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CA BHAVIN (Querist)

29 January 2015 case law...Asset has life 10 yrs. first 4 yrs assets used in bussiness and charge depreciation...After 4 yrs business has been closed. Next 6 yrs no depreciation charged on assets and used for personal purpose. On 10th yrs assets sold... what will be treatment in incometax.whether treated as short term capital gain(depreciable assets) or normal capital gains...

Nikhilesh Kataria

Nikhilesh Kataria (Expert)

30 January 2015 Dear Bhavin,

If we look at the deeming provision which is contained as Explanation 5 in section 32(1), the same applies only when the asset is owned by the assessee and further used for the purposes of business or profession wholly or in part. Therefore, if the asset is not at all used for the purposes of business or profession and entirely for personal use then there cannot be deeming fiction of allowance of depreciation. Hence, in present case, depreciation will be taken only up to 4 years.

Further, section 50A, which is a special provision for calculating cost of asset in case of depreciable assets, provides that WDV shall be taken as cost of asset if any time the asset has been subject to depreciation.

So in the instant cost of asset shall be the WDV at the end of the 4th year and difference with sale amount shall be short term capital gain.

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