Opinion Of Eminent Legal Luminaries On Controversial Issues

Can Sale Of Land & Building Be Split Into Long-Term & Short-Term Capital Gains?

QUERY: ‘A’ has purchased a plot in March, 2010 for Rs. 10/- lakh and spent Rs. 5/- lakh for construction during F.Y. 2011-12, and Rs. 5/- lakh during the F. Y. 2012-13. He sold the entire house in December, 2014 for Rs. 50 /- lakh Whether it is long-term or short-term gain?
ANSWER: Section 2(29A) defines “Long term capital asset” which means a capital asset which is not a short term capital asset. Section 2 (42A) defines “Short term capital asset” which means a capital asset held by an assessee for not more than thirty six months, other than listed shares. In that case, a period of not more than the twelve months to be considered for short term capital asset.

Now, in this case land was for more than thirty six months, hence the same is to be considered as long term capital asset. While super structure was for less than thirty six months, so it is to be considered as short term capital asset.

Therefore, the land would be assessed as long term capital gains, while super structure would be assessed as short term capital gains, on the basis of following judgments:

i) CIT v. Citibank N.A. [261 ITR 570 (Bom)]

ii) CIT v. Dr. D. L. Ramchandra Rao [236 ITR 51 (Mad)] and

iii) CIT v. Vimal Chand Golecha [201 ITR 443 (Raj)].

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