Capital gains

CA Rajat Bajaj (Job) (1042 Points)
Replied 30 May 2013

Section 54F says, if assessee sell any property and invest the money for purchasing residential house property within 2 years, he can get exemption of amount INVESTED in new house property, if you are investing 250 lakhs within one year of sale, you will get exemption of full amount, because you do not have any gain.

Digant Sanghvi (C.A.) (107 Points)
Replied 30 May 2013

Originally posted by : Digant Sanghvi
	The assessee had booked the flat in january 2010. The allotment letter for the same was received (say paid only Rs. 10 Lakhs). Thus, the assessee had acquired RIGHT in the said property (FLAT). The cost of acquisition of right in property is Rs. 10 Lakhs. Thereafter, the payment was made from time to time and finally the purchase agreement for the said residential house was made in March 2012 for 150 Lakhs. The possession of the unit was received in July 2012. Assuming he wants to sell the RIGHT in property (said residential unit) in May 2013 for say Rs 250 lakhs. The agreement to sale or conveyance deed will have mention of fact of sale of right in property. The assessee intends to invest full proceeds of Rs. 250 Lakhs in a new residential house within 1 year to be bought for say Rs. 300 Lakhs. The assessee intends to claim exemption of the above CG tax u/s 54F of the I.T. Act, 1961 since entire proceeds are invested. The assessee wants to claim LTCG on the sale of RIGHT in property for which 3 years are completed. Whether the assessee will be eligible to claim the exemption u/s 54F? Thanks !!!

Mr. Bajaj,

I am emphasizing on the RIGHT in the property..As on the day of sale what I have is the property and not the RIGHT in the property.

harshit yadav (article) (28 Points)
Replied 30 May 2013

purchase shares when they were unlisted i.e in the year 1980. the shares where listed in year 2000, sold the shares in the year 2013 through Dmat.will there be any tax liability

Rohit Aggarwal (ACA Bcom (H) MBA MCom) (470 Points)
Replied 31 May 2013

Basically, Sec 54F deals with the transfer of LONG TERM CAPITAL ASSETS OTHER THAN HOUSE PROPERTY but Sec 54 deals with transfer of residential house. However the provisions of both the sections are alike upto an extent. So you should claim the required exemption under section 54 F if you are considering the sale of right in property.

Thanks.

Neha sharma (-) (1257 Points)
Replied 31 May 2013

@ Digant : According to some people, this is a short term capital gain and therefore Section 54F will not be applicable...

According to others, this is a long term capital gain..

I'm also confused and posted a similar query some time back but unable to find the legally correct answer...

Z ( ) (2965 Points)
Replied 31 May 2013

Making reference to /forum/details.asp?mod_id=250630&offset=1 But your case is not very clear to me, what kind of right has been given?

CA Aman Gupta (Chartered Accountant) (344 Points)
Replied 31 May 2013

for your query reference can be drawn towards decision of punjab & haryana high court in CIT -vs- Ved Prakash & Sons (HUF) (1994) 207 ITR 148 (P&H), wherein assessee acquiring the property under agreement dt. 29-05-1970 on installment basis, however final payment is made on feb 1973, sale is made on feb 1973, it was held that since assessee was the beneficial owner since 1970 hence it will be long term capital gains.

Mohammad Asif (chartered accountant) (191 Points)
Replied 31 May 2013

In income tax for the purpose of determination of period of holding ,the holding period period starts from the date on which the property is possed.

So,in your case period of holding is from july 2012 to may 2013 so cap gains are short term and section 54 deals with long term capital assets hence exemtion under sec 54 will not be available.

Vaneet Bansal (learning new things) (106 Points)
Replied 01 June 2013

@ Aman Gupta

Sir, Actually i am surprised to see this answer from a qualified CA because as per Income tax date on which possesion is aacquired by assessee would be relevent for caculating period of holding so in this case assessee acquired possession of property from july 2012 so it is clearly STCG hence exemption u/s 54 will not be available

CA Aman Gupta (Chartered Accountant) (344 Points)
Replied 01 June 2013

@ Vaneet Bansal

Dear Friend, your opinion is really appreciated. But if a person is interpreting a law, he should also consider the judicial pronouncements if the matter under consideration is not clear by the literal interpretation of the Act.

Now there is two questions under consideration.

1. Whether the Right to own the Property is a Capital Asset?

Bombay High Court has explained definition of capital asset as defined u/s 2(14) of the I T Act in the case of CIT vs Tata Teleservice Ltd 122 ITR 594 and has held as follows :-

What is a capital asset is defined in section 2(14) of the I.T. Act, 1961. Under that provision, a capital asset means property of any kind held by an assessee, whether or not connected with his business or profession. The other sub-clauses which deal with what property is not included in the definition of capital asset are not relevant. Under section 2(47), a transfer in relation to a capital asset is defined as including the sale, exchange or relinquishment of the asset or the astonishment of any right therein or the compulsory acquisition thereof under any law. The word “property”, used in section 2(14) of the I.T. Act, is a word of the widest amplitude and the definition has re-emphasised this by use of the words “of any kind” Thus, any right which can be called property will be included in the definition of “capital asset”. A contract for sale of land is capable of specific performance. It is also assignable. (See Hochat Kizhakke Madathil Venkateswara Aiyar v. Kallor Illath Raman Nambudhri, AIR 1917 Mad 358). Therefore, in our view, a right to obtain conveyance of immovable property, was clearly “property” as contemplated by section 2(14) of the I.T. Act, 1961.

Other case law on the same issue favoring the above views of Bombay High Court are as follows:-

CIT v. Sterling Investment Corpn. Ltd. [1980] 123 ITR 441 (Bom.).
ITO v. Smt. Kashmiraben M. Parikh [1993] 66 Taxman 31 (Ahd.) (Mag.).
Tribunal order in ITA No. 3923 (Mum.) of 2002 for assessment year 1995-96 in the case of Mrs. Manju Agarwal v. Asstt. CIT, Mumbai ‘C’ Bench order dated 16-9-2004.
Jitendra Mohan v. ITO [2007] 11 SOT 594 (Delhi).
CIT vs Jindas Parchand Gandhi (2005) 279 ITR 552 (Guj).

In this case as allotment right has been issued in January 2010 gives the right to obtain conveyance on the said flat so it become an assets under section 2 (14) of the Income Tax Act, 1961.

2. Whether Gain on sale of Flat will be short Term or Long Term?

An asset which is held for 36 months is a long term asset.

Whether it is held for 36 months?

Once the right to purchase ( i.e obtain conveyance ) proved to be an asset, it is to be seen when was this right vested in the purchase.

Hon’ble Andhra Pradesh High Court in the case of M. Syamala Rao v. CIT [1998] 234 ITR 140 held that registration of a document related back to the day on which the agreement of sale was executed, hence, when the builder executed the agreement of sale on 7-8-1993, the assessee was to be deemed to be owner of property from that date and, accordingly, the capital gain was to be worked out.

In my opinion, the date of allotment is the date when the right of conveyance get vested. So, if there is difference of 36 months in this date and date of sale , then it can be considered that the said asset was a long term asset and gain on sale of such asset was “Long Term Capital Gains “.

In our case, the allotment date was January 2010 and as such on the date of sale, this right was held for more than 36 months so gain on sale of Flat will be Long term Only.

Hope the above will clarify my stand.

1 Like

Vaneet Bansal (learning new things) (106 Points)
Replied 01 June 2013

@ CA. Aman Gupta

Respected Sir, First of all i want to apologise for my wrong interpretation and also want to thanks you for detail interpretation of law. earlier i expressed my opinion irrespective to consider the word Right which has change the whole pictures.

So you r absolutely right and now i understand what is Difference between a Qualified CA and CA finalist Students.

Thanks Sir for changing my attitude