Section 51

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shalin (Querist)
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16 March 2014 hi,
well advance and earnest money forfeited by assesse is a capital receipt and should be deducted from cost of acquisition when such asset is sold afterward. but if such asset is gifted instead of selling then in hands of new owned such forfeited amount is not deducted as he did not received income.. my question is if asset gifted what treatment will be given to advance money forfeited by original owner??

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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18 March 2014 1. The advance money forfeited is to be reduced from the cost of acquisition.

2. At the time of computing capital gain, the advance will be reduced from the cost of acquisition.

3. However, gift is exempt. Accordingly, capital gain will not be computed.

Therefore advance forfeited will have no treatment in the hands of the previous year.

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shalin

shalin (Querist)
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18 March 2014 Does it means no tax is levied on amount forfeited if asset is transfer by the way of gift?

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CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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18 March 2014 Yes no tax is levied on the forfeited amount if asset is transferred by way of gift.

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shalin

shalin (Querist)
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18 March 2014 ok it implies that capital receipt is not liable to tax .. so why we deduct it from cost of acquisition at the time of calculating capital gain in case original buyer sells the property?
sorry to bother you

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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19 March 2014 Advance forfeited by an assessee is reduced from the cost of acquisition by virtue of Section 51.

Further if the advance forfeited EXCEEDS the cost of acquisition, the excess is a capital receipt which is NOT taxable.