Jasleen 09 January 2018

Exemption u/s 54 of the income tax act

Dear members, I have a query. Sale of old flat & purchase of a new one for capital gains exemption u/s 54.

Issue - The new house is within an apartment complex wherein flat buyers are treated as shareholders and not as owners. Flats are not registered and owners don't have titles in their names nor individual khatas. They get only a share certificate instead of occupancy certificate. Since the owners are shareholders, BBMP (Bangalore) identifies them as tenants. There are no registration charges nor stamp duty. Whether the new purchase is eligible for claiming exemption u/s 54 given that share certificate is proof of ownership? Is share certificate treated as valid title to the property for claiming this exemption?

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4 Replies

R.Ramachandran (Advocate) 09 January 2018

The property should be owned by the person who is liable for capital gains tax. The above arrangement does not fit in with the legal requirement and therefore one would not be eligible for exemption u/s 54 of the I.T. Act in the above arrangement.

Swati Shikha 09 January 2018

No you do not fall in that category by holding a share certificate. You are not eligible for exemption U/s 54 of the Income Tax Act.

Jasleen 09 January 2018

Ok. So, the pvt ltd company who built the apartment complex is registered and a dispute is going on with the High Court to allow individual flat owners to become khata holders. Till then, they have share certificate. Does this not enable them to be called owners? Could you pls tell me as per legal terms, what documents are treated as valid title of the property?

Rama chary Rachakonda (Secunderabad/Telangana state Highcourt practice watsapp no.9989324294 ) 09 January 2018

The right of occupancy is represented by the share certificate. Section 29(2) of the M.C.S. Act lays down that the member shall not transfer any share held by him or his interest in the capital or property unless (a) he held such share or interest for not less than one year and (b) the transfer is made to a member of the Society or to a person whose application for membership is accepted. The Supreme Court in the case of Ramesh Himmatlal (supra), therefore, held that it will be for the auction purchaser to first obtain membership of the Society and the Court, before confirmation of the sale, will insist upon his membership of the Society which, it would not be unreasonable to assume, will be granted by the Society in the ordinary course unless there are cogent and relevant reasons for not doing so.