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Capital gain or business profit on land development

Tax queries 482 views 3 replies

XYZ is a partnership firm having land, which it intends to develop and sell as commercial offices and showrooms. Would the sale be treated as Capital Gain or Profits from business income ? or partly treated as LTCG (land portion) and partly business profit ?

Replies (3)

The main test lies whether such land is classified as stock in trade or Fixed asset per se.Business income in case they are engaged in real estate business and classified as stock.Will be treated as capital gain in all other cases.

Assuming that you are holding the land as fixed asset in the books of firm on which you intend to develop and sell commercial offices and showrooms. The fact that you intend to develop and sell the commercial spaces itself establish that you are intended to enter into a venture in the nature of trade and business. Therefore the income earned from these activity will squarely be covered under the 'Business Income' and not 'capital gains'. However in respect of Land, you may compute capital gain or business income by converting the same into stock-in-trade as per section 45(2).

Thanks a lot for your valuable input.


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