capital gain tax

This query is : Resolved

P.C. Joshi (Querist)
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09 January 2014 Dear Sir,
Please advise on the following issue:

A has purchased a DDA flat in 1993 at a cost of Rs 50000/-then he incurred the following expenses:

i. Instalments paid to DDA- Rs. 1 lac
2. Penalty/intt. paid to DDA on late payment: rs 1 lac
3. Freehold charges Rs 0.50 lacs
4. Addition made in the flat by constructing additional room : Rs 2 lacs

As on date the market value of the flat is appx. Rs 30 lacs.

A has purchased another residential Flat in Noida for Rs 30 lacs against loan from a Bank and the flat is under construction and expected date of posseion is April 2016.

Query Is:

A wants to sell his Delhi house and from the proceeds he wants to pay off the bank Loan.

is there a way out to save the capital gain tax on the sale of delhi house and what should A do to mitigate the capital gain tax or minimise the same based on the above facts.

Pls let me have a considered view on above.

Thanks
PCJ

Nikhil Kaushik

Nikhil Kaushik (Expert)
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09 January 2014 the only problem here is that when you buy a under-construction flat, given the longer period required for completion (usually more than 2 years), the argument taken is that it should be equated with self-construction for claiming deduction under 54 or 54F. This argument is also backed up by a CBDT circular accepting such constructions equivalent to DDA constructions (in Delhi) as self construction provided terms of the schemes of allotment and construction of flats/houses are similar to those mentioned in para 2 of Board’s Circular No. 471, dated 15-10-1986.

Now if the above is the argument, then you cannot claim any deduction under 54 because you shall be deemed to have started the construction before the sale of the old property (which is not allowed). You need to sell the house first and then start the construction.

However, there is an alternative opinion which says that construction can start before the date of sale of original property (refer CIT v J.R. Subramanya Bhat (1987) 165 ITR 571 (Karn)]. and CIT v. H.K. Kapoor [1998] 150 CTR (All.) 128.

kindly check its validity as on today.
With regards to the cost, everything referred above should be included in the cost of the property including improvements and should be appropriately indexed.

P.C. Joshi

P.C. Joshi (Querist)
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10 January 2014 Dear Nikhil,

Thanks a ton for clarifying all the queires.
If any member has other views please do share. it's urgent.

Thanks

P.C. Joshi

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