Sale Proceeds - Business Income or Capital Gains

[madhavvan n]

a company has purchased land and incurred expenditure on regsitration in 2004 and this land was acquired with intention to develop it for construction of flats. there is no activity for 4 years in the company now in 2009-10 company wants to sell this land whether the sale proceeds will be taxable as business income or capital gains

[Surender Gupta]

It depends upon the facts and circumstances which would determine the nature of land - a capital asset or revenue asset - if it is capital asset the same shall be subject to capital gains otherwise shall be subject to Profit and Gains from Business or Profession or Income From other Sources. You may also note that intention and purpose must be evidentry and sufficient to prove the object and purpose. Otherwise, as a layman like me, if not proved to the contrary, it is a capital asset and liable to capital gains.

AI Summary

Clarification sought on tax treatment of land sale: business income or capital gains? Intention behind purchase is crucial. A company purchased land in 2004 intending to develop it for constructing flats but has undertaken no activity for four years. In 2009-10, the company plans to sell the land and seeks clarification on whether the sale proceeds will be taxed as business income or capital gains. The response indicates that the tax treatment depends on whether the land is considered a capital asset or a revenue asset. If it is a capital asset, it will be subject to capital gains tax. The intention and purpose behind the purchase must be evident to determine the correct tax category.