STCG ARISING FROM THE TRANSFER OF ANY LONG TERM CAPITAL ASSET WILL QUALIFY FOR EXEMPTION.

The provision of Section 50 on Income Tax Act, 1961 creates a legal fiction in defining the nature of gain on transfer of depreciable assets. Accordingly, the gain arising from the transfer of the depreciable asset is deemed to be Short Term Capital Gain/Loss. The legal fiction is for a limited purpose which defines the nature of gain and not the nature of Capital Asset. Therefore, depreciable asset being a long term capital asset on its transfer shall result into Short Term Capital Gain u/s 50 of Income Tax Act, 1961.

The roll back exemptions u/s 54 to 54 GB make an emphasizes on the exemption towards the gain of the qualifying capital asset which in major cases is long term capital asset. Therefore, thrust of the exemption is on the nature of capital asset and not on the nature of gain.

U/s 54EC Gain arising from the transfer of any long term capital asset will qualify for exemption under this section if the Net Sales Consideration is invested in the specified bonds within a stipulated time period. Therefore, Short Term Capital Gain on transfer of depreciable asset being a long term capital asset would qualify for the exemption u/s 54EC where the necessary investment is made.

ACE Builders Pvt. Ltd. (Bombay High Court).