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Capital gain on agricultural land : allowalbe deductions

KALPESH GOHIL (Chartered Accountant) (52 Points)

07 January 2012

CAPITAL GAIN ON AGRICULTURAL LAND : ALLOWALBE DEDUCTIONS

The assessee is farmer and wants to sale his agricultural land, in given case his sale is taxable as long term capital gain on agriculture land,

The assessee has to pay premium charges to revenue authority to convert his land from new tenure to old tenure before selling the land.

Now the question is whether this premium paid to convert new tenure to old tenure for agricultural land is allowable as deduction while calculating capital gain or not?

Comment on this and if any one have case laws forward the detail of the same.

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6 Replies

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 07 January 2012

Under section 48 clause (i) uses d words" wholly and exclusively in connection wit such transfer "

If dis words are applied to ur case it doesnt seem that witout paying such premiuim you asessee coldnt transfer the said land, hence clause (i) cannot be used at all for argument except if u find a udgment of any authority/ court favouring you.

Under cluase (ii) it speaks about cost of acquisition and cost of improvement whic in ma opinion in your case is niether both of it so pls wait for other to comment on d issue.

But in ma opinion premiuim charges will not be allowed as a deduction . Wait for other members on CCI to comment and correct me if i worng.

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CA Rajendra Kumar Pathak (Chartered Accountant) (33 Points)
Replied 07 January 2012

It is not clear whether premium paid to convert new tenure to old tenure is routine expense or not. If it is necessary to maintain the title on land and then paid by the owner, It will be regarded as Cost of improvement under section 55 (1)(b). Hence it will be allowed as deduction.

Expenses on transfer of capital assets whether directly or indirectly is allowed against sale value of capital assets. In this case if it is necessary to pay premium for sale of land, it will be allowed as deduction against sale consideration. But if it is necessary to pay premium otherwise it will not be allowed as deduction against sale consideration of capital assets.

So make clear the nature of payment of premium, accordingly we will get deduction.

Comments in this regard are welcomed.

amit (st) (111 Points)
Replied 07 January 2012

Wholly agreed with rajendra...it vil be allowed as coi..

KALPESH GOHIL (Chartered Accountant) (52 Points)
Replied 07 January 2012

As per my knowledge, any agriculturist can not sell his new tenure land directly, he has to get its land converted into old tenure land and there after only he is allowed to sale his land, even to the agriculturist. So, premium to be paid to convert new tenure to old tenure is must, without that he can not sale the land.

Pls. now comment on its eligibility as expenditure for calculation of capital gain.