Capital gains on sale of land after demolition of building

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This query is : Resolved

HemalRaiyani (Querist)

30 April 2015 My client entered into development agreement in respect of plot of land with a developer after demolishing the building constructed there on. The agreement is for construction of commercial complex on the land. The consider is determined and mentioned in the agreement itself. As per agreement the consideration is payable as and when offices are sold. Kindly guide me whether se can be treated as conversation of capital asset to stock in trade ? Also whether cost of original building which was demolished just before entering into development agreement is deductible as cost of acquisition from the long term capital gains ?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

30 April 2015 1.This is not the case of conversion of capital asset into stock in trade because the capital asset in the form of land has been transferred to another person i.e. developer.
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2. It would have been so, if your client converts the land as stock in trade in his own books and then starts construction.
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3. Your client became liable for capital gains on the very date when he entered into the development agreement and haded over the possession of vacant land to the developer.
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4.Cost of Acquisition/ Improvement -

Cost incurred for demolishing can be treated as cost of improvement. Had the building been not demolished by your client he was supposed to receive lesser Sales Consideration for the Structure+Land.
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