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CAPITAL GAIN OR BUSINESS INCOME

M.Lokesh (Student) (95 Points)

03 February 2010

HELLO|||||||

SUPPOSE A MINING & INFRASTRUCTURES COMPANY (XYZ LIMITED) WHICH IS A PUBLIC & UNLISTED COMPANY HAS JUST COMMENCED THEIR BUSINESS DURING JAN'10. DURING THE FIRST WEEK OF DECEMBER THEY HAVE SOLD AN URBAN LAND (ASSUME IN HOSUR IN BANGALORE) WHICH HAS BEEN CLASSIFIED UNDER FIXED ASSETS.WHETHER THE GAIN ARISING FROM SALE OF LAND IS TO BE UNDER CAPITAL GAIN / BUSINESS INCOME?

KINDLY CLARIFY

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22 Replies

Amir (Learner) (4016 Points)
Replied 03 February 2010

Dear M.Lokesh,

Since u said that it has been classified as Fixed Asset then undoubtedly, Capital Gain will come in the picture.........

C.Balaji (Learner) (1867 Points)
Replied 03 February 2010

i think it will be Capital Gain...but not sure

M.Lokesh (Student) (95 Points)
Replied 03 February 2010

then how come my auditor has finalised the accounts by considering the same as business income????

HELLO|||||||

SUPPOSE A MINING & INFRASTRUCTURES COMPANY (XYZ LIMITED) WHICH IS A PUBLIC & UNLISTED COMPANY HAS JUST COMMENCED THEIR BUSINESS DURING JAN'10. DURING THE FIRST WEEK OF DECEMBER THEY HAVE SOLD AN URBAN LAND (ASSUME IN HOSUR IN BANGALORE) WHICH HAS BEEN CLASSIFIED UNDER FIXED ASSETS.WHETHER THE GAIN ARISING FROM SALE OF LAND IS TO BE UNDER CAPITAL GAIN / BUSINESS INCOME?

KINDLY CLARIFY

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 03 February 2010

Yes, that will be a CAPITAL GAIN only,..... As the assets have been termed/classified as FIXED ASSETS already....

Moreover, though the business has just started, but the assets may have been used for some hours for the business purpose....

So, its a CAPITAL GAIN only

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 03 February 2010

I dont know whether ur boss considers the same as accretion of their jobwork or what,.... coz its pure fixed asset and sale of such asset can't be termed as BUSINESS INCOME, in normal circumstances

Abhimanyu Agarwal (Articleship) (68 Points)
Replied 03 February 2010

if the company in its memorandum n article of association prnounces that it will deal in infrastructure & real estates then it can b business or else Capital gain

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 03 February 2010

If it is engaged in the business of buying & selling of lands then it would have been business income and the land would have been shown as purchase in P & L A/c and not in Assets. So this is not the case so capital gains

kabirsen (student) (251 Points)
Replied 03 February 2010

land has been shown under fixed aaets...obviously land is a capital item...therefore it is a capital gain!

Hareesh H Sharma (Cleared IPCC..now article) (894 Points)
Replied 03 February 2010

Capital gains only Logesh bro...clarify wit ur boss whats the reason for such act of his..

CA Gaurav Jain (Charterted Accountant) (156 Points)
Replied 04 February 2010

dr lokesh,

their is a situation that the main business of the company is not purchase and sales of assets.

company enagage in infrastructure and also you have been verify that company is showing that assets in fixed assets is its balance sheet so company would be liable for capital gain if it gain profit.

so in my opinion it will chargeble in capital gain for company...

by tc...

Max Payne (employed) (2569 Points)
Replied 04 February 2010

Dear Lokesh,

As long as there is clear intention to make gain by capital appreciation, it is capital gain.

Merely because it is an infrastructure company, it does not mean that income from sale of land is from business....

However, the onus to prove that the land is not part of stock in trade is on assessee..... that can be proven by balance sheet classification.

BUT, 1question....

Since you say the company COMMENCED BUSINESS IN JAN '10, but sold Land in Dec'09......

has the company obtained the certificate of commencement of business (before the land was bought) from ROC? Pls answr. If yes, it is a companies act violation.

CA Sultan.........never quits (Financial Controller) (511 Points)
Replied 04 February 2010

Gain on sale of land can be treated as business income only when the object of the company mainly for purchase and sale of lands and the land should be shwon under inventory.

If the land is classified as fixed assets then the income on sale of land should be treated as capital gains.

(Guest)

Originally posted by : sultan

Gain on sale of land can be treated as business income only when the object of the company mainly for purchase and sale of lands and the land should be shwon under inventory.

If the land is classified as fixed assets then the income on sale of land should be treated as capital gains.

agree with sultan...