9911796707
TMI Blog2003 (4) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... all be treated as short-term capital gain ?" Facts: Some time during the accounting year ending December, 1975, the assessee purchased a plot of land admeasuring 3,930 sq. yards at Friends Colony, New Delhi. In the next year, the assessee started construction of a bungalow as a residence for the assessee's manager in New Delhi. On August 7, 1978, the assessee sold the entire property for Rs. 30,00,000. In the conveyance the price was allocated as follows: for the land, it was Rs. 14,00,000; for the building, it was Rs. 9,00,000 and Rs. 7,00,000 was for the air-conditioning plant, equipment, installations and fixtures. The total consideration was Rs. 30,00,000. At this stage, it may be mentioned that out of the total area admeasuring 3,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that for the purposes of computation of capital gains, land and building were two separate and distinct assets and, therefore, profits arising from the sale of land was required to be considered as long-term capital gain whereas, profits arising from the sale of building was required to be considered as short-term capital gain. Being aggrieved by the decision of the Tribunal, the matter has come by way of reference at the behest of the Department. Arguments: Mr. R. V. Desai, learned senior counsel appearing on behalf of the Department, argued that after the construction of the building on the land, the house property became an inseparable asset. That, after construction of the building on the land, the house property became a new asset. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, under section 32, the assessee was entitled to depreciation only in respect of the buildings and not the land. In the case of CIT v. Alps Theatre [1967] 65 ITR 377 (SC), it has been held that depreciation under the Income-tax Act was not allowable on the cost of the land on which the building is erected but only on the cost of the superstructure. In that matter, the assessee carried on the business as exhibitor of films. The Income-tax Officer initiated proceedings under section 34(1)(b) of the Indian Income-tax Act, 1922, on the ground that in the original assessment depreciation was wrongly allowed on the entire cost of Rs. 85,091 shown as cost of the building which included Rs. 12,000 as cost of land. By order dated February 22, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e site. Section 50 refers to the provisions of section 48 which in term deals with mode of computation and deductions in respect of the income chargeable under the head "Capital gains". Section 48 states that such income shall be computed by deducting from the full value of the consideration received, the expenditure incurred wholly in connection with such transfer and the cost of acquisition of the capital asset as also the cost of improvement thereto. Section 43(6) defines the expression "written down value" to mean the actual cost to the assessee less depreciation actually allowed to him under the Act in the case of asset acquired before the previous year. Therefore, one has to read section 50 which provides for determination of cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gain but it was to be treated as short-term capital gain. This is the only issue which arises in this case. As stated above, this view of the Department is erroneous for two reasons. Firstly, under section 32(1), no depreciation is admissible for land (see judgment of the Supreme Court in the case of Alps Theatre [1967] 65 ITR 377). Secondly, the department can assess the company to short-term capital gains only qua depreciable assets which in the present case is the superstructure erected on the site (see section 41(2) of the Income-tax Act as it stood at the relevant time). For both the above reasons, we hold that in the present case, on the sale of land carried to the building vide conveyance dated August 7, 1978, the gain which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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