You have no obligation to handle it any other way than being assertive. Which means: be honest and straightforward. It's not wrong.
Trying to prolong the outcome by acting like you are interested/trying to be nice will just hurt and frustrate both parties more. If he is the one asking you on a date, he has already made the choice to ask you with the chance of being rejected. All you have to say is "no", and that's it.
You will never be able to live your life on a solid foundation if you try to go the extra mile in not hurting other people's feelings, and I'm referring here to people who are approaching you on their own (like asking you on a date). You have the right to say no, and say it immediately. And that's fine.
If the person is hurt, or offended, it reflects their own lack in maturity. It reflects your own maturity if you handle it straightforward and honestly.
I'm not saying be rude, but be honest and friendly. If they're not your type, then that's the truth.
I've had a similar experience many times before: a friend (she is a girlwoman, and meI'm a maleman) has approached me and showed interest in dating me romantically. I felt like I didn't want to hurt her feelings, and honestly this was because I could see that it would hurt her feelings a lot, so I "played" along and went for it (perhaps thinking that I could learn to like her romantically). After a while she grew more and more attached, and in the end this just caused her to get more hurt as I got more frustrated with the relationship, which I never really was into. If I was honest up front, then she would have been hurt a little by the rejection, but gotten over it much sooner.