| Question And Answer | |
|---|---|
| Subject: | Capital gain on sale of building used for commercial purpose along with plot of land |
| Category: | Income-Tax |
| Querist: | Vikas shah |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | building, depreciation, land |
| Date: | January 28, 2023 |
Assessee , A partnership firm has huge plot of NA land and has constructed commercial building on some portion of said land and said building was used for business purpose. Upto 31-3-2010, depreciation was claimed with respect to said building. However with effect from 1/4/2010, business operations of the assessee was discontinued and so assessee stop claiming depreciation on all of its assets including building. However normal return was filed every year showing losses because certain administrative expenses needs to be incurred.
During the year, assessee has sold the full property which consist of Land and Building. Land being long term and acquired before 1/4/2001, will be classified as Long term capital assets and Stamp duty value as on 1/4/2001 will be replaced in place of cost of land and surplus will be long term capital gain.
But how the surplus from building will be taxed. Will it be taxed at par with land or will it be taxable u/s. 50 as assessee has availed depreciation on it in past upto 31/3/2010.
In case the surplus from building is taxed u/s. 50, can asssessee claim it to be Long term capital asset and Does the benefits of investment u/s. 54EC be obtained by assessee with respect to Capital gain arising from sale of building specially after amendment to section 54Ec with effect from finance act, 2018
What planning can be made to save tax with respect to Land and building both.
As we understand, the building was a business asset and depreciation was claimed. The Hon’ble Bombay High Court in the case of Meena V. Pamnani (Smt.) v. CIT (2017) 159 DTR 1/251 Taxman 100/( 2018) 404 ITR 548 (Bom) (HC) held that once depreciation is allowed on an asset it would remain a business asset and any profit earned on the sale of such asset would be taxed.
The Hon’ble Mumbai Tribunal in the case of DCIT v. Bharat Enterprises [2011] 14 taxmann.com 110, the Mumbai Tribunal held that the deeming fiction in section 50 of the Act is meant for computation of capital gain only. Thus, for deduction under section 54EC the capital gain arising from the transfer of a depreciable asset held for more than 36 months, shall be regarded as a long-term capital gain.
Land depreciation is not allowable , hence long term capital gain