PCIT Vs SKF India Ltd. (Bombay High Court)
The petition before the Bombay High Court was filed under Article 226 of the Constitution of India by the Revenue, challenging the order dated 3 October 2024 passed by the ITAT Special Bench, Mumbai, for Assessment Year 2000–01. The dispute related to the interpretation of Sections 50 and 112 of the Income Tax Act, 1961, specifically concerning the applicable tax rate on capital gains arising from the sale of depreciable assets.
The assessee had filed its return declaring capital gains of ₹2.62 crore from the sale of residential flats. These gains were computed as short-term capital gains under Section 50, but the assessee applied the concessional tax rate of 20% under Section 112, claiming that the underlying assets were held for more than 36 months and were therefore long-term in nature.
The Assessing Officer rejected this claim, holding that once capital gains are deemed to be short-term under Section 50, the applicable tax rate must be that of short-term capital gains (30%). This view was upheld by the Commissioner of Income Tax (Appeals).
On further appeal, the Tribunal referred the matter to a Special Bench to determine whether capital gains computed under Section 50 should be taxed at short-term rates or at the concessional rate applicable to long-term capital gains under Section 112. The Special Bench, by its order dated 3 October 2024, ruled in favour of the assessee, holding that the deeming fiction under Section 50 is limited to the computation of capital gains and does not alter the nature of the asset for the purpose of applying the tax rate under Section 112.
