Depreciation

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SUNIL GUPTA (Querist)
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27 June 2013 WE HAD PURCHASED A FACTORY BUILDING DURING THE F.Y. 2012-13 (INLUSIVE OF LAND & BUILDING). THERE WAS A COMPOSITE DEAL WITH THE SELLER, NO SEPARATE AMOUNT OF LAND & BUILDING WAS DETERMINED AT THE TIME OF SALE. ONLY LAND AND CONSTRUCTION COST WAS MENTIONED IN THE SALE DEED FOR THE PURPOSE OF DETERMINED STAMP DUTY AS PER CIRCLE RATE. (1) SHOULD WE CHARGE DEPRECIATION ON FULL AMOUNT? (2) IF, ON FACTORY BUILDING ONLY, HOW WE WILL BIFERCATE THE FULL AMOUNT IN LAND AND BUILDING?

THANKS

SANJIV

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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27 June 2013 The case law may help you-

Where the assessee purchases a building and the purchase price (as per sale deed) is a composite one (sale deed does not indicate the prices of land and building separately), then no distinction, at least in the consideration paid to the vendor can be made, and the entire amount is qualified for depreciation.
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CIT v. Rajesh Exports Ltd. [2006] 9 SOT 28 (Bang.) (URO).
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CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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27 June 2013 However, due care should be exercised by us while claiming the depreciation specifically when the substantial part is land and which can be separately disposed off in future by retaining Building and a small part of land only.
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The cost of land can be segregated from the composite cost by either taking into consideration the stamp duty valuation for such land or by getting valuation report of a valuer for the super structure.
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