Dear friends, one of my friend has 2 houses one in mumbai
This query is : Resolved
01 August 2012
Dear Friends,
One of my friend has 2 houses one in Mumbai (Bought in Sep11 Cost Rs 1 Cr (Loan 75 lacs)) & second in kolkata in fy11-12. Mumbai house is sold in fy11-12 but the sale deed registration done in fy12-13
No my query is in fy11-12 he has owned 2 houses so how can he save on wealth tax. What value will be considerd for wealth tax purpose for mumbai house i.e. is it net of loan amount i.e. Rs 25 lacs or Rs 1 Cr?
One of my friend has 2 houses one in Mumbai (Bought in Sep11 Cost Rs 1 Cr (Loan 75 lacs)) & second in kolkata in fy11-12. Mumbai house is sold in fy11-12 but the sale deed registration done in fy12-13
No my query is in fy11-12 he has owned 2 houses so how can he save on wealth tax. What value will be considerd for wealth tax purpose for mumbai house i.e. is it net of loan amount i.e. Rs 25 lacs or Rs 1 Cr?
02 August 2012
Hope that the below extract will help you to decide -
(v) Person in possession of a property [Section 27(iiia)] – A person who is allowed to
take or retain the possession of any building or part thereof in part performance of a contract
of the nature referred to in section 53A of the Transfer of Property Act shall be the deemed
owner of that house property. This would include cases where the –
(1) possession of property has been handed over to the buyer
(2) sale consideration has been paid or promised to be paid to the seller by the buyer
(3) sale deed has not been executed in favour of the buyer, although certain other documents like power of attorney/agreement to sell/will etc. have been executed.
In all the above cases, the buyer would be deemed to be the owner of the property although it is not registered in his name.
(v) Person in possession of a property [Section 27(iiia)] – A person who is allowed to
take or retain the possession of any building or part thereof in part performance of a contract
of the nature referred to in section 53A of the Transfer of Property Act shall be the deemed
owner of that house property. This would include cases where the –
(1) possession of property has been handed over to the buyer
(2) sale consideration has been paid or promised to be paid to the seller by the buyer
(3) sale deed has not been executed in favour of the buyer, although certain other documents like power of attorney/agreement to sell/will etc. have been executed.
In all the above cases, the buyer would be deemed to be the owner of the property although it is not registered in his name.
02 August 2012
TRANSFER: WHAT IT MEANS [SECTION 2(47)]
The Act contains an inclusive definition of the term ‘transfer’. Accordingly, transfer in relation
to a capital asset includes the following types of transactions :—
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under any law; or
(iv) the owner of a capital asset may convert the same into the stock-in-trade of a business
carried on by him. Such conversion is treated as transfer; or
(v) the maturity or redemption of a Zero Coupon Bond; or
(vi) Part-performance of the contract : Sometimes, possession of an immovable property is given in consideration of part-performance of a contract. For example, A enters into an agreement for the sale of his house. The purchaser gives the entire sale consideration to A. A hands over complete rights of possession to the purchaser since he has realised the entire sale consideration. Under Income-tax Act, the above transaction is considered as transfer;
The Act contains an inclusive definition of the term ‘transfer’. Accordingly, transfer in relation
to a capital asset includes the following types of transactions :—
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under any law; or
(iv) the owner of a capital asset may convert the same into the stock-in-trade of a business
carried on by him. Such conversion is treated as transfer; or
(v) the maturity or redemption of a Zero Coupon Bond; or
(vi) Part-performance of the contract : Sometimes, possession of an immovable property is given in consideration of part-performance of a contract. For example, A enters into an agreement for the sale of his house. The purchaser gives the entire sale consideration to A. A hands over complete rights of possession to the purchaser since he has realised the entire sale consideration. Under Income-tax Act, the above transaction is considered as transfer;
02 August 2012
Question 9
Sridhar purchased a residential flat from Devraj in December 2010. However, the deed of
conveyance has not been registered in the name of Sridhar till 31.03.2011. Sridhar has let out
the flat at a monthly rent of Rs.25,000 to Mohan.
Sridhar claims that rent received is not chargeable under the head "Income from house
property", but the same is chargeable under the head "Income from other sources" and he can
claim deduction for expenses on repair and insurance premium on actual basis and also
depreciation. Examine the correctness of Sridhar's claim.
Answer
In order to assess income under the head "Income from house property" the assessee must be
the owner of the house property. The need for registration of document in favour of a person
to enable him to be treated as the owner of the house property for the purpose of section 22,
was considered by the Supreme Court in the case of CIT vs. Poddar Cement Pvt. Ltd. (1997)
226 ITR 625.
It was held that so long as a person is entitled to receive income from the house property in
his own right and not on behalf of someone else, it is not necessary that the sale deed must
be registered in favour of the person to treat him as the owner of the property for the purpose
of section 22. In such a case, the income derived from the property is chargeable to tax under
the head "Income from house property". The fact that registration is not yet complete does not
affect the chargeability of such income under the head "Income from house property".
Therefore, the claim of Sridhar that rent should be assessed under the head "Income from other
sources" and deduction of various expenses and depreciation should be allowed therefrom is not
tenable.
Sridhar purchased a residential flat from Devraj in December 2010. However, the deed of
conveyance has not been registered in the name of Sridhar till 31.03.2011. Sridhar has let out
the flat at a monthly rent of Rs.25,000 to Mohan.
Sridhar claims that rent received is not chargeable under the head "Income from house
property", but the same is chargeable under the head "Income from other sources" and he can
claim deduction for expenses on repair and insurance premium on actual basis and also
depreciation. Examine the correctness of Sridhar's claim.
Answer
In order to assess income under the head "Income from house property" the assessee must be
the owner of the house property. The need for registration of document in favour of a person
to enable him to be treated as the owner of the house property for the purpose of section 22,
was considered by the Supreme Court in the case of CIT vs. Poddar Cement Pvt. Ltd. (1997)
226 ITR 625.
It was held that so long as a person is entitled to receive income from the house property in
his own right and not on behalf of someone else, it is not necessary that the sale deed must
be registered in favour of the person to treat him as the owner of the property for the purpose
of section 22. In such a case, the income derived from the property is chargeable to tax under
the head "Income from house property". The fact that registration is not yet complete does not
affect the chargeability of such income under the head "Income from house property".
Therefore, the claim of Sridhar that rent should be assessed under the head "Income from other
sources" and deduction of various expenses and depreciation should be allowed therefrom is not
tenable.
02 August 2012
Now take another example for Wealth Tax -
Mrs. A has signed "agreement to sell” for purchase of new residential house
property of Rs.20,00,000 and has made advance payment of Rs.5,00,000 on 1st
March, 2011 and has taken possession. However, the sale deed has not been
executed till 31st March, 2011. She has taken loan of Rs.15,00,000 from bank for
purchase of said property.
Since the possession of the house property is taken, it is deemed as an asset and is chargeable to wealthtax. (deduction of loan is also allowed).
Mrs. A has signed "agreement to sell” for purchase of new residential house
property of Rs.20,00,000 and has made advance payment of Rs.5,00,000 on 1st
March, 2011 and has taken possession. However, the sale deed has not been
executed till 31st March, 2011. She has taken loan of Rs.15,00,000 from bank for
purchase of said property.
Since the possession of the house property is taken, it is deemed as an asset and is chargeable to wealthtax. (deduction of loan is also allowed).
02 August 2012
Now in your friends case he had sold the Mumbai house in FY 11-12, it means he is not the owner as on the valuation date i.e. 31 March 2012.
"(3) sale deed has not been executed in favour of the buyer, although certain other documents like power of attorney/agreement to sell/will etc. have been executed." - Part performance
Hence he is owner of only one house property as on the valuation date.
The Kolkatta house property is taxable in his hands under wealth tax but he can claim exemption under section 5(vi) if it is used for residential purpose.
"A house used exclusively for residential purpose is treated as an asset under section 2(ea), but the same is exempt under section 5(vi)."
"(3) sale deed has not been executed in favour of the buyer, although certain other documents like power of attorney/agreement to sell/will etc. have been executed." - Part performance
Hence he is owner of only one house property as on the valuation date.
The Kolkatta house property is taxable in his hands under wealth tax but he can claim exemption under section 5(vi) if it is used for residential purpose.
"A house used exclusively for residential purpose is treated as an asset under section 2(ea), but the same is exempt under section 5(vi)."
02 August 2012
Further example - refer last clause (v) -
Question 11
(a) Mr. Rajpal gives the particulars of various assets held by him on 31.3.2011 and requests you to compute his net wealth by explaining in brief that why the same was dealt with like that :
(i) Jewellery gifted to wife from time to time in total of Rs.1 lac and were available with her on the valuation date having market value of Rs.5 lacs.
(ii) A flat in Mumbai purchased under instalment scheme in 1996 for Rs.6 lacs and used for own residence since then. The market value of it was Rs.20 lacs on 31.3.2011 and installment of Rs.1 lac was also outstanding.
(v) House located in NOIDA shown in his wealth-tax return for A.Y.2010-11 at Rs.40 lacs was sold on 20.3.11 for Rs.45 lacs, but the sale deed thereof was executed on 03.04.11.
Answer -
1. Under section 4(1)(a)(i) read with Rule 18 of Schedule III, the fair market value of gifted jewellery on the valuation date will be included in the wealth of Mr. Rajpal. 5,00,000
2. The flat at Mumbai used by the assessee for his own residence is exempt under section 5(vi) and accordingly, the liability of outstanding installment is not deductible. Nil
5. The property at Noida was sold during the year and is, therefore, not an asset of the assessee but is an asset of the beneficial owner, since ownership of the property passes on sale of the property and execution of sale deed only confirms the act of the parties. Nil
Question 11
(a) Mr. Rajpal gives the particulars of various assets held by him on 31.3.2011 and requests you to compute his net wealth by explaining in brief that why the same was dealt with like that :
(i) Jewellery gifted to wife from time to time in total of Rs.1 lac and were available with her on the valuation date having market value of Rs.5 lacs.
(ii) A flat in Mumbai purchased under instalment scheme in 1996 for Rs.6 lacs and used for own residence since then. The market value of it was Rs.20 lacs on 31.3.2011 and installment of Rs.1 lac was also outstanding.
(v) House located in NOIDA shown in his wealth-tax return for A.Y.2010-11 at Rs.40 lacs was sold on 20.3.11 for Rs.45 lacs, but the sale deed thereof was executed on 03.04.11.
Answer -
1. Under section 4(1)(a)(i) read with Rule 18 of Schedule III, the fair market value of gifted jewellery on the valuation date will be included in the wealth of Mr. Rajpal. 5,00,000
2. The flat at Mumbai used by the assessee for his own residence is exempt under section 5(vi) and accordingly, the liability of outstanding installment is not deductible. Nil
5. The property at Noida was sold during the year and is, therefore, not an asset of the assessee but is an asset of the beneficial owner, since ownership of the property passes on sale of the property and execution of sale deed only confirms the act of the parties. Nil
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