Capital Gain--Old house converted into Commercial Complex

Hi Mr Akash and Mr Goenka,


There may be more to it than meets the eye. The line of distinction between what constitutes Capital Gains and what constitutes Adventure in the nature of trade or commerce often gets blurred. Akash has said the brothers demolished the house "some time" after they inherited it. Now consider the following case law:In CIT v. Dr. Indu Bala Chhabra [2003] 132 Taxman 45 (Cal.), the assessee-doctor was found to have purchased a property for constructing a nursing home but actually constructed shops and flats on such property and earned profit from sale of such properties. The Assessing Officer assessed such income under the head, 'Business' and invoked the provisions of section 45(2) for assessment of notional gains from conversion of capital assets into stock-in-trade. While disagreeing with such order of the Assessing Officer the Tribunal noted that there was a substantial gap between the date of purchase, commencement of construction and sale of the property and it took about 19-20 years to dispose of the property and in case it was to be a business proposition, then no prudent person would have waited for that long. The Delhi High Court affirmed the order of the Tribunal without any hesitation.The doctor here got away with treating the gains as Capital gains as there was a huge time gap between the date she bought the property and the date she sold it. But the Brothers in the instant case set about constructing a commercial complex "some time" after they got the property bequeathed to them. The brothers must have considered the commercial viability of raising a business complex and weighed in other pros and cons of going about the whole process. Prima facie, this seems to be a case of adventure in the nature of trade or commerce to me. Shops in the commercial complexes springing up all over the country these days are meant to be sold only; no one lets them out. If I buy a vacant piece of land, construct a multi-storeyed complex on it and then sell the shops piecemeal, the profits I make would be subject to tax under the head Business Income. Now when I inherit a property and do the same thing, how can I contend that I've earned capital gains and not business income? I didn't have a choice in the matter of inherited property. In fact many ingrate sons must be waiting in the wings for their fathers to kick the bucket so that they can pull down the dilapidated old house, construct a commercial complex on it and sell out the shops. The father has a sentimental attachment with the old house because that's where he consummated his marriage. He won't let that property be sold off within his lifetime.In such cases, aren't the sons merely engaging in a business venture? In my opinion, yes. Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, PRAMOD GOENKA wrote:>> > Simple ! Calculate cost of acquisition and cost of improvement as per law. Whats the problem ?> > CA. Pramod Goenka> >> > I have one problem on capital gain tax. Two Brothers were having a house, which they got by inheritance. .After some time they demolished the house and constructed a commercial complex consisting 20 shops. Now they want to sell out the shops. How the capital gain be calculated on it. Please advice tax planning with citation , if any> > Regards,> CA Akash