Explain whether the benefit of exemption under section 54EC would be available in the case of 'capital gains arising on transfer of depreciable asset'.

Yes, the benefit of exemption under Section 54EC would be available in the case of capital gains arising on transfer of depreciable asset. The benefit under section 54EC of the Income Tax Act can be availed of only if there is an income from a capital asset, being long-term in nature. Further, as per section 54EC of the Income Tax Act, 1961, capital gain arising to assessee, from the transfer of a long term capital asset shall be exempt to the extent such capital gain is invested within a period of 6 months after the date of such transfer in long term specified asset. Provided that the investment made in the long-term specified asset by an assessee during any financial year does not exceed ₹50,00,000. In the case of transfer of a depreciable asset, section 50 is applicable and by virtue of it, capital gain on transfer of depreciable asset shall be treated as capital gain on transfer of short-term capital asset. In many cases, the department has sought to disallow exemption under section 54EC on the grounds that section 50 deems profits on sale of depreciable assets as short term capital profits, hence requirement of section 54EC, i.e. sale of a long term capital asset is not fulfilled. However, section 50 does not have an over-riding effect over section 54EC. Therefore, capital gain received by an assessee on the transfer of a depreciable asset (if conditions necessary under section 54EC are complied with by the assessee) is eligible for the benefit under section 54EC. The above proposition has been upheld in cases like CIT v. Assam Petroleum Industries (P.) Ltd. (2003) .