Applicability of section 50

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Mr. X was proprietor of ABC Oil Mill. He purchased an advanced Machinery to produce coconut oil directly from coconut (ie without drying to Copra). After 2-3 months trial run Mr. X could not proceed with the business. During the year of trial run(2004-05) he suffered loss and he did not claim depreciation. After 5 years he sold the Oil Mill ( includes land, building, Machinery etc.which were individually valued). Whether Section 50 is applicable in case of Machinery?.

Replies (1)

Under Income tax provisions dep is claimed on block of assets.

Since Mr X had used the machinery for some time in the 1st year, he should have claimed depreciation @ 7.5%(50% of 15%). He did not use it thereafter, so there is no question of claimimg depreciation further.

Old decisions:[If the 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 1994 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.]

Depreciation is now mandatory from AY 2002-03 and shall be allowed or deemed to have been allowed irrespective of claim made in the profit & loss account or not. So, section 50 will apply to that machinery sale as 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

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