Tax implication on sale of gifted property
Sultan
(Querist) 14 March 2016
This query is : Resolved
1. Selling tenanted property in mother's name in Mumbai.
2. From sale Buying ownership property in son' s name within 3 months of sale.
3. Option of buying in joint ownership between mother and son ruled out.
4. Tenanted property is more than 40 years old.
5. Want to create absolute right in son's favour.
6. Other option possible, the tenanted premises can be transferred to son's name before
selling to third party without paying considerations to landlord.And thereafter proceed with
Son's name for entire transactions,but short term gain arise.
7. Want possible option in this scenario, kindly help.
8. Although various views are possible, want to avoid tax litigation. According to the Delhi High Court, the predominant judicial view was that, for the purposes of section 54F, the new residential house need not be purchased by the assessee in his own name nor was it necessary that it should be purchased exclusively in his name. It noted that in the case before it, the property was not purchased in the name of a stranger, somebody unconnected with the assessee, but in the name of his wife, and that there was no dispute that the entire investment had come out of sale proceeds and that there was no contribution from the assessee's wife.
Having regard to the rule of purposive construction and the object of section 54F, the Delhi High Court held that the assessee was entitled to the benefit of exemption u/s. 54F.(CIT vs. Kamal Wahal 351 ITR 4.)
9. While noting the decision of the Bombay High Court in the case of Prakash (supra), the tribunal took the view that where a statutory provision was capable of more than one view, the view favouring the taxpayer should be preferred.
10.The Andhra Pradesh High Court, in Mir Gulam Ali’s case reiterated the acknowledged position in law, while deciding in favour of the assessee’s claim for exemption, that the exemption provisions should be liberally construed. None of the sections, under scanner, expressly require purchase or construction in the name of the assessee himself and a concerted effort is required by the courts to read that requirement in the law so as to deny the benefit of exemption to the assessee.
11. Further whenever certain assets are sold and particularly when such assets have been received by way of gift or through Will or by succession or by inheritance, then the cost of acquisition of the asset will be deemed to be the cost for which the previous owner of the property acquired it as increased by the Cost Inflation Index of that year in which the previous owner originally acquired the property ( prior to 1981 hence FMV).Further, the law provides that if any capital asset was acquired by way of gift, at this point there is no liability to pay capital gains tax for the recipient and it would be deferred to the point of sale of asset. Whether there will be little difference between between sale proceeds and a indexed cost of acquisitions in hands of son. Than that option is feasible.In process of searching valuer for tenanted property to ascertain FMV of 1981.
12. Another way may be that the mother may purchase the new propety in her name and get exemption from capital gains and then gift the same to her son. In that case there will be no gift tax implications and if son transfer the new property later capital gains will accrue to him in which case cost of acquisition for her mother will be taken as son's cost of acquisition. Period of holding shall also be reckoned from the point of view of mother, i.e. period of holding will be reckoned from the date of purchase by mother till the date of transfer by son. Kindly provide your input on above interpretation. Will the LTCG tax minimal in such scenario.
Thank for reading and your valuable input.
Dr J C Vashista
(Expert) 15 March 2016
Too long a story and not a query, consult a local lawyer.
Rajendra K Goyal
(Expert) 15 March 2016
You have studied the available options, in the present scenario consult local tax consultant and discuss all options in detail and proceed which is most beneficial to you.
