Plant and Machinery Held Over 36 Months Deemed Long-Term Capital Assets u/s 2 (42 A) of Income Tax Act: ITAT [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT) observed that plant and machinery held over 36 months deemed long-term capital assets under Section  2 (42A) of Income Tax Act, 1961.

The assessee in the present case was a limited company and engaged in the business of trading pharmaceutical products. The assessee in the year under consideration has sold its shares held in the subsidiary company. The assessee on the sale of shares has incurred long-term capital loss.

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 Income Tax Act, 1961.

The Assessing Officer (AO) denied 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 Income Tax 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 Income Tax Act. Thus, the AO denied the set off of the loss against the short-term capital gain and determined the income on the sale of plant and machinery accordingly

The bench observed that there was no dispute to the fact 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 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 Income Tax Act.

Since, the impugned plant and machinery was depreciable assets and therefore 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 Income Tax Act. The 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 Income Tax Act

Further noted that there was no such restriction that the deemed short-term capital gain on the sale of depreciable assets cannot be set off against the long-term capital loss. As such, 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. Undeniably, the period of holding of the plant and machinery in dispute is more than 36 months, therefore the same has to be treated as long-term capital asset in pursuant to the provisions of section 2(42A)of the Income Tax Act

Accordingly, the two member bench consisting Siddartha Nautiyal (Judicial member) and Waseem Ahemed (Accountant member concluded   that there was no infirmity in the order of the CIT-A requiring our interference. Thus, ITAT upholds the finding of the CIT-A. Hence the appeal of the revenue was hereby dismissed.

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