I inherited some Agriculture Land( rural Land-more than 8 kms away from nearest Muncipality ) from my father, who had inherited from his father ( i.e. my Grand Father ). I sold this land in Apr 2009 and deposited the sale proceeds in our HUF Acct, which we have been maintaining since last about 10 yrs.In the past all income from Agr Land was deposited in this HUF Acct and shown in IT Return every year. The HUF Acct is assessed to I.Tax regularly & has a PAN allotted.
2. Out of total amount a 1/3 rd amount was given to each of two NRI sons, who deposited the amount in their respective NRO Accts and then invested in Bank FDs for the time being. I took 1 Lakh and deposited in my SB Acct and then invested in Bank FD u/s 80C to avail the deduction for the current yr. I am a retired Army Officer.
3. My self & both my sons are tax payees, we file our IT Returns regularly and have been allotted PAN Nos.
4. My queries are--
a. Should the entire Sale proceeds be shown in Income Tax Return of HUF Acct or should we show these in individual IT returns as per the amount given to each individual ?
b. Should the amount given to each son & taken by me be shown as share of Capital receipt from sale of inherited Agri Land or Gift from HUF or Loan from HUF ?
c. Will the interest earned on FDs( made out of these amounts ) of my sons & myself, be shown as individual income or will it be clubbed with income of HUF Acct ?
d. Please indicate relevent Sec of I.Tax Act, wherever applicable.
5. An reply will be appreciated, to enable me to finalise Advance Tax etc.
First of all; I salute your services rendered by you as an army officer.
If would be glad to satisfy your querries as under :
1. All the sale procceds of Agricultural land is pertaining to HUF. The distribution of amount made later on by you is irrelevant. Hence capital gains is related to HUF only.
2.From the facts given in the question; I deem that you have never distributed income to your family members from the HUF. As per Section 10(2), income distribution from HUF to the family members is exempt.
3. Interest on FDR is taxable in the hands of individual i.e. you and your sons. The amount transferred to you and your sons from HUF is to be added in your individual capital account and deducted from HUF capital account.
4. It is neither gift or loan. It is income distribution by HUF whether it is from earning of current year or past years.
I advise you to hire the services of an expert. Looking to the facts of the case; tax planning could have been made.
I am indeed honoured by the respect you have shown to a soldier. Thanks for that.
I am also pleased & grateful to you for your prompt reply and valuable legal advice. I thank you from the core of my heart for the same.
I have already planned to engage an experienced CA to file all our returns wef this yr. Thanks for advice in this regard.
I am presently abroad and would like to thank you in person or on phone on return after about 2 wks. Meanwhile may I request you ( if you do not mind ) to kindly let me know your Mob Ph No by e-mail on ID bsec234@hotmail.com.
2. May I request you to clarify one more query. The query is-
Should we show the Sale Proceeds in the I.Tax return of HUF Acct in the Exempt Income Section ( Scedule EI, Ser 4.. Exempt Agriculture Income For Rate Purpose)(of ITR-2 ) or Income From Other Sources and write a note saying Exempt Income being Agr Income on Account of Sale Proceeds of Agriculture Land ?
Inconvenience caused is regretted. With regards & best wishes,
27 December 2009
The income is not agricultural income but is Capital Gains.
This can be claimed exempt if you deposit "Capital Gains" into one Capital Gains Account with a Bank (separate account is opened where FD interest rate is paid) if your intention is to purchase another agricultural land within a period of 2 years from the date of sale of land.
If whole of your profits earned in the form of "capital gains" are invested in another agricutural land then all will be exempt.
As regards Capital Gains Tax on Sale of Agri Land, I had consulted a CA & a Tax Lawyer before the sale. I was advised that since Agr land is NOT a Capital asset as per the Definition of I.Tax Act Sec 2(14)(iii) read with Sec 47 (viii), it is not subject to Capital gains tax. An extract from the I.Tax Act is enclose below--
In the income Tax Act sec 2(14) defined the capital asset : The term " Capital asset" means property of any kind held by an assessee, whether or nr not connected with his business or pofession, but does not include (a)...(b)... (c) Agrl., Land in india, not being situated(i) in any area which is comprmised wthin the jurisdiction of a municpality or a contonment board and which has a population of not less than 10,000 or more; or (ii) in any area within such distance, not being more than 8 kms, from the local limits of any municipality or any contonment board refered to in item (i) as the central govt., may,having regard to the extent of and scope for, urbanisation of that area and other relevant consideration, specify in this behalf of notification in the official Gazette. Any transfer of agrl., land in india effected before 1/3/70;( sec 47(iii). However agrl., land transferred on or after 1/3/70 will also not fall within the capital gain tax, as the agrl., land is specifically excluded by sec 2(14)(iii)from the purview of capital asset, with some exceptions(sec 47(viii0.
I have again studied the Sec 2 (14)(iii), Sec47(i) and Sec 54 B of I.Tax Act.
2 What I have under stood is as under--
a. As per Sec 2(14)(iii), our land is not a Capital Asset, since it is neither located within a Municipality nor within 8 kms of the nearest Municipa- lity. Capital Gain can accrue only on a Capital Asset. Since our land(being Rural Land) is NOT a Capital Asset, it is NOT subject to Capital Gain.
b. Inter alia provison of Sec 54B will apply to Agr Land if it falls under Capital Asset ( i.e if it is located within a Municipality or is within 8 kms from a Municipality) Since our land is NOT a Capital Asset, provis- ion of Sec54B cannot be applied to it.
c. Sec47 ( Transactions NOT regarded as Transfer ) states that " Nothing con- tained in Sec 45 (Capital Gains) shall apply to the following transfers-- (i) Any distribution of Capital Asset on Total or Partial partition of HUF; (ii)Any transfer of Cap Asset underGift ................................. ................................ (viii)Any transfer of Agr land in India before ! mar 1970;
So this Sec is Not applicable to us. 3 Since it is clear from the above, our land is NOT a Capital Asset, provisions of Capital gain cannot be applied to Sale Proceeds of our our Agriculture Land.
Also, since it is Sale of Agri Inherited/ Ancestral Asset, I suppose the Sale Proceeds are NOT chargeable to Income Tax. May I have your views now again in the light of above facts.
CAclubindia
