MUMBAI: In a major ruling, the Mumbai bench of the Income-tax Appellate Tribunal (ITAT) has clarified that tax advantages for investing in a residential property could be claimed even when the funding originates from the sale of a depreciated asset, equivalent to an workplace unit.

Tax legal guidelines, typically advanced, come into sharp focus on this case. Sometimes, when a depreciable asset is offered, the features are handled as ‘short-term capital features’ beneath Part 50 of the Earnings-tax (I-T) Act, subjecting them to taxation at customary income-tax charges slightly than the lowered charges relevant to long-term capital features.

Nonetheless, the I-T Act additionally offers a approach to mitigate tax on features from the sale of a ‘long-term capital asset’ (aside from a home property) by means of Part 54-F. This provision permits taxpayers to offset their capital features by investing the web proceeds in a residential property, supplied they meet particular situations, equivalent to buying the property inside a stipulated timeframe.

On this specific case, Ms SP Khanna offered an workplace unit, on which depreciation had been claimed, and reinvested the proceeds in a brand new residential property valued at Rs 96 lakh. She subsequently claimed the tax profit beneath Part 54-F.

The ITAT famous that whereas Part 50 classifies features from depreciable property as short-term, it doesn’t redefine the character of the capital asset itself. Since Ms Khanna had held the workplace unit for over three years, the tribunal acknowledged it as a ‘long-term capital asset.’

The bench has now directed the Earnings-tax Officer to reassess Ms Khanna’s revenue and, if all different situations are glad, to permit her tax declare.