Capital gains
Barathan V
(Querist) 25 February 2015
This query is : Resolved
Sir,
My Mother owned a self-acquired property in Chennai where she was living.
She has a daughter and a son.
Son is an NRI . She wrote a settlement agreement to give the house to her daughter (my sister) with the understanding that she would be given accommodation and her expenses will be met until she was alive (this understanding is not documented, but a verbal agreement).
The property was sold and along with that, my sister sold a house that she owned and now purchased a consolidated property where she lives with our mother.
She takes care of her and handles the expenses.
I contributed towards the purchase of the consolidated property.
The proceeds of the sale of my mother's property was fully invested in the new property.
My sister and I own the title to the new property and I contribute quite a bit towards the loan repayment.
Will my sister have to bear the Capital Gains from the proceeds of the sale of my mother's house that she settled in her name.
The idea of settlement was because she was getting old and needed some support we wanted to move to a new house where all of us could live in once i return to India.
My understanding is that the Capital gains is not applicable since it is something like a reverse mortguage where my mother settle her property so she can get the care she needs during old age.
When we sell the new property, we have to declare the cost as current cost minus cost of my mother's medical and other expenses.
Please advise.
Anirudh
(Expert) 25 February 2015
1. Whether the settlement agreement was registered with the Sub-Registrar?
2. In whose name the property stood when it was sold?
Rajendra K Goyal
(Expert) 25 February 2015
Consult a local tax consultant and show him the relative documents.
Barathan V
(Querist) 25 February 2015
1. Whether the settlement agreement was registered with the Sub-Registrar?
Yes
2. In whose name the property stood when it was sold?
Mother's property was fully owned meaning title was on her name. Since the Settlement agreement was registered, i am not sure if it is the same as changing the ownership to my sister.
alexander
(Expert) 25 February 2015
1. What was the time gap between the sale of properties and the purchase of the new property for the purchase of which all the moneys received from the previous sales were reinvested
2.was the purchase of the new property done within six months of the sale of old ones and was the sale and purchase was completed in one financial year or the purchase of the new property done in the following financial year.
3. The above may be some rrlevant points the import of which your Tax consultant / Chartered Accountant may explain you better
Barathan V
(Querist) 25 February 2015
1. What was the time gap between the sale of properties and the purchase of the new property for the purchase of which all the moneys received from the previous sales were reinvested
Same financial year
2.was the purchase of the new property done within six months of the sale of old ones and was the sale and purchase was completed in one financial year or the purchase of the new property done in the following financial year.
Purchase was in April 2011. Sale of one property (owned by my sister )was around same time. Sale of my mother's property was before end of financial year (before March 2012). To not lose the new property, we raised bank loan since mother's property wasn't sold at the time we purchased the new property (April 2011)
3. The above may be some rrlevant points the import of which your Tax consultant / Chartered Accountant may explain you better
Chartered accountant was not looking at the big picture. The intent of settlement and the Care part of it. Though we bought the new property, we have an understanding that it will be used by our mother so long as she is alive. We won't realize any capital gains until we sell the property and use the proceeds as per our wish.
Barathan V
(Querist) 26 February 2015
It would help if I can get your take on this when I Consult a local tax consultant.
Anirudh
(Expert) 27 February 2015
Dear Mr. Barathan,
It won't help, since you are not clear about your facts.
At least you should be clear about the following: When you say "The property was sold and along with that, my sister sold a house that she owned and now purchased a consolidated property where she lives with our mother." what do you mean.
Do you mean to say that your mother sold the house which was in her name - i.e. she signed the sale deed (and not your sister)?
If the above is correct, then what is the Settlement (that too registered) done by your mother in favour of your sister that you are talking about?
Once there was a registered settlement of the property by your mother in favour of your sister, she was no longer the owner of the property. If that be so, then how can she sign on the sale deed while selling the property.
Therefore, unless you come out with clear facts, you may not get appropriate answer to your query.
(Further please forget about the understanding, who spent the money, who looked after your mother etc., etc. Those are irrelevant for the purposes of taxation)
Barathan V
(Querist) 27 February 2015
My sister signed the sale deed based on the Settlement.
My sister also sold another property that she owned in her name.
We invested the money we got from both the sale into a new property where my mother would live and we could take care of her. My sister and I own the title of the new property.
The sale of the 2 houses and purchase of the new one were all done within 12 months.
Request is to help understand the Capital Gains aspect that my sister will have to handle.
Anirudh
(Expert) 27 February 2015
Please indicate the month and year in which the respective properties were sold.
In which month and year the amount was paid for purchase of new property.
Barathan V
(Querist) 27 February 2015
Sale of Property 1 : April 2011 (owned by my Sister)
Sale of Property 2 : March 2012 (owned by my Sister via Settlement from mother)
new Property purchase : April 2011 (with bank loan and Property 1 proceeds since the Property 2 sale was getting delayed)
Anirudh
(Expert) 28 February 2015
That means you did not make use of the capital gain arising from the sale of property in March 2012. Therefore how can you seek capital gain exemption under Sec.54E for property sold in march 2012?
And you did not disclose all these details in your post, until asked for. In the absence of such details, how do you expect anyone to provide you with an answer to your query?
Barathan V
(Querist) 28 February 2015
Please do not get upset.
I did mention that we had a bank loan.
We had to raise a bank loan while waiting for the purchaser to get the funds arranged so that we did not lose the new property while waiting for the sale to be completed. I believe we can use the funds against a residential property purchased within 12 months before or 2 years after the due date of transfer/sale.
Guest
(Expert) 28 February 2015
Quite funny! It is the querist who feels the need of a solution, but he considers the expert to be upset!
Barathan V
(Querist) 28 February 2015
I thought I had described the problem but obviously it has not been clear.
It is quite possible that an Expert would get irritated if the details are not clear.
Hence the request.
Guest
(Expert) 28 February 2015
Language matters depending upon circumstances and persons whom you intend to address. As a Manager, such like remarks, "Please do not get upset......," can do for your subordinates, but not for those from whom you seek any help. When Shri Anirudh is trying to help you, such type of language for him was uncalled for on your part. To be frank, your apology becomes due to Shri Anirudh.
Barathan V
(Querist) 28 February 2015
Well, I was being apologetic for the lack of clarity in my query.
I thought the "please" was a request.
In any case, I have no problems with apologizing to Mr. Anirudh.
Please excuse me if I sounded rude.
That wasn't my intention.
Anirudh
(Expert) 28 February 2015
Dear Mr. Bharathan,
Sorry I could not attend to your post early, as I was attending analyzing the budget material and preparing for presentation for a budget seminar.
Be that as it may, coming to your issue:
(I) it is true that one can buy a new house either one year in advance or within two years from the date of sale of the property. But where one proposes to buy within two years, the amount of capital gain is required to be deposited in a Specified Capital Gain Account before the due date for filing of the Income Tax Return for the Assessment year concerned. (In your case, the amount ought to have been deposited into the account before 31.7.2012). Having not done, it will not be possible for you to save the capital gains tax.
(ii) Further, even as per your own statement, you availed home loan for purchasing the property, and did not utilize the amount of capital gain realized from the sale of the property done in March,2012. Therefore, even on this account, it will not be possible to save the capital gains tax.
I think I have made the position clear.
Barathan V
(Querist) 28 February 2015
Not sure it there is some confusion here.
Sequence of events:
a. Sale of my sister's property in April 2011
b. Purchase of new property using funds from (a) and bank loan
c. Sale of Mother's property now settled to Sister within 12 months of (a & b). new property owned by me and my sister.
d. repay bank loan from proceeds of (c)
I don't think the deposit into Capital Gain account arises here since we did not park the cash.
I feel it is reasonable to treat the amount paid towards home loan should be treated as investment on the new house.
Is there section that specifies that this is not valid?
Anirudh
(Expert) 28 February 2015
Please indicate except in your latest post, where did you say that the entire bank loan was repaid utilizing the sale proceeds of the property sold in march 2012? You only indicated in your first post that ""I contribute quite a bit towards the loan repayment".
How do you expect anybody to visualize the facts unless you reveal fully?
T. Kalaiselvan, Advocate
(Expert) 28 February 2015
I think the experts have advised you more than enough despite which you seem not satisfied, you should consult a tax consultant or a CA if you still insist on your query without understanding the replies/opinions. You cannot expect a spoon fed information from experts here who have tried their maximum to convince you with their replies.
Barathan V
(Querist) 01 March 2015
Dear Anirudh,
In my 1st post I mentioned that :
1.I contributed towards the purchase of the consolidated property. (in April 2011)
2. The proceeds of the sale of my mother's property was fully invested in the new property.
(this is the loan repayment after sale in 2012)
3. My sister and I own the title to the new property and I contribute quite a bit towards the loan repayment.
(I still continue to pay towards the remaining loan.)
Anirudh
(Expert) 01 March 2015
Point 2 above was not at all indicated by you earlier.
In any case, first please indicate, why do you want to know now, after 3 years of sale of the property? Is there any proceedings by the Assessing Officer?
Barathan V
(Querist) 01 March 2015
Returns were accepted and even some refund was received.
Yes, we have recd. a query. Couple of questions on that : valuation of one of the properties that my sister owned (not the one Settled by mother) and how my Sister gets the full property from my mother and not have any capital gains from that.
Not sure why this transaction is now being reviewed, maybe we hit some computerized alert point.
Sister and Accountant were viewing the Settlement by mother as "her decision" and were explaining that the proceeds from both properties were invested fully. But my point was that since the understanding was that my mother gets to use the property in exchange for the settlement and also the fact that the proceeds were fully invested in the new property, the question of Capital Gains doesn't arise until we sell this new property.
Anirudh
(Expert) 01 March 2015
1. Please do not go on repeating what your understanding with your mother was. I have already said the same is immaterial as far as I.T. Laws are concerned. IT Law is concerned only with (I) who is the owner of the property (ii) whether the property was sold (iii) is there any capital gain (iv) whether capital gain tax was paid or (v) if any of the exemption route for saving the capital gains tax has been properly adopted. THAT'S ALL. NOTHING MORE NOTHING LESS.
2. Now when two properties were sold, was the fact disclosed by your sister in her I.T. Return? If not why not?
3. When the entire capital gain has been utilized fully (I) in purchasing the new property and (ii) using the capital gain in repayment of the home loan - whether this fact was disclosed in the I.T. return by your sister? If not why not?
4. Yes, you are right, now a days, the I.T. Department is sitting over a data mine of each and every transaction of the Assessees. They do look into the same and link up things. Even though you might have got the refund, yet if any income, in the view of the Assessing Officer has escaped from being taxed, there is a provision to make reassessment within 4 years from the end of the relevant assessment year.
5. I am sorry to tell you that you have been very frugal in telling the facts here. But for my asking, you did not say that there is a notice from the Department. Even now, we do not know what exactly is the query of the AO.
6. Now you say that your Accountant is handling the matter, let him do so, as he is the general on the field and knows what best can be done in the given facts and circumstances.
No more response from my end.
Barathan V
(Querist) 01 March 2015
Dear Anirudh,
Thank you for your time.
The query is not a direct one, all the facts about the loan repayment and sale of properties have been disclosed.
They keep asking for different details every time:
a. Bank statements,
b. valuation details of the property sold,
c. why Sister gets the whole share from mother's property
d. AO says that if the new property is owned by me and sister, then the extent to which the income from sales of 2 properties minus 50% of new property's regn. value should be her capital gains
e. sister's husband's bank statements (for a temporary loan we got from him to pay an advance for the new property, which was re-payed subsequent to the sale of property)
To (d) is what I wanted some help from this forum.
As regards my harping on the "settlement understanding with my mother", I believe that
it is up to us to present the facts to get the right interpretation of income/expenses.
(similar to the requirement Settlement document has to be prepared with the right motive and not as a means to evade tax. There is some grey area there.
).
There has to be some "dharma and justice" behind interpretation of laws and not go strictly by the text.
If we just considered this :
(I) who is the owner of the property (ii) whether the property was sold (iii) is there any capital gain (iv) whether capital gain tax was paid or (v) if any of the exemption route for saving the capital gains tax has been properly adopted
What is the consideration about the basis for Settlement. "Settlement" should be for some reason.
It will be unfair to exclude that from the equation. There is a monetary impact and will have to be considered. If IT Sections do not provide a way to interpret this, then it opens up a challenge to the IT dept.
Thank you for your time. I appreciate your input.
I will let you know once the query is resolved one way or the other.
Regards,
Barathan
