PAYMENT TO TENANT TO VACATE PREMISES

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Meghna (Querist)
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16 December 2010 This is with respect to allowablity of capitalisation of expenditure incured to vacat building premises if the assessee is engaged in construction business under income tax. please answer with supportive case law if any. Please Reply Immediately.
thnak you

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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17 December 2010 Assessee engaged in construction business if requires to get vacated the building premises for rebuilding the same, and for that purpose if any amount is payable by him to the erstwhile tenants then such amount paid may be treated as a valid business expenditure and the amount can be included in work in progress or cost of construction as the case may be.

Relevant Case Law: CIT v. A.Venkataraman [1982] 137 ITR Madras High Court held that compensation paid to tenant to vacate the property can be regarded as expenditure incurred wholly and exclusively in connection with such transfer.

In the above case, amount paid to tenant to get property vacated is deductible from gains arising from sale of property. This case law may help up to a great extent.

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