Section 50

Section 50 — the law in short

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

• CIT v Mansukh Dyeing and Printing Mills Supreme CourtHelps departmentSuperseded by amendment
  The firm revalued its land and credited the surplus to the partners' capital accounts. Is that taxable?
  Under the old s.45(4), yes. The Supreme Court held that crediting a revaluation surplus to partners' capital accounts on a reconstitution is in effect a distribution of the assets to the partners and a transfer chargeable to capital gains, because the enhanced balances were immediately available for withdrawal — and two partners did withdraw.
• CIT v V.S. Dempo Company Ltd Supreme CourtHelps taxpayer
  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.
• Nectar Beverages Pvt Ltd v DCIT Supreme CourtHelps taxpayer
  I wrote off my bottles and crates at 100% under the old proviso to section 32(1)(ii). Years later I sold them as scrap - is the sale money taxable under section 41(1)?
  No, for the years when section 41(2) was off the statute book. The Supreme Court held that the balancing charge in section 41(2) cannot be read into section 41(1). Depreciation is by its nature neither a loss nor an expenditure nor a trading liability, which is all section 41(1) reaches. Section 41(2), which taxed the balancing charge, was deleted from assessment year 1988-89 when the block of assets concept came in, so between then and its restoration the profit on sale of such assets was not taxable. Items costing under Rs.5,000 bought before 31 March 1995 also stayed outside the block, so section 50 did not catch them either.
• CIT v Ace Builders (P) Ltd High CourtHelps taxpayer
  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?
  Yes. The Bombay High Court held that the deeming fiction in section 50 is confined to the mode of computing capital gains under sections 48 and 49. It deems the gain to be short-term; it does not deem the asset to be a short-term capital asset. Section 54E draws no distinction between depreciable and non-depreciable assets, so an assessee who invests the net consideration from a long-term asset in the specified securities within the time allowed gets the exemption, whether the gain was computed under sections 48 and 49 or under section 50.
• CBDT Circular 14/2021 CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
  A partner retired and took assets out of the firm. How do s.9B and s.45(4) work together?
  Separately, and both can apply to the same reconstitution. Section 9B is applied first, to the deemed transfer of the assets received by the partner at fair market value; s.45(4) is then applied to the money or asset received in excess of the partner's capital account balance, computed without any revaluation increase. There is no set-off between the two.

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.