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QUERY: We have made a capital profit of Rs. 10 crores from sale of our property. We have been advised that the profits being capital in nature can be directly credited to the capital reserves account in the balance sheet and need not be routed through the P & L A/c. As the profits are not a part of the P&L A/c, can we avoid paying MAT book profits u/s 115JB?
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No! Even if capital profits are credited to the capital reserves a/c in the balance sheet, they have to be added to the “book profits” for purposes of s. 115JB.

QUERY: I sold my residential property and made a long-term capital gain of Rs. 50 lakhs. I used the sale proceeds to purchase a commercial gala. Subsequently, within two years of sale of the residential property, I purchased another residential property by borrowing funds from the bank and relatives. Can I claim that the long-term capital gain is exempt u/s 54 even though the sale proceeds of the old house were not used for purchase of the new house?
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No! The only requirement for availing deduction u/s 54 is that the new residential house must be purchased or constructed within the period specified in the section. The source of funds is irrelevant.

QUERY: We have been approached by a builder for the redevelopment of our building. He says he will demolish parts of the building and reconstruct with more area. The society will be paid Rs. 1 crore while the members will be paid Rs. 25 lakhs each. He will retain a part of the area as his profit. Are the said sums chargeable to tax in the hands of the society and members?
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No. If no ‘cost of acquisition’ is attributable to the development rights, the gains arising on their transfer are not assessable in either the hands of the society or in the hands of the members.

QUERY: I am holding some shares for investment purposes and other shares for trading. I have made gains from the investment shares. Is the AO correct in treating the gains as business income?
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No! One has to be careful to ensure that there is a proper segregation of the shares held on investment account from the shares held on trading account. The investment shares must be valued at cost while the trading shares can be valued at market price if that is lower.

QUERY: I am interested in seeing the assessment records of certain third parties. Can I call for the same under the Right to Information Act?
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Yes! As per the recent controversial judgement of the Chief Information Commissioner in Rakesh Kumar Gupta’s case.

QUERY: We are carrying on real estate business and hold land at stock-in-trade. The land cost us Rs. 50 lakhs. It is worth Rs. 2 crores today. We propose to revalue the land at its market value in the books of account and credit Rs. 1.50 crores to the P & L A/c. We shall introduce the land as our capital contribution in a firm in which we will become partners. The firm will credit our capital account by Rs. 2 crores. Are we taxable on the difference between Rs. 50 lakhs and Rs. 2 crores?
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Yes! As per the judgement of the majority in the Special Bench in DLF Universal vs. JCIT, stock-in-trade gets converted into a capital asset at the point of introduction into the firm and attracts s. 45(3).

QUERY: We have two factories, one at Bombay and the other at Delhi. The factory at Bombay is operational. However, the factory at Delhi has been shut for two years with no activity. Are we entitled to claim depreciation on the assets installed there?
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Yes! You are entitled to claim depreciation even on assets that are not used provided they are part of a “block of assets” and the block has been used during the year. The user of the “block” is important and not that of individual assets.