capital gains or Business income

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

16 October 2010 1.Our company XYZ LLP owns empty commercial land 20,000 Sqft Land (bought 25yrs back for only Rs 1lac). Our biz is in the biz of dealers in Industrial supplies. We have possessed the land in our books for the last 25yrs as only a capital asset. We now want to get into a Joint development with a developer to build aprts on this land@60/40 Ratio. Will the sale of our share of built up aprts and UDS of land be construed as CAPITAL GAINS or BUSINESS INCOME? Any insights will really help. Thank you

Aditya Maheshwari

Aditya Maheshwari (Expert)
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16 October 2010 Since it is oing to be conversion from capital asset to stock in trade the conversion of land would be capital gains and it would be liable to tax in the year in which the land would be sold and the deemed sale consideration would be the market value of the property on the date of conversion.

When the flats contructed on the land are sold that would be subject to business income only and the deemed cost of land sold would be allowable as a cost while computing business income.

taxindiaconnect

taxindiaconnect (Expert)
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16 October 2010 Agreed with Aditya

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Querist : Anonymous

Querist : Anonymous (Querist)

16 October 2010 http://www.thehindubusinessline.com/iw/2010/06/13/stories/2010061351051100.htm

I don't understand . pls look the at the biz line link i have sent you. I have the same situation there and in that it is construed as CAP GAINS. Pls adviseas I again not in the biz of construction and selling

CA. SUDHARSAN K G

CA. SUDHARSAN K G (Expert)
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17 October 2010 Dear Law is an area where you can do anything with relevant supporting.

When the land is given to developer for development:

Whether the capital gains are taxable in the year when the agreement with the developer was executed or in the year when consideration is received by the land owner - depends on the language of the developers agreement. It is taxable in the year in which risk and rewards in the property are transferred. In practice the handing over of the possession of the property by the land owner to the developer is deferred till the handing over of the built up area constructed by the developer to the land owner. Till that time, a license is given to the developer to enter the property for the limited purpose of development and construction. In such case, the view is that the transfer does not take place immediately and the liability to capital gains does not arise until the built up space earmarked for land owner is constructed and handed over by the builder to the land owner.

Computation of income :

In case the land is given for development to a developer Consideration:
It can be in Cash or Exchange of Constructed Area or partly in cash and partly in exchange of constructed area.

If it is Exchange of constructed area, then the value thereof will be determined as per the books and records maintained by the developer in regular course of his business.

Long term capital gains:
Amount of consideration received(in cash or in kind ) less Indexed cost of land

Short term capital gain
Sale Price less consideration received ( in kind)

Querist : Anonymous

Querist : Anonymous (Querist)

17 October 2010 Dear Sudharsan,
Thank you for taking the time to answer but You stil haven't given me a clear answer on my MAIN question: am i to take it as Capital gains or Business Income? ( given that i'm NOT in the biz of construction or selling). Your definitive ANSWER will help me determine my course of action. Thank you so much.

CA. SUDHARSAN K G

CA. SUDHARSAN K G (Expert)
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24 October 2010 Hello Mister
As a Professionals we can advise you what is benefit with relevant details Only.

For ex in your case i expressed my opinion by the possiblest way of Taxation.

Hope u understand

Querist : Anonymous

Querist : Anonymous (Querist)

24 October 2010 Sure sudharsan but as an "expert" you have not given me an clear answer.the question is not WHEN it is construed as cap gains but is it cap gains or business income? pls make a stand either whichways( like the other experts) rather than a generic unrelated cut and paste on computation of cap gains.

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