Tax on sale of capital asset

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Tarun (Querist)
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11 November 2012 Hi all experts, in advance I would like to thank you all for reply to my query, my query is "a pvt ltd company dealing in manufacturing of readymade garments buys land with structure in 2007, as the structure is dipilated, a new structure is made, construction started in 2009, and is now ready, and all interest payouts paid on the loans taken to acquire the structure and construct have been capitalised, now the company doesn't need the premises as it is making losses and plans to dispose of the building, my query is what will the tax implications on the deal, whether ltcg,stcg and what about improvements whether they will the benefit of indexation if considered ltcg and also can the current year losses be set off against the gains(ltcg or stcg), and whether the interest payouts which have been capitalised can be included in improvements, if not then what will be the treatment of this interest,thanks

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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11 November 2012 Mr Tarun,
Your query is mainly on purchase, development and sale of an immovable property.Set off of vat paid for development if site is available only under SEZ policy,not otherwise.ITC on purchase of capital assets is available for purchase of machinery,which are used as assets.Your point is quite different from those provisions,hence not applicable....MJK

CA VISHNU GAVKARE

CA VISHNU GAVKARE (Expert)
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12 November 2012 Dear Tarun,
When asset is used in business it becomes depreciable asset which is always short term. So LTCG will not come. Further setting of current year loss, you can set of business loss against it but you can not set off capital loss against normal Income.

Tarun

Tarun (Querist)
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12 November 2012 Hi, asset was never used for business, as it was being developed, this year it is ready to use

Soumitra Basu

Soumitra Basu (Expert)
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15 November 2012 THE PROFIT ON SALE OF THE ASSETS SHALL BE TREATED AS LONG TERM CAPITAL GAIN BASED ON MAEKET VALUE. INDEXATION BASED ON YEAR OF IMPROVEMENT IS APPLICABLE. EVERY EXPENSES, IF CAPITALISED, SHALL BE TREATED AS IMPROVEMENT.

CA VISHNU GAVKARE

CA VISHNU GAVKARE (Expert)
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15 November 2012 If improvement increases the efficiency or productivity then it shall be treated as capital expenditure and shall be capitalised. In any other case it shall be revenue expenditure.
gain in this transaction shall be long term capital gain as asset when bought was in ready to use position. Destruction of the structure and rebuilding it again will not make it new asset. hence period should be counted from the day it was bought.

Soumitra Basu

Soumitra Basu (Expert)
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17 November 2012 I DO AGREE THAT PERIOD SHOULD BE COUNTED FROM THE DAY IT WAS BOUGHT. BUT SINCE INTEREST HAS ALREADY BEEN CAPITALISED THE SAME SHOULD BE CONSIDERED FOR THE PURPOSE OF INDEXATION. IT IS NOT TRUE THAT ALWAYS IMPROVEMENT MEANS INCREASE IN EFFICIENCY OR PRODUCTIVITY.

CA VISHNU GAVKARE

CA VISHNU GAVKARE (Expert)
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17 November 2012 I do agree.
to compute capital gain cost of improvement wheather increase in efficiency or not shall be taken in to consideration.

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