Sale of residential property/capital gain
Santosh
(Querist) 17 February 2014
This query is : Resolved
I had booked a under construction flat and paid 5lakhs token amount and was given allotment letter and have been paying regularly towards the construction.Final registration was done on dec 2009 and subsequently i sold it on april 2012. My query is the capital gains considered here is long term or short term and secondly what would be considered as my date of purchase?
Guest
(Expert) 17 February 2014
Better Consult your Auditor please
Anirudh
(Expert) 17 February 2014
In the given facts, the capital gains is Long Term Capital Gains, as the date of payment of Rs. 5 lakhs and the allotment letter would considered as the date of purchase with cost of improvement as and when further instalments are paid.
Rajendra K Goyal
(Expert) 18 February 2014
Agree with the expert Anirudh ji. It is Long Term Capital Gains.
Santosh
(Querist) 18 February 2014
Hello Anirudh / Rajendra ,
It would be very helpful if you can point me to an article which indicates this as my CA is saying its short term capital gain.
Anirudh
(Expert) 18 February 2014
Dear Mr. Santosh,
I stand corrected. I missed the point that the registration was done in December 2009. I was under the impression that you sold your right to purchase the under-construction flat to somebody. WHEREAS, I NOTICE THAT YOU HAVE SOLD THE FLAT ITSELF. This makes all the difference.
In Assistant C.I.T. 19(2) vs. Jaimal K. Shah, the ITAT Mumbai Bench had differentiated between a 'right of claim in the flat' and a 'right in the flat' and had held that both are two different assets.
In Mrs. Latha Vasudeva v. Addl. CIT, Range 19(3) Mumbai it has been held by the ITAT Mumbai Bench that the actual date of registration or actual date of taking physical possession of the property will have no bearing in those cases where the asset in question was existing at the time of allotment. Conversely, if the asset was not in existence at the time of allotment letter, then there is no question of acquiring the assets unless and until the assets came into existence.
In your case, the asset (FLAT) was not in existence at the time of allotment. Therefore, it came into your hand only in December 2009 and since you had sold it in April 2012, without holding it for 36 months, it will only be a short term capital gain and not Long Term Capital Gain.
Guest
(Expert) 18 February 2014
Dear Author,What is confirmed by your Auditor should be correct
Santosh
(Querist) 18 February 2014
Hello Mr.Anirudh ,
Thanks for your advice . I really appreciate your cooperation and deep understanding on the subject
Thanks with regards
Santosh
R.V.RAO
(Expert) 19 February 2014
SRI ANIRUTH JI WAS ABSOLUTELY RIGHT IN HIS FIRST REPLY ABOVE ,BECAUSE THE PUNJAB AND HARYANA HIGHCOURT ALSO OBSERVED SAME .PL. SEE BELOW:
Jan 21, 2014,
Duration of cap gains must be based on date of allotment It is very important to find out the date of purchase of the property because it is this date which will determine the nature of Capital Gain namely whether the Gain is a Long-term Capital Gain or a Short-term Capital Gain.
AUTHOR SRI SUBHASH LAKHOTIA Tax & Investment Consultant
For all those persons who are buying residential properties and selling such residential properties at a later date a question which generally crops up in the minds is with reference to tax treatment on sale of property at a later date. It is also a well known fact that a property is purchased on a particular date when part payment of the property is made, then allotment is made to the buyer. Thereafter installments are made in due course and finally possession of the property is granted to the investor at a later date. Now once the process of buying the property starting from the initial payment right up to the possession has all been completed and now the investor thinks of selling the property then a question which comes up in the mind is what would be the date for purchase of the property. It is very important to find out the date of purchase of the property because it is this date which will determine the nature of Capital Gain namely whether the Gain is a Long-term Capital Gain or a Short-term Capital Gain. Thus, whenever property transactions are undertaken, the investor in particular should be very careful to find out the nature of Capital Gain namely Short-term or a Long-term and only thereafter take a decision of selling the property or holding the same for some more time. The decision to sell a property on a particular date will have great bearing on the income-tax liability of the investor. In this connection, it would be worthwhile to refer to a very interesting decision of the Punjab and Haryana High Court in the case of Vinod Kumar Jain v CIT and Others 344 ITR 501. In this case the brief facts were that the assessee filed its return for the assessment year 1989-90 wherein a note had been given by him that capital gains on account of sale of residential flat in New Delhi were exempt from tax. The Assessing Officer asked for the details and reasons from the assessee for claiming exemption. It was also sought as to when the possession of the flat that had been sold on January 6, 1989, had been handed over to him. The assessee furnished the desired information and documents including the copy of allotment letter besides stating that he was entitled to exemption as per the provisions of section 2(29A) of the Act. The assessee had claimed that he purchased another flat at New Delhi on January 31, 1989, for Rs. 3,80,000, and as such the capital gains were exempted from tax. It was pointed out by the Assessing Officer that the assessee was allotted a flat No. 73 on March 12, 1986, in category-II under the Wazirpur Phase-III-Residential Scheme of the DDA. The cost of the flat was Rs. 1,49,060 which was sold by him on January 6, 1989, for a sum of Rs. 2,25,000 and as such, there was a capital gain of Rs. 75,940. The Assessing Officer observed that the assessee had claimed exemption under the provisions of section 2(29A) of the Act which deals with the matters of long-term capital gains but he could not have the benefit of the said provisions as his case fell under the category of short-term capital gain and was governed by the provisions of section 2(42A). It was on this basis the Assessing Officer did not exempt the long-term capital gain and disallowed the deduction claimed by the appellant-assessee. The assesssee thereafter filed an appeal against the assessment order of the Assessing Officer before the Commissioner of Income-tax (Appeals) and raised all pleas stating that the assessee applied for registration under the aforesaid scheme on March 7, 1981, and pursuant to the registration, flat was allotted on February 27, 1982. It was submitted further that as per the allotment letter, the first instalment was to be paid on March 30, 1982, and all installments were paid up to March 31, 1987. The possession of the flat was taken by the appellant-assessee which was sold on January 6, 1989, by means of special power of attorney. It was further sought to be contended before the appellant authority that the assessee was allotted the flat on February 27, 1982, and on the date the allotment letter was issued, he became absolute owner of the property, and as per the Circular of the Board of Direct Taxes, bearing No. 471, dated October 15, 1986 which provides that if the sale is made through special power of attorney the same was permissible and as such the sale of the flat under reference made after a period of 36 months, was a long-term capital gain and exempted from tax under section 2(29A) of the Act. It was further urged before the Commissioner of Income-tax (Appeals) that the Assessing Officer had incorporated the wrong provisions and given reference of the second allotment letter dated May 15, 1986. The Commissioner of Income-tax (Appeals) partly accepted the appeal, vide order dated September 7, 1992, and also took a view that the flat was allotted on May 15, 1986, and as such the same remained with the assessee for less than 36 months and was, thus, not exempted as per the provisions of the Act. Even before the Commissioner of Income-tax (Appeals) the assessee lost the appeal. Now when the assessee came up before next appeal to the Income-tax Appellate Tribunal, there also the assessee lost in appeal. Being unable to get relief before the Assessing Officer as well as before the Commissioner of Income-tax (Appeals) and also before the Income-tax Appellate Tribunal the assessee came up in appeal before the Honourable judges of the Punjab and Haryana High Court. While dealing with the issue the Honourable judges opined that the sole point for consideration in this case was whether the capital gain arising on allotment of flat under the scheme of the DDA on February 27, 1982, of which actual flat number and delivery of possession took place on May 15, 1986, and the flat having been sold on January 6, 1989, was a long-term capital gain ; and, consequently, whether the assessee was entitled to set off the same under section 54 of the Act. During the course of argument before the Honourable judges, the assessee relied on another judgment of the High Court in the case of CIT v. Ved Parkash and Sons (HUF) (1994) 207 ITR 148 and Circular No. 471, dated October 15, 1986 (1986) 162 ITR (St.) 41, to contend that the allottee gets title to the property with the issuance of allotment letter and payment of instalments is only a follow up action and taking of the delivery of possession is only a formality and no right as such accrues. According to the assessee, the transaction stood completed on February 27, 1982, and the flat having been sold on January 6, 1989, the same amounted to long-term capital gains and benefit of section 54 was available to the assessee. The counsel further relied upon the provisions of section 2(42A) of the Act to contend that it was holding of the property and not the ownership of the property that was to be seen for determination of the question regarding long-term capital gains and since the assessee had held the flat for approximately seven years, he was entitled to adjustment of long-term capital gains under section 54 of the Act in respect of the property purchased by him. Finally while deciding the appeal the Honourable judges of the High Court laid special emphasis on the circular of the Central Board of Direct Taxes and came to the conclusion that the allotee gets title to the property on issuance of an allotment letter and that the payment of instalments is only a consequential action upon which the delivery of possession flows and that in the instant case as the assessee was allotted flat on February 27, 1982, on payment of instalments by issuance of an allotment letter and that the assessee had been making payment in terms of this allotment letter, it will be treated that the right in the property vested even prior to 15th May, 1986, that is the day on which the specific number of the flat was allocated to the assessee and possession delivered. The judges further specifically opined that the right of the assessee prior to the date of possession namely 15th May, 1986, was a right in the property and, therefore, in such a situation, it cannot be held that prior to this date, the assessee was not holding the flat. Thus, in the instant case it was
held that the capital gain arising to the assessee would be long-term capital gain taking into consideration the date of allotment and not the delivery of the possession.
This judgment will definitely be of great advantage to tax payers selling a property with different dates of allotment and different date of possession of the property.
T. Kalaiselvan, Advocate
(Expert) 19 February 2014
As per the date of allotment, three years period required under long term capital gains provisions will attract, thus the author would be benefited by long term capital gains on the subject issue.
Vineet
(Expert) 21 February 2014
There is a debate on the issue whether the nature of asset changes after posession of property. However, P&H High Court and Gujrat High Court have decided that date of allotment should be trated as date of purchase for the purposes of capital gains. ITAT Mumbai has given contrary decisions but then these high court decisions were not considered by it.
R.V.RAO
(Expert) 21 February 2014
CBDT has also concluded emphatically vide their above ref.circular , date of allotment as the date for calculation of capital gain(see my reply above).
Santosh
(Querist) 21 February 2014
thanks you Mr. R V Rao for this detail . I will get this to my CA. This is very important piece of information.
thanks with Best regards
Santosh
