Law:

Section:

Section 2(42A) of the Income-tax Act, 1961 - Capital gains - Short-term capital assets/gains - Assessment year 1979-80 - Whether where land was held by assessee for a period of more than period prescribed under section 2(42A) and building constructed thereon was held for less than that period as on date of sale, surplus arising on sale of land would be treated as long-term capital gains and surplus on sale of building would be treated as short-term capital gains - Held, yes FACTS The assessee-bank was a non-resident company. In the accounting year ending December, 1975, it had purchased a plot of land. In the next year, it started construction of a bungalow. On 7-8-1978, it sold the entire property for Rs. 30 lakhs. In the conveyance the price was allocated as follows: for the land, it was Rs. 14 lakhs; for the building, it was Rs. 9 lakhs and Rs. 7 lakhs was for the air-conditioning plant, equipment, installations and fixtures. It returned a short-term capital gain of Rs. 26,242 on the sale of house property and a long-term capital gain of Rs. 4.87 lakhs on the sale of land. It was not accepted by the Assessing Officer who was of the view that the house property had been constructed on the land and, therefore, the gain arising on a transfer resulted in short-term capital gains. According to the Assessing Officer, the entire gain arising to the assessee on the transfer represented short-term capital gain. On appeal, the Commissioner (Appeals) confirmed the action of the Assessing Officer. On second appeal, the Tribunal held that for the purposes of computation of capital gains, land and building were the two separate and distinct assets and, therefore, profits arising from the sale of land were required to be considered as long-term capital gains whereas, profits arising from the sale of building were to be considered as short-term capital gains. On reference : HELD In view of the decision of the Supreme Court in CIT v. Alps Theatre [1967] 65 ITR 327, depreciation under section 32(1), is allowable only on the cost of the superstructure and not on the cost of the land. Section 50 relates to special provision for computing cost of acquisition in the case of…

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