Capital gains query

Tax queries 1957 views 3 replies

JAIDEEP SONPAL

51 Points Joined December 2009

Query

A commercial premises has been purchased by Mr.X under Pagri System in 2003, So he became tenant in 2003. Now this property under goes redevelopment & Mr. A receives commmercial premises in exchange for his old commercial premises in 2011.

Now this new premises he wants to sale within 3 months. So please throw some light on the following:-

1) Whether there will be long term CG or Short term CG ?, as i am getting so contradictory views.

2) Cost of acquisition will be nil?

3) What will be Sale Consideration ?, if CG arises on just transfer of new premises in exchange of old premises.

4) Deduction available under section 54F or 54EC or both?

Replies (3)

Guest

1. Long Term as more than 3yrs.

2. Cost of Acquisition = Price paid for acquiring pagdi

3. Consideration = FMV

4. For availing exemption exemption u/s 54F purchase a house within 2 yrs of sale.

Amount of Exemption

Equal to the amount of the capital gain if cost of new property is more than the capital gain, or
Equal to the amount which bears same proportion as new asset to net consideration.

CA Ketan Waghela

Partner at Elite Educare

356 Points Joined December 2011

Jaydeep ji,

In pagri system only tenancy rights can be sold not the property.

My answer ids based on the followig Case Law:

The question of selling your land to someone else if you have a pagri right over it is something which is relatively straightforward.

It can't be done.

The pagri right can be sold, only; and that too with the permission of the landlord.

The final nail in the coffin set out by any claim of ownership which the tenant might impose through his pagri right was given by Chief Justice of Sindh Justice Sabeeh-uddin.

Upon answering the question of the landlord's right to evict the tenant he said: 'Mere statement of the landlord to effect that the tenant leaves the premises in question for his personal need would be sufficient to get the tenant evicted.' Pagri will not act to disentitle the landlord of his statutory right to get the land evicted.

Yet all is not lost for the tenant as the pagri amount would be returned in case any course of action similar to that described above is taken by the landlord.

Link to the full case Law:

https://www.brecorder.com/company-news/single/601/235/1261460/

(You will find this somewhere in the middle of the page.)

Based on above judgement Mr. X can not sell the house.

Another link supporting my answer. (please read Legal Status of Pagri.)

https://www.iqballawservices.com/index.php?option=com_content&view=article&id=89:legal-status-of-pagri-goodwill&catid=1:law-topics&Itemid=3

Members please correct me if I’m wrong.

CA. Roopali Kadam

Jobs on assignment basis.

1481 Points Joined December 2009

14. The department has, admittedly, proceeded to consider the bigger estate as the main estate and has treated the surplus as liable to short term capital gains. Therefore, it is only in the fitness of things that the cost of the composite estate sold herein is computed by taking into account the market value of the smaller estate as on the date of acquisition of the bigger estate. Since the ITO has not considered the issue from this point of view, we, set aside the order of assessment and direct the ITO to recompute the surplus liable to short term capital gain afresh after allowing the assessee an opportunity of being heard.

read case of DR. D.A. IRANI vs. FIRST INCOME TAX OFFICER(file attached)

and pt 14 and 15 for conclusion.

My opinion from above case reading

CG=Short Term

Cost of Acquisition: Cost of Acquiring ownership rights+Market Value of tenancy rights

And for more interesting issues to learn go through this link

https://www.itatonline.org/articles_new/index.php/treatise-on-the-law-of-real-estate-development-contracts/

Hope this helps you