Tax treatment for sale of debris

Hi Sowmya S,

In the case of "G.Usha Gurram Reddy, Chennai vs Department Of Income Tax on 2 September, 2013"

Briefly i explain here the case, 

The assessee and builder entered into a join venture wherein it was agreed that the old building owned by the assessee shall be demolished and after demolishing the same, they shall share consideration in some proportionate share of land and new building. 

The assessee has claimed exemption u/s 54F in the original return and filed revised return and claimed exemption u/s 54 instead of 54F. The AO declined both exemption.

CIT Appeal order in favour of assessee, it said assessee is eligible for exemption u/s 54 as he transferred both land and building.

But in the tribunal, it was held and declared that the assessee sold the land only hence the order by CIT appeal was set aside.

From the above case, i am of the opinion that the demolished house property has no existance of nature of house property. hence no capital gain shall be levied in case of such sale of scrap from demolished house property. but the income from the sale of such scrap is to be offerred as income from other sources. 

Thanks

Sir

What is the tax treatment for  cost of the building demolished ( say about 50 Lakhs). Assessee has also lost his source of income by way of Rent therefrom. why Can't the demolished building be treated as Capital Asset ( because of loss of source of income by way of rent)  and claim the same as " Capital Loss" and set off against other income say sale proceeds of debris/ Scrap generated from the demolition of the building offered to tax under the head 'Other Sources' . 

Madam,

Please refer the case "CIT Vs Betelnut Co (P) Ltd, Also please read  full case law and especially the 5 th para thereof. This case shall confirm you that the scrap sale is income and taxable. Also TCS is applicable on Scrap sales.

However it is very arguable question that what is the treatement of cost of building. Since scrap sale is not a capital sale, no exemption u/s 54 etc can be claimed. 

Also the assessee is not a scrap dealer to show the income as business income. hence it seems to be treated as other sources income only. 

I am of the opinion that, you can claim expenditure of demolishing the building against the sale proceeds of scrap.

All other opinions are welcome.

Thanks

I think that the cost of demolished building cannot be treated as capital loss as there is no 'transfer' in this case. For capital gain or loss to arise in Income tax there should a transfer and there is no transfer of building when demolished.  

As far as claiming expenditure on demolition of building against sale proceeds of scrap is concerned I think that it will depend on the nature of scrap sold. If entire debris is sold then only you can claim entire expenditure and if only few things like furniture fittings etc are sold the a proportionate expenditure should be arrived at.