depreciation

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Sunil (Querist)

24 April 2009 My client is a real estate pvt ltd co in hyd they have purchases a property at bangalore and say that they will use it for their office purpose.this propery at present are occupied by tenants andduring the FY 2008-2009 the company has not caaried out any business, no other income is also recd from this purchased property. Whether the company has to provide dep on this property or whether it has to be shown as stock in trade.last f807-08 they have showed it under fixed assets

CA CS CIMA Prakash Somani

CA CS CIMA Prakash Somani (Expert)

24 April 2009 Your client is into real estate business so the estate would be its stock.

Now he purchased the estate but it remained on rent for previous year as company has not yet started any business.

So it can not be said stock until your clint provide you clear indicatina dn suportings that the property is purchsed fr business purpose only.

CA. GAURA AGGARWAL

CA. GAURA AGGARWAL (Expert)

24 April 2009 The house property cannot be treated as stock in trade because it is not being used for business purpose. Further depreciation cannot be claimed. In the B/S asset will be shown as Investment in House Property.

The rent income generated from this property is to be taxable under the head Income from House Property. While calculating the income municipal taxes and deductions under sec24 will be allowed.

Vipul J. Bhavsar

Vipul J. Bhavsar (Expert)

24 April 2009 The Accounting Treatment given by the company in FY 2007-08 should be continued as the company has not started any business in the Year 2008-09

Sunil

Sunil (Querist)

25 April 2009 lat fy 07-08 it was shown in fixed assets ,no rent is recd from the property as it is let out and under litigation.whether to provide for deprecaiation or any other treatment shold be given

sundharabahu

sundharabahu (Expert)

25 April 2009 The classification of the house at fixed asset is an indication that the company does not want to deal it as stock in trade. A representation of the intention should be obtained. But mere plan to use it as office in a future date would not make it a fixed asset.
If it is a fixed asset, depreciation is to be provided, whether or not it is actually used and benefit derived.
If there is tenancy agreement with tenants,(no matter company actually received no rentals) the rental should be recognized as income and provision may be made if there is uncollectibility.
However, if the case is strongly against the company, and it is unlikely that the company would be able to get the decree in its favor for rental collection, it is advisable not to recognize the rentals. Get the strength of the case from the lawyers and decide by yourself on its merits.

taxindiaconnect

taxindiaconnect (Expert)

01 May 2009 Exellant analysis of the case Sundhrabahu. however if the property is rented and rental income is being generated from it, no depreciation can be claimed on such proertyfully.

Sunil

Sunil (Querist)

02 May 2009 the co purchase this property in march 2008 .this is a commercial building with arount 40 teneats which are there for more than 30 yeas and no fresh rental agreeement is made with the company,the rent is very very merge and they are also not paying any rent to the company.what would be the correct treatment

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