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capital gain

02 February 2010

I booked a plot and paying regular installment for that plot which is based on the completion and development of that site area. After completion of that as i hve deposited complete due amount with the develpoers the plot got registered with me. for exapmle i started paying installmet on 01.0194 and plot got registed on 31.12.98. during the span of four year period i paid RS 5,00,000.00 in each year.....

Now can i index the cost for each year or it can be done only at the when plot was registered........

plz mention if any case law is there related to these facts......

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7 Replies

Amir (Learner) (4016 Points)
Replied 02 February 2010

Dear Rishikant,

As far as my understanding goes the benefit of Indexation will be available from 1998 only, i:e when Plot gets registered in ur name...

Reason

1) Till the time u paid the final installment, u were not the owner of the Plot i:e the deal could have also been called off..& as u said that ownership was transfered only on 31.12.1998

2) Capital Gain - follows accrual concept (except in few cases like compulsory acquisition, etc)

Suppose If I purchased a House in 1.1.1994 i:e on this day the property gets registered in my name but I discharged the purchase amount on 31.12.21998, then from which year indexation will be done...From 1994 only...

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Max Payne (employed) (2569 Points)
Replied 03 February 2010

Dear Friends,

This is a different view that i came across.. in TN Manoharan's new book for final he has taken the indexation from the year in which advance payment is made...

Some case laws are also there that where date of allotment is taken as date of acquisition, as long as the allotment is finalised on the first payment.

Attaching 2 circulars and a case law to elucidate the matter....

Registration is not a pre-requisite to charge income from house property as per the decision in Podar Cements Vs CIT. It may be noted that on the same basis, capital gains can be charged wehere registration is not completed, so the same principle should apply in case of acquisition also....

Hence i think the view taken by TN Manoharan that the date of first payment can be taken as the date of acquisition

Attached File : 27 section 54.doc downloaded: 131 times

Amir (Learner) (4016 Points)
Replied 03 February 2010

Hi G.K.

Nice post, It made me think for my above reply but still I would say the circular & the judjement is for extending the Benefit of Exemptions u/s 54/54F to the assessee where "time is a major constraint" since allotment under schemes takes more then the period specified u/s 54/54F..Which would make these schemes ineligible for claiming exemption under these sections.

Therefore I think the rationale behind these circular/judgements is only to cover such schemes as an eligible investment u/s 54/54F

I don't think it can be applied in the present case...

Wot's say.???

C.Balaji (Learner) (1867 Points)
Replied 03 February 2010

Mr.Rishikant

My opinion is that the Indexation benefit will come from the year in which the assessee gets the possession....i think in this case he gets the possession only in the year 1998 at the time of registration.... so according to me it would be 1998.....

Max Payne (employed) (2569 Points)
Replied 03 February 2010

Dear Amir,

I could be wrong when i say this,

But isn't "Ownership to the exclusion of other persons" the true test of ownership...?

There is a case law for depreciation u/s 32 to this effect...

I really feel that the benefit should be given as soon as an absolute right in the flat is created... acquiring rights in property also is recognised as investment for claiming exemption u/s 54 and 54F no.... (its a different matter that if the flat is not coming into existence, or exceeds 3 years construction period, there will be no benefit u/s 54..)

So i think for each year that the payment is made, separate indexation should be done if it enhances the right in the flat.....

Again, i could be quoting things slightly out of context... but the substance is same in my opinion...

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Amir (Learner) (4016 Points)
Replied 03 February 2010

Dear G.K.

I don't know whether it was correct or not......However AO accepted that.

But I must share that I had come across a computation where "Payments were made annualy for say 3-4 years for acquisition & what u have said that all those payments were separately indexed with the respective Inflation Index..

My reaction to this was assessee has not made distinction between "Cost of Acquisition" & "Cost of Improvement" i:e he has treated the Cost of acquisition as Cost of improvement...

Brother, I m completely disregarding ur view but just that i m not 100% convinced..

If u get anything concrete on this, then plz share with me yaar..........

Max Payne (employed) (2569 Points)
Replied 03 February 2010

Hi amir,

Your view reg year of ownership appears more correct than my original view...

When payment is made, v are only earning a right to own a flat. The flat becomes ours when it is completed. Its character changes when it becomes a flat ready for occupation.. Cos the right to own, changes into a right to possess.... mystifying!

https://www.financialexpress.com/printer/news/299135/