Finding ways to reduce income tax amount

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

06 September 2017 Dear Sir,

We need your precious help. An ancestral 6 storey building. It has been shown in the balance sheet of Private Limited Company (Trading Company) since 1960. The Private Limited Company has been availing depreciation for the same building in every year. Being an old and ancestral building, it does not have any record like date of purchase, value of purchase etc. In a word, there is no document which shows its present value as well as past value. The building is situated in Kolkata and its document of Corporation Tax is there. Whereas, tenants are there and rent and maintenance charges, collected from the tenants, are being shown as ‘Income from House Property’ in company’s P & L A/c.
Now, the matter of concentration is that in the Financial Year 2016-2017, a portion of a floor of this 6 storey building has been sold out near to rupees 1.05 crore. As, yearly depreciation has already been taken, the sale can’t claim the privilege of ‘Capital Gain’. So, if the sale amount is directly taken at the credit side of ‘Profit & Loss Account’ as an Income, then the Payable Income Tax Amount is becoming near about 30 Lakh which is quite a heavy amount for a Private Limited Company whose turn- over is 8 Crore. Further to say that in the same year a repairing expense near about Rs.50 Lakh is incurred in order to repair another floors. Can this expenses be adjusted with the above mentioned sale amount subtracting directly from total sale amount or putting the expenses at the debit side of P & L A/c ? So, please advise mentioning the ways how can we reduce the amount of Tax.

Regards,
Subhadip Acharya

Amol S Joglekar

Amol S Joglekar (Expert)
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06 September 2017 income tax follows BLOCK of Asset.
For the time being, since you have not given the WDV of your 6 storied building as per the Balance Sheet of the said Pvt Ltd company, let me assume the WDV of block of this 6 storied building as 5,00,000/-
So the working would be..since the block of asset is NOT ceased by selling 6th floor....
WDV 5,00,000
Add: Repairs 50,00,000
Less : sale proceeds of portion of a floor 1,05,00,000
Short term capital gain to be offered to income tax = 50,00,000
So?....your tax liability is now reduced to half......pay it and enjoy the remaining amount

Querist : Anonymous

Querist : Anonymous (Querist)

06 September 2017 Sir, kindly clear why will it be treated as STCG instead of being an old property obviously more than 3 years. Can the sale be treated as LTCG? As on 01.04.2016, the WDV of the 6 storied Building is Rs. 28,68,719.00. So, how can we work out the value of Sold-portion particularly as there is no documents of purchase or valuation. How can we get its fare value? How its 'Cost of acquisition' can be take out with use of indexation?

Further to say that if the rest portion of the building is sold for Rs. 6 Crore in future, what should be prospective plan to reduce the Income Tax? If Tax is flat 30%, in that case the Tax Burden will be heavy!!

Please reply.

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Amol S Joglekar

Amol S Joglekar (Expert)
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06 September 2017 since you said that the company has claimed depreciation on the same. Hence irrespective of the period of holding, the capital gain is Short Term.
01. credit the amount received 1.06 cr to this building a/c.
02. Debit the amount incurred 50 lakh on repairs.
03. The credit balance in this account shall be transferred to Profit & Loss A/c.

I think 30% should NOT be regarded as heavy......i remember the tax rate used to be 50 to 60% in my young days.

If you invest in other property, you can save the tax.

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