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Revaluation of Land & Building

Hemu Kapoor (CA - Final Student) (158 Points)

29 September 2010

Respected Experts,

If a ABC Partnership Firm converts to ABC Private Limited & in this course they revalue their Land & Building then what would be its implication on the following grounds?

Depreciation allowable in Future Years in Company Law as well as Income Tax?
Implication on Calculation of Deferred Tax Liab/asset.

The one fact that I know is that whenever an asset is revalued its increased depreciation is set off against Revaluation Reserve proportionately.

But would it effect Deferred Tax Calculation under IT Act, 1961.

Also that if revaluation Is done then is it necessary to revalue ALL ASSETS or GROUP OF SIMILAR ASSETS.

Waiting eagerly for your reply.

Regards

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4 Replies

C.A. LINESH PATIL (CA) (910 Points)
Replied 29 September 2010

Dear,

Under income tax no revaluation of any assets is allowed.

further under income Tax no revaluation of assets is allowed while its allowed under company law therefore it gives rise to difference in depreciation under two sets of books, which is in the nature of timing difference .because what would be written off under two sets of boos is only the actual cost of assets in different time .as u said in case of revaluation,depreciation pertains to revalued figure is adjusted with revaluation reserve.it means only actual cost under both is write off. therefore being timing difference require creation of Suitable DTA & DTL

And for your query if an partnership firm is converted into a company under succession and its takes benefit of section 47 of income Tax Act then cost of acquisition has to be taken as cost to previous owner and which is WDV to previous owner in case of depreciable assets.and accordingly depreciation is calculated.in this case there will be no DTA & DTL as under company law actual cost paid will be booked while for income tax purpose cost to previous owner that is WDV to previous owner will be taken.and this difference is permanent in nature which will affect depreciation unde two sets of books.hence no creation of DTA & DTL.only disclosure will be required in notes to Accounts

and if benefit under section 47 is not taken (means capital gain is paid) then actual cost paid for acquiring the assets is taken as cost of acquisition and accordingly depreciation is calculated.in this case no difference as both books of accounts will book actual cost paid for and hence No DTA & DTL

and im any case revaluation of assets under income Tax is not made.

Its very logical i hope you will have understood.

All the best

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