Tax on sale of assets
This query is : Resolved
ANIL AGRAWAL
(Querist)
18 July 2015
Partnership firm purchased some warehouses in 1993 but never used and never claimed depreciation on them. But value was adjusted against sale of other block of assets. Now on sale of these assets what tax treatment will be given to profits whether long term capital gains or short term or business income.
Nikhil Kaushik
(Expert)
18 July 2015
where was this warehouse shown in the books? in fixed assets or investments?
ANIL AGRAWAL
(Querist)
18 July 2015
In fixed assets
ANIL AGRAWAL
(Querist)
18 July 2015
In fixed assets
26 July 2025
Here’s the tax treatment based on your details:
---
### Facts:
* Partnership firm bought warehouses in 1993.
* Warehouses were **never used** in business.
* **No depreciation claimed** on these assets.
* Value was **adjusted against sale of other assets**.
* Warehouses shown under **Fixed Assets**.
* Now selling these warehouses.
---
### Tax Treatment:
1. **Classification of Asset:**
* Since warehouses are shown under **Fixed Assets**, they are considered **business assets**, not investments.
* Even if unused, classification as fixed asset means gains/losses will be treated as **business income or loss**, not capital gains.
2. **Depreciation:**
* Although depreciation was not claimed earlier, the firm can claim **depreciation now** on the written down value as per Income Tax rules.
* Failure to claim depreciation does **not affect the nature** of the asset as a business asset.
3. **On Sale of Asset:**
* The **profits on sale of fixed assets are treated as business income**, taxed as per normal income tax slab applicable to the firm.
* No capital gains treatment applies because asset is a business asset, not capital asset.
4. **Adjustment of Value:**
* Adjustment of value against other asset sales does not change the nature of transaction or tax treatment.
* You need to correctly reflect sales and purchase entries as per accounting standards and Income Tax Act.
---
### Summary:
| Factor | Tax Treatment |
| -------------- | -------------------------------------------------- |
| Asset Type | Fixed Asset (Business Asset) |
| Nature of Gain | Business Income |
| Tax Rate | Normal income tax rates applicable to firm |
| Depreciation | Can claim depreciation even if not claimed earlier |
| Capital Gains | Not applicable |
---
### Additional Notes:
* If warehouses were classified as **investments** in books, gains would have been **capital gains**.
* Since they are fixed assets and part of business property, treated as business income.
---
---
### Facts:
* Partnership firm bought warehouses in 1993.
* Warehouses were **never used** in business.
* **No depreciation claimed** on these assets.
* Value was **adjusted against sale of other assets**.
* Warehouses shown under **Fixed Assets**.
* Now selling these warehouses.
---
### Tax Treatment:
1. **Classification of Asset:**
* Since warehouses are shown under **Fixed Assets**, they are considered **business assets**, not investments.
* Even if unused, classification as fixed asset means gains/losses will be treated as **business income or loss**, not capital gains.
2. **Depreciation:**
* Although depreciation was not claimed earlier, the firm can claim **depreciation now** on the written down value as per Income Tax rules.
* Failure to claim depreciation does **not affect the nature** of the asset as a business asset.
3. **On Sale of Asset:**
* The **profits on sale of fixed assets are treated as business income**, taxed as per normal income tax slab applicable to the firm.
* No capital gains treatment applies because asset is a business asset, not capital asset.
4. **Adjustment of Value:**
* Adjustment of value against other asset sales does not change the nature of transaction or tax treatment.
* You need to correctly reflect sales and purchase entries as per accounting standards and Income Tax Act.
---
### Summary:
| Factor | Tax Treatment |
| -------------- | -------------------------------------------------- |
| Asset Type | Fixed Asset (Business Asset) |
| Nature of Gain | Business Income |
| Tax Rate | Normal income tax rates applicable to firm |
| Depreciation | Can claim depreciation even if not claimed earlier |
| Capital Gains | Not applicable |
---
### Additional Notes:
* If warehouses were classified as **investments** in books, gains would have been **capital gains**.
* Since they are fixed assets and part of business property, treated as business income.
---
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