Capital gain arising out of sale of commercial property

Tax queries 406 views 4 replies

CA Shailesh Urdhwareshe

Sr. Partner

99 Points Posted on 06 July 2016

one of my client had purchsed a commercial land from city development authority and had constructed commercial building on it and was using it commercial for self use. the assets were being depreciated except the valu of land. now the assessee has sold the land and building. my questions are :

1. will the whole cost of land as well as building (on which depreciation was being charged regulary against business income) will be considered for indexation ?

2. If answer to the above is NO, can the assessee segregate the value of land and building and then take the benifit of indexation for the land part ?

3. What are the options available to the assessee for saving capital gain tax ? can he invest in capital gain bonds ? can he invest in a residential house ?(he owns only one residential house). Can he opt for both, means invest in capital gain bonds upto Rs. 50 lacs and balance in residential house ?

Replies (4)

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

211693 Points Posted on 09 July 2016

The following judgement of Tribunal can be helpful

Smt. Beena Kak vs Income Tax Officer on 5 December, 2000

ORDER S. R. Chauhan, J.M.

Vishal Goel

Chartered Accountant

1693 Points Posted on 11 July 2016

According to section 50 of Income tax act if an assessee has sold a capital asset forming part of block of assets (building, machinery etc) on which the depreciation has been allowed under Income Tax Act, the income arising from such capital asset is treated as short term capital gain.

Indexation benefit is not available for Short Term Capital Gain.

CA Shailesh Urdhwareshe

Sr. Partner

99 Points Posted on 11 July 2016

No depreciation was charged on land. can there be indexation of only land and consider that part as long term ?

Vishal Goel

Chartered Accountant

1693 Points Posted on 11 July 2016

Yes In such cases the capital gain on land and building should be calculated separately.

The profit on sale of land would be Long Term Capital Gain (LTCG) as the land is sold after a holding period of more than 36 months.

The Supreme Court has held in (1967) 65ITR 377 that depreciation is available on the value of building and not on the value of plot. Considering the above decision of Supreme Court, the Rajasthan High court in (1993)201 ITR 442 has held that Plot and building are different assets. If the assessee has purchased plot more than 3 years back and constructed building on it less than 3 years back then the gain arising on sale of plot shall be long term capital gain and the benefit of indexation shall be given on it whereas the gain arising on sale of building shall be short term capital gain and will be added to the income of the assessee. Therefore both should be calculated separately.