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long term capital gain and exemption


Respected members,

A residential plot is sold by Mr. A which was co-owned by him and his two sons in f.y- 2014-15with the sale consideration  of Rs 71650000/- ( receeived in two instalments in the same year). The plot was purchased on instalments basis from Ansals ( first instalment was paid on 23/07/2001 and the last was paid on( 05/01/2004). The total purchase price was 14,57,000/-

 

Mr. A purchased a plot of value of 18,10,000/- and Under construction flat in december 2013(which was a year back to the sale year of plot).Total cost of the flat is Rs. 1,10,00000/- but only 70,00,000/- was paid till date. Only 18,00,000/- was paid from the sale consideration and balance was paid( before the sale consideration received of the plot ) from his own fund.

 

plot was co-owned by Mr.A and his two sons .and the new flat was also co owned by him and his one son.Mr A has only one flat other than the new one.Fund belongs to MR A only.

My queries are:

1.whether residential plot is treated as residential property if it is sold , can avail exemption u/s sec 54 or 54 F.

2.Investment in new flat is done one year back of sale and money paid out of his own fund is considered as investment in new house or not?

3.can investment in new house and plot simultaneously be considered as investment and eligible for exemption for both.

4. If property sold was in the name of co-owners and new property was also in the name of co- owners but fund was from single person who is liable to capital gain tax

Please answer urgently

Thanks and regards

Kavita Kamboj



By: KAVITA KAMBOJ

you have not clarified that the purchase amount was paid by whom ? Considering the purchase price was paid by A and his 2 sons in the equal ratio and all the three are equal co-owner, then the sale price would be adjusted accordingly and capital gain would be calculated accordingly in the hands of all the 3 co-owners.The residential plot can not be treated as residential property.However,the sale of residential plot has to be invested in the purchase or construction of residential property or in specified bonds.

Further to compute the long term capital gain, the period is to be calculated from the date of possession which is very important. It would depend upon the interpretation of the agreement with Ansals.

Now, in your case the following points has to be noted: 

It was held by Mumbai Bench of ITAT in the case of Mrs. Prema P Shah v ITO (2006) 100 ITD 60 (Mum.) that for the purpose of claiming deduction u/s 54/54F, it is not essential to use the same fund received as sale consideration. It may use any fund, including borrowed fund.similar views were also held in Bombay Housing Corporation v. ACIT(2002) 81 ITD 545(Mum.) and by the Kerala High Court in the case of ITO v. K.C. Gopalan (2000) 162 CTR (ker.) 566:(1999) 107 Taxman 591 (Ker.).

However, Mumbai Bench in the case of Milan Sharad Ruparel  v. ACIT (2009) 121 TTJ 770 (Mum.) held that deduction would be available only if the assessee invests either out of sale proceeds of the asset or his other personal funds BUT not from borrowed funds.

Now, In your case if  the assessee buys flat even though his son is co-owner but he makes the whole payment then deduction is allowed.But in case the investment is made in the name of son only although the whole investment is made by father, then this can be disallowed as is held by P&H court in the case of Jai Narayan v. ITO (2008) 306 ITR 335(P&H).

Investment in plot  is not eligible for deduction and investment in residential property is only eligible.This investment must take place within one year before or within 2 years after the date of transfer in case of purchase of new residential house and 3 years after that date in case of its construction.

Exemption in respect of entire amount of capital gain is allowed where investment in new house or flat is equal to or exceeds the amount of capital gain. Otherwise the gain in excess of amount of invested are brought to tax. In your case the capital gain is fully invested in purchase of flat  and it is exempted.

Kindly note that Budget 2014 has introduced an amendment to sec. 54 from F.Y. 2014-14 Assessment year 15-16 and that is the investment in residential house is allowed if the investment is made in one residential property situated in India.It is also allowable if it is made in the under construction property.

 



By: CA JAGMOHAN SINGH



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