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Purchase of land - investment or fixed assets

CA Bijay Shrestha (Never Give up....No matter what....) (858 Points)

23 November 2016

For Knowledge purpose:

A company or Businessman purchased Land. Whether it can be shown as Fixed Assets or Investment ??

Please suggest.

Also From Income taxpoint of view, please suggest tax implication as far as classification as above is concerned.

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Hitesh Khanna (Accounting & Finance Taxation Company Law Audit ) (839 Points)
Replied 23 November 2016

As per AS 10 , an item would be classified as Fixed asset if it has been purchased for the purpose of Earning Revenue.
In case the Intention of the businessman is to Invest in land and sell it afterwards at a higher price - then it stands out as an Investment.

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CA Bijay Shrestha (Never Give up....No matter what....) (858 Points)
Replied 23 November 2016

Originally posted by : Hitesh Khanna
	As per AS 10 , an item would be classified as Fixed asset if it has been purchased for the purpose of Earning Revenue.In case the Intention of the businessman is to Invest in land and sell it afterwards at a higher price - then it stands out as an Investment.

I agree Hitesh.

As per my view, if the Fixed Asset (Land) is used to carry on the business and to earn revenue, it should form part of Fixed Assets.

On the other hand, If the intenetion is to generate additional income or extra income apart from main business and revenue, it may be classified as Investment.

And as far as Income Tax is concerned, I think there is no difference in treatment. If that land is sold, respective profit or loss shall be treated as Short term or long term Capital gain irrespective of Fixed Asset or Investment.

Other views are also welcome.

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