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Samanya Building

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SAMANVYA BUILDING

In January 2004, Mr. Pandit decided to buy a residential property and rent to various tenants. On 1st January 2004, he borrowed Rs. 30 lakhs from a housing bank on a condition of repaying the loan in 10 annual installments with an interest @ 10% per annum. He put in his own savings of Rs. 15 lakhs and bought a property having 5 flats in a fast-developing locality. The cost of the property was Rs. 30 lakhs comprising land valued at Rs. 15 lakhs and the building valued at Rs. 15 lakhs.

The entire year of 2004 was spent in repairing and repainting the property. The cost of one-time repairs was Rs. 5 lakhs and that of repainting, which was completed on 31st December 2004, was Rs. 1.20 lakh. Mr. Pandit expected that this paint would last for 3 years before it was repainted. The life of the property after repairs was expected to be 20 years. Mr. Pandit was informed that the cost of repairs and the first year’s interest on the bank loan had to be added to the cost of building as it were incurred in bringing the asset to a position of generating revenue. On December 31st of 2004, Mr. Pandit paid the first installment of the loan together with interest @ 10%.

The flats were ready to let out on 1st January 2005. Five tenants signed the agreement and paid interest-free deposit equivalent to 10-month rent. The monthly rent of each flat was Rs. 8000. The three tenants paid their rent regularly on the last day of the month during 2005. One tenant, Mr. Khanna, had indicated that he would vacate the flat on 31st December 2005 and had not paid his rent for November and December, requesting Mr. Pandit to adjust the same against his deposit. Though Mr. Khanna vacated the flat on the decided date, Mr. Pandit had yet to pay his balance deposit amount. Another tenant, Mr. Khan went abroad in December 2005 but had promised to pay the rent on return. Mr. Pandit

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