Property ceases to be Business Asset When No Depreciation claimed: ITAT treats Profit and Gain arising out of Sale of Property as LTCG

Property ceases - business asset - depreciation - ITAT - profit - sale of property - LTCG - Taxscan

The Income Tax Appellate Tribunal (ITAT), Hyderabad Bench ruled that Property ceases to be a business asset when no depreciation is claimed and  profit and gain arising out of sale of property to be treated as Long Term Capital Gain.

The assessee, M/s Nutech Engineering Technologies Ltd. is engaged in the business of manufacturing of Air Handling Units, Air Washers, Dampers, Pre- fabricated Ducts and other Metal parts. The assessee has sold one unit out of seventeen units situated at Lunkard Sky Max, plot No. 94M, Viman Nagar, Village Lohengaon, Taluka Haveli.

The assessee has acquired this property known as Lunkard Sky Max of 17 units. During the financial years 2009-10 & 2010-11, depreciation at the rate of 10% was claimed and allowed for AYs 2010-11 and 2011-12. Further, from the assessee from Financial Year 2012-13, out of 17 units, 7 units were given on rent and accordingly, rental income was shown as income from house property.

The assessee has not claimed depreciation for & from Financial Year 2012-13 on this property, out of those 17 let out units. Since, Financial Year 2011-12, One unit was sold during the Financial Year 2013-14 relevant to AY 2014-15 for a sum of Rs. 90 lacs and long term capital gain of Rs.45,22,358/- was declared.

The assessee before Assessing Officer claimed that the property was held for more than 3 years and rental income was declared under the income from house property, hence, the assessee has rightly claimed the gain arising out of sale proceeds after indexation as Long  Term Capital Gains. It was also submitted that no deprecation was claimed on these 17 units since Financial Year 2011-12.

However, the Assessing Officer treated the gain on sale of these units as short term capital gain under section 50C of the Act and computed the capital gain as Rs.63,93,920/-.

The coram of Manoj Kumar Aggarwal and Mahavir Singh held that the moment assessee stopped claiming depreciation in respect of property and let out the same for rent, it ceases to be a business asset and thus, the profit or gain arising out of sale of property is to be considered as long term capital gain after indexation.

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