INCOME TAX ACT, 1961

Section 50

Capital gains - Sale of fully constructed units by assessee - Short term capital gains - Units under section 50 classified as Capital-Work-in-Progress (CWIP) whether form part of block of assets

Assessee sold five fully constructed units and applied provisions of section 50. Since sales consideration was less than WDV of block of assets, there was no Short Term Capital Gains (STCG). For purpose of computation of capital gains, assessee adopted the value as per sale agreement, instead of one by stamp authorities. AO alleged that in audited balance sheet of relevant year, said five units were classified as Capital-Work-in-Progress (CWIP) and therefore, these units could not form part of the block of assets. Assessee contended that said unit were purchased and used for a purpose of office/guest house for its business and were eligible to enter in block of assets. Held: Indisputably, said 5 units were classified as CWIP in preceding financial year relevant to assessment year (2009-10), when they were under construction. During relevant assessment year, on completion of construction, these were capitalized and shown as 'Fixed Assets'. Assessee's business was set up in preceding financial year and continued to be in existence during year under consideration. As per section 50(1), if value of consideration exceeds aggregate of cost of acquisition and expenses on transfer, there will be Short Term Capital Gains. On other hand, if value of consideration of part transferred is less than cost of acquisition, then balance left is WDV of the block at end of year on which depreciation will be charged as per section 32. The above provision deals with a case where part of the block of depreciable asset is transferred i.e. The block does not cease to exist. As per section 50(2), if the value of the consideration exceeds the aggregate of cost of acquisition and the expenses of transfer, there will be STCG. On the other hand, if the value of consideration of entire block transferred is less than the aggregate of cost of acquisition and expenses of transfer, there will be short-term capital loss. The above provision deals with the case where entire block of depreciable assets is transferred, i.e., The block ceases to exist. In instant case, assessee sold all units during relevant assessment year and out of sale proceeds of the said flats sold, it purchased a property located in Goa. Thus, appeal of assessee was allowed.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2010-11

INCOME TAX ACT, 1961

Section 50

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