Capitalisation of construction expenses

My client is a private limited company, it has incurred some expenses on construction of building in the previous year on a land which is not owned by company but owned by the directors. Company has a plan to construct the building on this land for business purposes. Now, should we capitalised the whole construction expenses as building or not as the land is not owned by the company. If not then what will be the treatment of construction expenses...??

Replies (8)
capitalise such exp. if the co. will use the constructed space for business purposes.

If i capitalise then...can a company have its building without having its land...???

yes it is possible...

I need some more clarification on this topic....can anybody help me out...???

if client holds a lease or any other right of occupancy then such capital expenditure incurred by the assessee for the purpose of business or profession on construction of any structure or by way of renovation or extension or improvement to the building, then such capital expenditure is treated as building owned by assessee and depreciation can be claimed as per explanation 1 to Section 32(1) also known as deemed building.

 

i hope your query is cleared now...

but my client who is a private limited company, don't hold any rights on land. Land is owned by directors. Also what steps to be taken to regularise this transaction so that company can capitalise these expenses. 

i was talking about right of occupancy rather than right of ownership.... anyways.... you need to account for expenses and keep proper documents and proof of those expenses.

You shall prepare one document explaining that company will construct business premises on such land. Show Open new ledger "CONSTRUCTION" under fixed assets. Capitalised exps. under this head. When land transferred in company 's name than show land under fixed assets with purchase cost.

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