Arvind Sharma (ACA) (1432 Points)
23 June 2011Hi Guys......
My query is as below:-
A building costing (as per Income Tax provision) Rs. 43.70 Lacs including cost of Land Rs. 25 Lacs. The same building is demolished and new building (number of flats) is constructed. Cost of Construction comes Rs. 53.23 Lacs (excluding cost of land).
Now tell me what will be the consequences under the Income Tax Act...????
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 23 June 2011
in case of demolition the cost of property is NIL, ( cost of land would remain intact), however cost of broken building materials would be taken in account to ascertain the sale of old property and would help to calculate the Capital Loss from old property.
New property would be taken in account as per costing.
CS,CA F,Numrologi TusharSampat
(CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert)
(85930 Points)
Replied 23 June 2011
| Originally posted by : U S Sharma | ||
 |
in case of demolition the cost of property is NIL, ( cost of land would remain intact), however cost of broken building materials would be taken in account to ascertain the sale of old property and would help to calculate the Capital Loss from old property. New property would be taken in account as per costing. |
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AGREED.
nimesh
(Executive)
(33 Points)
Replied 23 June 2011
from your query it is not clear whether d property is being sold. if it is being sold, treatment would be as suggested by mr USSharma. however, if the property is not being sold, but the assessee himself is constructing new building aftr demolishing the old building, presently, there will be no capital gain. further, if the building is being used for the purpose of the business of the assessee, depreciation will be available on the cost of d building, as reduced by the consideration received on sale of the debris.
Mukesh Kumar Singh
(CA-FINAL)
(4094 Points)
Replied 23 June 2011
from your query it is not clear whether d property is being sold. if it is being sold, treatment would be as suggested by mr USSharma. however, if the property is not being sold, but the assessee himself is constructing new building aftr demolishing the old building, presently, there will be no capital gain. further, if the building is being used for the purpose of the business of the assessee, depreciation will be available on the cost of d building, as reduced by the consideration received on sale of the debris.
CHAITANYA
(C.A.; C.S.)
(90 Points)
Replied 23 June 2011
Demolishing is not transfer u/s 2(47) (because capital asset lost existance.) hence certainly not taxable under head of Capital Gains.
Land , Building are treated as different assets; if land not tranferred no question of CG
If owner wants to sell these newly constructed flats, it can be regarded as business income as he systematically act to do gains from constructing activity.
Arvind Sharma
(ACA)
(1432 Points)
Replied 23 June 2011
Assessee himself demolished existing building......
Existing building is not sold...
The crux of above reply, what I understood is like below:-
- Cost of Existing Building Rs. 18.70 Lacs will dead loss since there is no transfer...
- Cost of Land will remain same i.e. Rs. 25 Lacs...
- Cost of New building will be Rs. 53.23 Lacs...
If the scrape material of old building is used for new one, will it be capitalied at realisable amount...??
Should Rs. 53.23 Lacs be treated as COI with existing building and accordingly should total cost be Rs. 71.93 Lacs (18.70 + 53.23)...????
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 23 June 2011
| Originally posted by : Arvind Sharma | ||
|
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- yes and same would be deducted from the new cost. of improvement. - No, demolised structure can not be added to new structure. |
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Anvesh Desai
(Chartered Accountant)
(156 Points)
Replied 23 June 2011
form the question framed, i interprete that assessee has not sold the building and same is demolished..
now having said that following consequences will follow....
1. no treatment for the balance value (ie depreciated value) of building so far income tax act is concerned..
2. the cost incurred for the construction of new building will be capitalized and eligible for claim of depreciation
3. the scrap value of the debries sold will be allowed as deduction from the cost incurred in poin no. 2
i support the view taken by U S Sharma
Friends I have different opinion.
This is the case of conversion of asset into stock in trade. Capital gain shall arise u/s 45(2).
Full value of consideration shall be the fair market value as on the date of completion of construction.
When these constructed flat is sold business income shall arise as follows.
Sale price of the flat - FMV.
Thank you
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 23 June 2011
when the purpose of such construction is not declared by the query posting person, its deemed that the old property as well as new property both are self occupied and not for commercial purpose.
in the light of commercial construction or construction for sale of house or part thereof - the views of Mr Kaushal may be interperated subject to details provided by the query posting member.
Pulkesh Mehta
(Chartered Accountant)
(243 Points)
Replied 28 June 2011
According to me-
Book value of Block of Land & Building=43.7+53.23-Sale value of scrap
Capital gain provisions will not apply-as demolition of building will not be deemed as transfer ,as mentioned earlier by Mr. Chaitanya
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