Capital Gain--New Building let out

Hi Mr Athale,

First, does the sale consideration of Rs 62 lacs include the cost of
land as well? I presume Rs 5 lacs being the opening WDV of Building
did not include land. But Rs 62 lacs it seems includes the total
sale consideration— -for both land and the building. Actually, I
brought this up because this is a common mistake—-assessees forget
to segregate the sale proceeds of land and building and treat the
entire excess of sale proceeds over the WDV as STCG and end up
paying tax at the maximum slab rate on it.

Anyway, your question is more on how to deal with the issue in terms
of accounting entries in the books.

If the new factory building has been let out on rent, then its cost
will not form part of the Block of Assets as defined in Section 2
(11) of the I T Act. So a new account will have to be opened for it
in the books. If the new building is clubbed with any existing block
used for business and eligible for depreciation u/s 32, it may
create confusion and cause errors in calculating depreciation and
determining the nature of CG if and when the building is sold.

Please also note that if the new factory building is being let out
only temporarily to pass through a lean patch in the assessee's
business, the rental income may be treated as Business Income. There
are enough case laws on this. Obviously, if you can treat the new
building as a block of depreciable assets u/s 2(11) and section 32,
you can have a building block of Rs 3 lacs to claim depreciation on
and there won't be any STCG of Rs 57 lacs!

Thanks,

CA Sanjeev Bedi

--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, sdathale
wrote:
>
> in one of the proprietorship case there is a opening balance of
factory building of Rs. 5,00,000/- after charging depreciation on
annual basis and the same is sold during the year for rs. 62,00,000/-
. thus there is a short term capital gain of rs. 57,00,000/- the
assessee has purchased new factory premises for rs. 60,00,000/- but
same is given on rental. whether all entries will come in one block
of assets.
>
>
> s.d.athale
>