Section 50 of the Income Tax Act 1961 clearly states that gain/loss on transfer of Capital Asset on which depreciation has been claimed even once in the hands of owner of the asset, gain/loss will be considered as short term.

Since assessment year 1988-89 Concept of block asset was introduced in 1998-89 under the Income Tax Act. This has been defined to mean a group of assets falling within a class of assets having same percentage of depreciation is prescribed.

Now there are lots of confusion among assesses pertaining to these provisions. Depreciable asset and depreciated asset, block of asset or single asset, claim of depreciation is compulsory of optional? Can business loss be adjusted against capital gain U/S 50?

Here I attempt to clarify more often /frequently asked confusions:

All assets falling under a given block of asset are treated as one combined asset. So even if assesses has not claimed depreciation on any one of the asset under the block, he can not escape the provisions of Section 50. Now if this is the case, if block of asset figure becomes negative on sale of asset, during middle of the year (Earned profit on sale of asset) , assessee can escape capital gain by adding new asset to the block of asset minimum to the extent of negative figure.

Suppose assesee has never claimed depreciation on particular block asset and under the Income tax Act depreciation rate for particular block is prescribed. Now on sale of such asset or any assets from the block, assessee can get benefit of long term capital gain if other conditions are fulfilled (like period of holding etc.). So even the asset is depreciable, actual depreciation under the Act should have been allowed to invoke the provisions of Section 50. Similarly if the depreciation is claimed on particular block of assets and out of that block no depreciation was claimed ever on particular asset, even though Section 50 will be applicable on sale of such non depreciated asset. So assessee must take care and keep in mind concept of block of asset.

Similarly, if for one particular year assessee is opting not to claim depreciation on particular block of asset, he can not be thrusted by Income Tax Officer to claim depreciation. The Bombay High Court in the case of Godavari Sugar Mills Ltd v. CIT,208 ITR 801 and The Andhra Pradesh High Court in CIT V. Andhra Cotton Mills Ltd.228 ITR 30 held that the assessee has an option not to claim depreciation.

Even if the depreciation was claimed in original return of income by an assessee and subsequently in a revised return he withdraw his claim of depreciation, ITO can not refuse to accept assessee's wish.

So, all the major issues pertaining to Section 50 are listed above and clarified. This article is written for web site hence kept short, readable and to the point.

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