Law:

Section:

Section 50, read with section 55(2), of the Income-tax Act, 1961 - Capital gains - Cost of Acquisition in Case of Depreciable Assets - Assessee sold away in accounting period relevant to assessment year 1971-72 certain buildings owned by it since 1920 on which it had been allowed depreciation - Whether, in computing capital gains, assessee was entitled to substitute fair market value as on 1-1-1954 under section 55(2) for original value of assets - Held, on facts, no Facts The assessee-company was in possession of certain buildings since the year 1920 on which it had been allowed depreciation. It sold away the same in the accounting period relevant to the assessment year 1971-72 and calculated capital loss/gains by taking the market value of the assets as on 1-1-1954 as the cost of acquisition under section 55(2). The ITO took the view that section 50(1), which was a special provision relating to depreciable assets, would govern the assessee's case, excluding the operation of section 55(2). The ITO, accordingly, calculated capital gains by taking the original value of the assets as the cost of acquisition. Both the AAC and the Tribunal confirmed the ITO's order, holding that the assessee did not have the right of substituting the market value as on 1-1-1954 in respect of depreciable assets. On reference: HELD Section 50 applies to a case where a capital asset is an asset on which deduction on account of depreciation has been obtained by an assessee. In such a case, the provisions of sections 48 and 49, prescribing the mode of calculation of capital gains apply subject to the modifications laid down in section 50. Since the assessee in the instant case had obtained deduction on account of depreciation in earlier years, its case would be governed by section 48 as modified by section 50. Hence, though section 55(2) gives an option to an assessee to choose one of the two values as the cost of acquisition for the purpose of section 48, in a case to which section 50 applies, section 48 has to be read subject to the modification prescribed in section 50 and, consequently, the option would not be available. The special provision of section 50 must necessarily operate…

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