s.50 — Capital gain on the transfer of a depreciable asset

Currently operative

Original to the Income-tax Act, 1961 and recast when the block of assets scheme was introduced with effect from 1 April 1988. The counterpart in the Income-tax Act, 2025 is section 74.

Income-tax Act, 1961

s.50

Income-tax Act, 2025

s.74

In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.

In short

Section 50 of the Income-tax Act, 1961 opens "Notwithstanding anything contained in clause (42A) of section 2" and provides that where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed, the provisions of sections 48 and 49 shall be subject to the following modifications. Under sub-section (1), where the full value of consideration received on the transfer of an asset falling within the block exceeds the aggregate of the expenditure incurred wholly and exclusively in connection with the transfer, the written down value of the block at the beginning of the previous year and the actual cost of any asset falling within that block acquired during the year, the excess is deemed to be the capital gain of that year. Under sub-section (2), where all the assets in a block are transferred during the year so that the block ceases to exist, the cost of acquisition of the block is taken to be the written down value at the beginning of the year plus the actual cost of additions, and the income received or accruing is deemed to be the capital gain of that year. The non obstante clause is directed at the holding period, so the gain is short term however long the asset was held, which means no indexation and none of the reliefs confined to a long term capital asset. Because the section modifies sections 48 and 49 rather than charging anything itself, it operates only where section 45 is engaged.

What the provision does

Replaces cost of acquisition with the written down value of the block and converts what would be a long term gain into a short term one, with the transfer expenditure deducted before the written down value and additions during the year, and with sub-section (2) dealing with a block that ceases to exist. It does not operate where section 45 is itself disapplied, as by a clause of section 47; it does not apply to an asset on which no depreciation has been allowed; and it supplies no rule for the transferee's cost, which comes from section 43(1) or, on a qualifying succession, from Explanation 2C to section 43(6).

Threshold questions

Did the asset form part of a block of assets in respect of which depreciation has been allowed under the Act
Is section 45 engaged at all, since this section modifies sections 48 and 49 and does not charge anything of its own
Has the whole block been transferred so that it ceases to exist, which takes the computation to sub-section (2)
What was the written down value of the block at the beginning of the year, and what was the actual cost of additions during it
Has the expenditure incurred wholly and exclusively in connection with the transfer been deducted before the written down value
Is any relief being claimed that is confined to a long term capital asset, which the non obstante clause denies

The recurring disputes.

Whether the section can operate where no consideration is attributed to the asset

On a statutory vesting of a whole undertaking, as on the conversion of a company into a limited liability partnership, the Tribunal has found that no separate consideration is attributable to the individual assets and liabilities. If that is right, there is no figure for sub-section (1) to compare with the written down value of the block, and the assessee's case is that the section cannot operate at all. The Revenue's answer is that the books themselves supply a figure for every asset in the schedule of fixed assets, and that an assessee who relies on book value as the consideration for the undertaking cannot in the same breath deny that the same books attribute value to each asset within it. No decision applying the section to such a vesting could be located, and the point decides whether the nil result reached on other assets holds for plant and machinery at all.

Divergence between tax written down value and book value

Where an undertaking passes at book value the two figures are usually different, and they diverge for ordinary reasons: different depreciation rates in the two systems, additional depreciation under section 32, capital expenditure disallowed in one and not the other, and any revaluation. Where they have diverged upward, the premise that no gain arises because consideration equals cost fails on the facts, the gain is computed block by block, and it is short term with no indexation and no section 54F against it. That makes this section, rather than section 50D, the Revenue's strongest answer on the asset side wherever the two sets of books have drifted apart, and it is a matter of arithmetic rather than construction once the figures are known.

What the transferee's cost becomes

The section says nothing about the person who receives the asset, and on a non-qualifying succession nothing else does either, because Explanation 2C to section 43(6) carries the written down value across only where the conditions of the relevant clause of section 47 are satisfied. Three answers compete. The assessee may say the cost is the book value at which the asset vested, consistently with that figure being treated as the consideration on the transferor's side. It may say, more strongly where a gain has actually been charged, that the value adopted for that charge should become the successor's cost, since otherwise the same appreciation is taxed once on transfer and again through reduced depreciation; there is no provision saying so, which is the difficulty. The Revenue will apply section 43(1) in the ordinary way and invoke Explanation 3, with the previous approval of the Joint Commissioner, where the main purpose of the transfer was to reduce liability by claiming depreciation on an enhanced cost. No authority either way.

Frequently asked.

Why is the gain short term even on an asset held for twenty years

Because the section opens with a non obstante clause directed at clause (42A) of section 2, which is the definition of a short term capital asset. The period of holding is therefore irrelevant: the excess over the written down value of the block is deemed to be the capital gain of the year and is short term. The consequences are practical rather than technical. There is no indexation, the twelve and a half per cent long term rate does not apply, and the reliefs confined to a long term capital asset, section 54F among them, are not available against it.

Does the section apply where a clause of section 47 exempts the transfer

No. The section modifies sections 48 and 49, which are the computation provisions, so it has work to do only where section 45 is engaged. Section 47 operates by providing that nothing contained in section 45 shall apply to the listed transfers, so where a clause of section 47 is satisfied there is no charge for this section to compute. Where the clause fails, section 45 applies and this section applies with it, which is why the depreciable block is one of the places a conversion or other reorganisation that misses its conditions produces a real gain rather than a nil one.

How is the computation done when the whole block goes

Sub-section (2) deals with it. Where all the assets in a block are transferred during the year so that the block ceases to exist, the cost of acquisition of the block is taken to be the written down value at the beginning of the year plus the actual cost of any asset acquired during the year, and the income received or accruing as a result of the transfer is deemed to be the capital gain. That is the position on a conversion or a slump sale, where every asset in every block passes at once, and it is why the computation has to be done block by block rather than asset by asset.