 (Guj); CIT v. Assam Petroleum Industries (P) Ltd (2003) 262 ITR 587 (Gau).
It was decided by the Supreme Court on 2016-09-05 and is reported as (2016) 387 ITR 354 (SC); 242 Taxman 434 (SC). Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 50, section 48, section 49, section 54E, section 2(29B), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeal was dismissed. The Court agreed with the Bombay High Court that s.50 creates a deeming fiction whose application is limited to the mode of computing capital gains under ss.48 and 49, and that the fiction cannot be carried across to deny exemption under s.54E, which draws no distinction between depreciable and non-depreciable assets. The asset here, bought in 1972 and sold in 1989, was on any view a long-term capital asset within s.2(29B), so exemption under s.54E was available notwithstanding that the gain fell to be computed under s.50. It arises in Capital Gains matters, on section 50, section 48, section 49, section 54E, section 2(29B) of the Income Tax Act 1961, and was decided by Supreme Court of India — A.K. Sikri and Rohinton Fali Nariman JJ, Civil Appeal No. 4797 of 2008. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Keep the purchase and sale dates and the depreciation record on the file, because holding period is the only fact the exemption turns on. If the AO refuses because s.50 deems the gain short-term, reply that the fiction operates only for the computation under ss.48 and 49 and cannot be carried into the exemption provisions. Check that the reinvestment itself meets the conditions of the exemption claimed, since this case decides eligibility, not compliance.
Still good law. Supreme Court affirmation of the ACE Builders line; also applied at Tribunal level, e.g. DCIT v. Aditya Medisales Ltd., ITA No.2544/Ahd/2012 (ITAT Ahmedabad, order pronounced 11 January 2013), allowing section 54EC on a gain computed as short-term under section 50 because the restriction is limited to the computation of capital gains and not to the exemption provisions. That finding was checked against a published source, which is linked on this page, on 2026-08-25. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Supreme Court's order runs to five short paragraphs and contains no reasoning of its own: it reproduces the Bombay High Court's analysis, drawn from CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210, and agrees with it in one sentence. Cite the reasoning as ACE Builders', approved by the Supreme Court. The judgment is on s.54E; it does not mention s.54EC, and the extension of the same principle to s.54EC comes from later Tribunal and High Court decisions, not from this order. The Court also recorded that the Gujarat High Court in Polestar Industries and the Gauhati High Court in Assam Petroleum Industries had taken the same view and that no appeal had been filed against either. The Bombay High Court judgment under appeal was not read; its date and citation are not recorded here. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was dismissed. The Court agreed with the Bombay High Court that s.50 creates a deeming fiction whose application is limited to the mode of computing capital gains under ss.48 and 49, and that the fiction cannot be carried across to deny exemption under s.54E, which draws no distinction between depreciable and non-depreciable assets. The asset here, bought in 1972 and sold in 1989, was on any view a long-term capital asset within s.2(29B), so exemption under s.54E was available notwithstanding that the gain fell to be computed under s.50.
TaxSphere, “CIT v V.S. Dempo Company Ltd”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-vs-dempo-company-50-54e/ (validity last checked 2026-08-25)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
I sold depreciable assets I had held for over three years and the whole block ceased to exist, so the gain was computed under section 50. The Assessing Officer says the gain is short-term and refuses to set it against my brought-forward long-term capital loss. Is he right?
I sold a building I had held for years and claimed depreciation on. The gain is computed as short-term under section 50. Can I still claim the capital gains exemption for investing the proceeds?
I sold a building on which depreciation had been claimed in earlier years. The Assessing Officer applies s.50, calls the gain short-term and refuses the bond exemption. Can he?
My husband died some years ago. The Assessing Officer says my minor sons' income must be clubbed with mine. Which limb of the Explanation to s.64(1A) applies to a widow, and does it matter that the boys have their own money to live on?
