Capital gain or business income

This query is : Resolved

cvmashru (Querist)
Follow

20 November 2013 A partnership firm had purchased land of 3000 sq. yard in 1981 and constructed factory building there on. For 30 years we filed IT Returns of partnership firm showing manufacturing activities. After 30 years demolishing the factory, the firm has sold the land in pieces. My question is whether selling of land in pieces is to be taxed as long term capital gain or as business income?

CA Parul Saxena

CA Parul Saxena (Expert)
Follow

20 November 2013 It is long term capital gain

Aashish Kabra

Aashish Kabra (Expert)
Follow

21 November 2013 The Profit from sale will be treated in two ways -
1) LTCG will be calculated from date of purchase to date to which land was converted in stock in trade to be sold in pieces at market rate less indexed cost. The Tax on LTCG will be payable in year the first piece of land is sold
2) & remaning profit will be taxed as Profits from business. This profit will be taxed on accrual basis accruing in the year the agreement to sale for each piece is entered.

The above view of bifurgating is based on present judgements of Karnataka High Court, re-affirmed by Bombay High Court in different decisions.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now