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Taxability of gain on sale of property

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Rakesh Gupta

Chartered Accountant

35 Points Posted on 01 September 2012

ABC Private limited has 3 properties of which, the company charged depreciation @ 10% on 1 property and 5% on other 2 properties. The depreciation was charged upto F.Y. 2005-06. However, w.e.f. 01.04.2006, the company stopped charging depreciation due to discontinuation in business. Now in F.Y. 2011-12, the company has sold one of the premises out of 5% block. Now the questions arises are:

1. The property sold is whether Long Term Capital Assets or Short Term Capital Asset?

2. What will be the cost of property for calculating capital gain - WDV as on 31.03.2006 or to calculate the WDV as on 31.03.2012?

3. Whether the company can claim exemption u/s 54EC?

Replies (1)

meenakshi

Audit Manager

81 Points Posted on 01 September 2012

Hi!

The reply to each of your queries is:

capital gains arising out of transfer of depreciable assets are always short term capital gains only (section 50).
Cost of the asset for the purpose of computing capital gains is the aggregate of WDV of the block of assets at the beginning of the year and the actual cost of any asset falling within that block, acquired during the year. since in your case, there has been no fresh purchase of asset in that block, cost of acquisition is the WDV of the block of assets as on 1.4.2011.
As for exemption u/s 54EC, exemption can be claimed only if the asset is a long term capital asset and exemption is not available in your case.

Hope this clarifies your doubts.