ACIT Vs Reliance Infrastructure Limited (ITAT Mumbai)
Section 50 Is Only a Computation Fiction: Long-Term Capital Loss Can Be Set Off Against Deemed STCG
The Mumbai ITAT has held that capital gains computed as short-term capital gains under Section 50 on transfer of a depreciable asset do not lose their underlying character as gains arising from a long-term capital asset. Consequently, current year and brought-forward long-term capital losses can be set off against such gains.
In this case, Reliance Infrastructure Ltd. had transferred a depreciable asset and computed capital gains of about ₹752.34 crore under Section 50. The company also had substantial long-term capital losses available for set-off. However, while passing a rectification order under Section 154, the Assessing Officer denied the set-off on the ground that once Section 50 deemed the gain to be short-term capital gain, Section 74 prohibited adjustment of long-term capital losses against it.
The Tribunal rejected this approach and reiterated that the legal fiction in Section 50 is restricted only to the computation of capital gains. It does not convert a long-term capital asset into a short-term capital asset. Therefore, while the gain is computed as deemed short-term capital gain, the nature of the underlying asset continues to remain long-term for the purposes of other provisions such as Section 74.
Relying on the jurisdictional Bombay High Court decision in CIT v. Parrys (Eastern) Pvt. Ltd. (384 ITR 264) and the principles approved by the Supreme Court in Dempo Company Ltd., the ITAT upheld the CIT(A)’s direction to allow set-off of long-term capital losses against the gains computed under Section 50 and dismissed the Revenue’s appeal
FULL TEXT OF THE ORDER OF ITAT MUMBAI
