Capital gain or business income
This query is : Resolved
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
(Expert)
20 November 2013
It is long term capital gain
Aashish Kabra
(Expert)
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.
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.
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