Saranya J (STUDENT) (33 Points)
01 December 2011Hi Friends
pls clarify my doubts
1. what and all expenditures can be included in Cost of Improvement?
2. Whether amount paid for maintenance of land to the association can be included in Cost of Improvement?
3. whether amount paid for laying road in the colony can be included in cost of improvement?
Z
( )
(2965 Points)
Replied 01 December 2011
Sec 55 gives meaning of Cost of improvement. it states
"(1) For the purposes of sections 48 and 49 , - (a) "Cost of any improvement", - (1) In relation to a capital asset being goodwill of a business or a right to manufacture, produce or process any article or thing shall be taken to be nil; and
(2) In relation to any other capital asset, -
(i) Where the capital asset became the property of the previous owner 852 or the assessee before the 1st day of April, 1981, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee, and
(ii) In any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head "Interest on securities"(now merged with income from other sources) , 853c "Income from house property", "Profits and gains of business or profession", or "Income from other sources", and the expression "improvement" shall be construed accordingly."
Therefore maintenance of land can not be considered as cost of improvement (as it is of revenue and not capital nature)
Laying road in colony
"The Income-tax Officer would compute roads as building and depreciation should be given accordingly. In view of the circumstances, the parties are directed to bear their own costs."
source: law.incometaxindia.gov.in/dittaxmann/incometaxacts/2008itact/%5B1992%5D196ITR0149%28SC%29.htm
Also chk. www.indiankanoon.org/doc/1895841/
Roads are included in block of building also . (check the schedule also)
On the basis of decisoins made in above cases, in my opinion this is capital expenditure and hence Cost of improvement is allowed
But all these refferences are from income u/c PGBP
I am certain that I have read something in respect of this similar situatoin (road in colony) but am not able to cite my source . Lets see what others says/cite
varun rawlani
(CA)
(31 Points)
Replied 01 December 2011
yes agree with Z on all the points .
but i think that if the assessee want he can agrue that because of such expenditure he is in position to realise more sales consideration then in that case it shall be included in cost of improvement.
Mihir
(Wealth Manager)
(5293 Points)
Replied 02 December 2011
What if a flat owner has made some extension in the flat, which was not notified to the local municipality? And after few years, the local municipality charges the flat owner a penalty for illegal extension in the flat. Can this penalty be part of cost of improvement?
CAclubindia
