Set-off of long-term capital loss against short-term capital gains u/s.50 — U/s.74(1)(b) the assessee is entitled to the claim of set-off of long-term capital loss against the income arising from the sale of office premises, the gain of which is short-term due to the deeming provision, but the asset is longterm.

Set-off of long-term capital loss against short-term capital gains u/s.50 — U/s.74(1)(b) the assessee is entitled to the claim of set-off of long-term capital loss against the income arising from the sale of office premises, the gain of which is short-term due to the deeming provision, but the asset is long-term.

The assessee-company is engaged in the business of investment, finance and brokerage. The assessee had derived income from capital gain on account of sale of office premises owned by it on which depreciation was claimed. The assessee had set off the capital gain of the year with the brought forward capital loss of the earlier year.

The AO disallowed such set-off on the ground that in view of section 50(2), the income received or accruing as a result of such transfer shall be deemed to be capital gains arising from the transfer of shortterm capital asset. The CIT(A) also upheld the action of AO stating that in view of section 50 r.w.s 2(42A) which defines the term ‘short-term capital assets’ meaning an asset held by assessee for not more than 36 months preceding the date of its transfer, contention that the said assets were held for more than 36 months has become inconsequential as deeming provisions of section 50 would treat such asset as short-term assets and resultant gains as short-term gains.

Held:

The fiction created u/s.50 is confined to the computation of capital gains only and cannot be extended beyond that. It cannot be said that section 50 converts a long-term capital asset into a shortterm capital asset. Therefore, the brought forward long-term capital C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants Tribunal news loss can be set off against the capital gain on account of transfer of the depreciable asset which has been held by the assessee for more than 36 months, thereby making the asset a long-term capital asset. The gain of the asset is short term due to the deeming provision, but the asset is a longterm asset. The decision of CIT v. Ace Builders (P) Ltd., 281 ITR 210 (Bom.) was relied upon.