Capital Gains - Whether long term or short term - Professionals - Taxation - TIK Share
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Capital Gains - Whether long term or short term


Rakesh Bharadwaj

2014-03-15

One of my clients has bought a house property in the year 2001. However in the year 2013 , he demolished the house completely and built a triplex house with 3 floors. He sold 2 of the above houses in 2013. Whether the sale amounts to  Short term capital gains or Long term capital gains? How to Compute the gains ? Whether Indexation benefits are available? 

Rahul Rai

2014-03-15

As per me the asset is Long term. House property was bought in 2001 and later only the improvement was done.

Improvement cost will be indexed only of 2013. But the house property will be considered as long term.

Any input by Pulkit or Vedant?

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Vedanta Deshika

2014-03-15

@Rakesh 

 

You may refer to a similar case law CIT v/s DL Ramachandra Rao (1999) 236 ITR 51(Mad). It was decided gain on Sale of land is Long term capital gain. sale of building is Short term capital gain.

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Vedanta Deshika

2014-03-15

We cannot claim Indexation (for  cost of improvement)  for LTCG in case of land, For calculating STCG on building , we can take cost of construction as cost of acquisition.

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Rahul Rai

2014-03-15

But how can we say that building was short term? He purchased land along with building, building was only improved.

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Vedanta Deshika

2014-03-15

@Rahul Rai,

This was the decision of Madras high court. The logics and reason scan be referred to in the judgement. I am attaching herewith a copy of the case

 Commissioner_Of_Income_Tax_vs_Dr._D.L._Ramachandra_Rao_on_19_February,_1997.PDF 

 

 

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Rahul Rai

2014-03-15

The question says bought a house property (Land with house). In the given case law i believe only the land was bought and not house property.

The land and house property both have to be long term, land was bought in 2001 and also the house on it.

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Vedanta Deshika

2014-03-15

@Rahul Rai

Its a case with similar facts and circumstances. It is noteworthy here to note that in both the cases the house property has been sold and there arises doubt whether it will be a Long term or short term capital asset 

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Rahul Rai

2014-03-15

@Vedanta

Agreed that asset constructed before 3 years is short term-its in part with case law, but my doubt is asset was already existing when the property was first bought. Buyer just did an improvement to the existing asset.

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Vedanta Deshika

2014-03-15

@Rahul Rai

How can u consider it just as an Improvement. the building was completely demolished and built from scratch. 

 

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Rahul Rai

2014-03-15

Just have the doubt. Demolishing and rebuilding is formation of a new asset or improvement over the old asset?

If the formation of building is new asset, than demolition cost will be added to cost of purchase of new asset?

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Vedanta Deshika

2014-03-15

@Rahul Rai

I think our learned CA Pulkit Sharma only can take up such a great question 

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CA Pulkit Sharma

2014-03-16

@ Rahul Rai

The cost incurred in demolition of old house will be treated as cost incurred to aquire the new property.

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CA Sundeep Kamath

2014-03-18

My silent reply would be Please read sections 2(47), section 111A, section 112, Section 55 - meaning of Cost of Improvement.

The plain reading that goes under section 55 is addtions or alterations to a capital asset as defined under 55(2)(i) and not bringing all together a new asset in existance of the previous asset.

Pls. read, i am 100% sure the doubt will get resolved .

 

Regards,

CA. S Kamath

skamath@saasintellect.in

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Rahul Rai

2014-03-18

@ Sundeep

Being an accountant certain things bunces. Would be thankful if you can explain the provisions.

A big fan of you on this site.

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