Office premises long term gain

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Rajesh Topiwala (Querist)
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08 March 2015 One of my individual client sold office premises which was purchased in 2005 for Rs. 1 cr. On 01.03.2014, the same was sold at Rs. 2.5 cr. after 9 years holding.
My question is
1. Can we apply CAPITAL Index and can compute Long Term Capital Gain ?
2.ITO denied to apply Index and treating the same as short term telling that it is depreciated ASSSETS. Depreciation was not claimed u/s 32 by us.
3. Is ITO right ?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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08 March 2015 According to section 50 of Income tax act if an assessee has sold a capital asset forming part of block of assets (building, machinery etc) on which the depreciation has been allowed under Income Tax Act, the income arising from such capital asset is treated as short term capital gain.
Suppose you have not claimed depreciation on the building you can claim indexation benefit and compute long term capital gain.

Rajesh Topiwala

Rajesh Topiwala (Querist)
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08 March 2015 But we have not claimed depreciation. And we want to have the same as capital assets and want to appply indexing and want to treat as long term capital gain. But Income Tax officer says that depreciation is to be claimed compulsory every year and he wants to treat as short term without indexing. Is it compulsory to claim depreciation on office premises. Is it not the option of the assessee to claim as long term gain with indexing ?

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CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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09 March 2015 The Income Tax Officer is right in saying depreciation is to be claimed compulsory. If the office building is shown in the books of account as business asset it will be treated as short term.

Sunil

Sunil (Expert)
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08 April 2017 In commercial properties there are two components. The land and the building. Land price paid has no depreciation and can be indexed as usual for LTCG. Building cost is what you have to claim depreciation on compulsorily and that is subject to Short term capital gain.

There are many disputes on this especially where the agreement for purchase of office is on a composite agreement. This is more so in office in registered cooperative societies where although the purchase may be made at a particular price you cannot claim depreciation as claiming depreciation on land price is not allowed.

Nowadays even at stamp duty office they minus the cost of the land from the agreement price (if a combined sale price is shown) and calculate depreciation only on the balance price after deducting land cost in the reckoner rates. Therefore maybe you may have ground of appeal and at worst you bifurcate price of land from building to arrive at depreciation.

If you purchase a land and construct a building you can claim depreciation only on building.