Section 50(2)

Section 50(2) — the law in short

What the courts have decided on section 50(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Equinox Solution P Ltd Supreme CourtHelps taxpayer
  I sold my whole business for one lump sum. Can the AO tax it as short-term gain?
  No. Where an undertaking is sold as a running business on a going-concern basis, with all assets and liabilities, for a single slump price, no part of the consideration can be attributed to any particular depreciable asset, so s.50(2) has no application. The undertaking itself is the capital asset, and having been held for more than the prescribed period the gain is long-term.
• CIT v Yamaha Motor India P Ltd High CourtHelps taxpayerNo later treatment found
  I discarded machinery this year and did not use it. Can I still claim depreciation on it?
  Yes. Once assets enter a block, the identity of the individual item is lost and depreciation is computed on the block, not machine by machine. Actual use in the year of the claim is not required if the asset was used for the business in earlier years, and the residual value after scrap stays in the block.
• Manali Investments v Assistant Commissioner of Income-tax ITATHelps taxpayer
  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?
  No. The Mumbai Tribunal held that s.50 is a computation provision and a deeming provision, and that the fiction cannot be carried beyond the purpose for which it was enacted: once the capital gain on the depreciable asset has been computed under s.50, the operation of that section is spent and the gain must be dealt with under the other provisions of the Act. The asset having been held for more than thirty-six months, the gain retains the character of long-term capital gain for all other provisions and qualifies for set-off against the brought-forward long-term capital loss under s.74.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.