Selling of property and investment in another property.

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

04 February 2014 FACTS
1. Private Limited Company (having Jewellery Business) is having 3 Shops which are being used for Business purpose and Depreciation is being claimed on the same.
2. Now the Company wants to sell these shops.
3. On such sale, Gross Block will be negative and Company will be liable for Short Term Capital Gain.
4. For such Tax planning purpose, Company wants to invest in 2 Shops whereby investment in such 2 Shops will be higher than sales consideration of existing 3 shops.
5. Registration of 2 new shops will be done today.
6. But such 2 new shops are still under construction and possession is not being given now.

QUERIES
1. Whether such new shops whose registered agreement will be there but possession will not be given form part of “Gross Block of Assets” or not?
2. Whether we can claim Depreciation on such new shops whose possession will not be given?
3. Whether by investing in such shops whose possession will not be given, Short Term Capital Gain & Tax Liability will arise or not?

If it is included in “Gross Block of Assets” and Depreciation is taken in this financial year AND if the Company wants to give such 2 new shops on rent in the next financial year
1. Whether such 2 new shops will form part of “Gross Block of Assets” even after giving the same on Rent?
2. Can we charge Depreciation on these 2 new shops even after giving them on Rent?
3. In such case of giving such 2 new shops on Rent, will the prior liability of Short Term Capital Gain arise or not?

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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04 February 2014 Till possession is given the shops are not put to use and therefore, no depreciation can be claimed.

As regards STCG since you are taking the new assets in the block to the extant of profit you are reducing the valuation and hence no capital gain shall be applicable.

As regards renting out the new shops you are changing your income head and from business income you will be going to income from house property where no depreciation is allowable only 30% deduction can be claimed against rent.

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Querist : Anonymous

Querist : Anonymous (Querist)

10 February 2014 Any more ideas to resolve the earlier stated queries are also invited.

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