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Question ID : 41079


The major income source of company is from rent on building. The land was purchased by company in 2011-12 and the multiple floors was constructed during 2012-13. The company was claiming depreciation on the building from 2012-13 and the cost of land are also in the books of accounts as asset. Out of multiple floors, one floor is sold out during 2020-21. So, I want to know that the gain from the sale of floor is long-term capital gain (LTCG) or short-term capital gain (STCG) for company. Seller gives Rs.2cr for the floor, in that case how I can calculate the sale amount of land and building out of Rs.2cr.

Posted by CA Neha Gupta on Jun 19, 2021

Filed Under Capital Gains

Answer ID : 81163

Hello Neha, Going by the facts of the case, capital gains arising on sale of building, being a depreciable asset in the books of account, will be taken as short term in nature and needs to be computed in accordance with provision of Sec 50 of the Act. Second, the capital gains arising on sale of land, being a non depreciable asset, and on the basis of period of holding, would be long term in nature. Third, generally in such scenarios, the parties to the deal mention the amount of consideration separately attributable to land & building within the agreement itself to avoid any issues in future. In absence of the same, there are no specific guidelines from the department that can be followed here. Having said that, the assessee needs to evolve a strong basis/formula, taking cues from relevant case laws and utilising factors such as market value, stamp duty value, cost ratio etc to arrive at a logical break up that can be defended in case of future litigation. You can also avail the services of a registered value to further strengthen your basis and bifurcation in this regard. Hope it helps resolve the issue. Best regards,

Posted by VIKRAM MAHIPAL on Jun 22, 2021