Sec 45(2) of income tax act
This query is : Resolved
18 September 2011
wether sec 45(2) of income tax act is appicable on depricable assets e.g, office building.and if appicable then its tax treatment.
20 September 2011
Kindly read the section
(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as, stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.
This is not applicable for Fixed Assets
(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as, stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.
This is not applicable for Fixed Assets
20 September 2011
Kindly read the section
(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as, stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.
This is not applicable for Fixed Assets
(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as, stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.
This is not applicable for Fixed Assets
20 September 2011
sir capital asset means property of any kind held by assesse,sec 2(14), and business assets are capital assets.
21 September 2011
All fixed assets are capital assets. Capital gain is applicable even on the sale of fixed assets, whether depreciable or non-depreciable.
Similarly, on conversion of building intoo stock-in-trade Section 45(2) gets attracted.
The consequences will be as under:
On conversion of building into stock-in-trade, capital gain will be levied.The fair market value of the building shall be treated as the Sales Consideration.
Further, on sale of building(stock-in-trade) business profit/loss will arise and taxable under the head Profits or Gains of Business and Profession.
However, both the income, capital gain as well as business income, will be taxable in the year in which the building(stock-in-trade) is sold.
If the building is never sold, no capital gain or business income will arise.
Example:
Building with WDV Rs. 5lakhs converted to SIT on 1.12.2009.
Section 45(2) attracted. Assumed fair value is Rs. 15 lakhs.
Building(SIT) sold on 31.10.2011 for Rs. 25 lakhs.
Tax Impact in AY 12-13
Capital Gain=Rs(15-5)=Rs 10 lakhs
Business Income=Rs(25-15)=Rs 10 lakhs
Similarly, on conversion of building intoo stock-in-trade Section 45(2) gets attracted.
The consequences will be as under:
On conversion of building into stock-in-trade, capital gain will be levied.The fair market value of the building shall be treated as the Sales Consideration.
Further, on sale of building(stock-in-trade) business profit/loss will arise and taxable under the head Profits or Gains of Business and Profession.
However, both the income, capital gain as well as business income, will be taxable in the year in which the building(stock-in-trade) is sold.
If the building is never sold, no capital gain or business income will arise.
Example:
Building with WDV Rs. 5lakhs converted to SIT on 1.12.2009.
Section 45(2) attracted. Assumed fair value is Rs. 15 lakhs.
Building(SIT) sold on 31.10.2011 for Rs. 25 lakhs.
Tax Impact in AY 12-13
Capital Gain=Rs(15-5)=Rs 10 lakhs
Business Income=Rs(25-15)=Rs 10 lakhs
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