26 January 2011
An assessee runs a business and owns certain land and building in his business wherein the building is every year charged to depreciation. He sells, by way of registered sale deed, the land and building in lump sum in the FY 1011 besides other business assets.
In the same FY, he purchases certain commercial properties which are already let-out and shall continue to be let-out after his purchase. The purchase price of the new commercial properties is lesser than the sale consideration of the old land and building.
The assessee is planning to show the rental income from these commercial properties as business income and to treat the commercial properties as business assets subject to depreciation, if any.
Would the difference between the two considerations (sale and purchase) be treated as Short Term Capital Gain subject to tax ? How far the claim of the assessee to treat the new rental income as business income and to treat the new commercial properties as the business assets is justified ? The purpose here is to save short term capital gain tax on the properties sold to the extent the money is invested into new commercial properties. Would there be any implication of Sec 50C while calculating the STCG or no ?
Extending the above case, if the purchase price of the new commercial properties is more than the sale consideration of the old land and building, the excess would be treated as WDV of the new property. Is it also ok ?
Can the assessee also invest the money into agricultural land for the purpose of agriculture or floriculture and treat the new land as business asset and further to treat the income from agriculture or floriculture as business income ? The purpose here is also to save short term capital gain tax on the properties sold.