shiva (shankar.ican@gmail.com) (355 Points)
06 January 2014Dear CCI Members,
One of my client received a property from his grandfather, after that he constructed a building on that property and started a real estate business .Now he sold that property ....My query is that Is it taxable under Capital Gains?If yes what is
sale consideration?
cost of acquisition?
CS,CA F,Numrologi TusharSampat
(CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert)
(85930 Points)
Replied 06 January 2014
what is ur period of holdimg after rec frm grandfather?
shiva
(shankar.ican@gmail.com)
(355 Points)
Replied 06 January 2014
he received it in the year 2000.
Bhavin J. M. Dedhia
(Chartered Accountant)
(47 Points)
Replied 06 January 2014
1. Since your client started the business of real estate therefore the flats/property would be stock in trade for him - accordingly such sale of flats/property would be taxable under the head of PGBP. (if at any time before the said property was classified as investment then on conversion in to stock there will be capital gain tax payable now. - hence kindly check)
2. Since the property is acquired by way of inheritance - therefore the cost to your client will be the cost of the Previous Owner (grand father).
3. The sale consideration would be the value at which the said flat/property is sold. However since your client is holding the said property as stock in trade therefore if the value at which the said flat/property is sold is less than the stamp duty value then as per sec.43CA the stamp duty value shall be deemed to be the sales consideration.
Regards.
Bhavin J. M. Dedhia
(Chartered Accountant)
(47 Points)
Replied 06 January 2014
Kindly note that the point 2 in above reply wrt to cost of asset is applicable only when the income is taxable under the head of capital gain.
Thus if the income is subsequently on conversion taxable under the head of PGBP - then the FMV deemed as sale consideration for the purpose of computation of capital gain shall be deemed to be the cost of stock in trade.
Ramanuj
(Accountant.)
(834 Points)
Replied 06 January 2014
Please clarify that how can define cost of acquisition?
Please advice
tks
CA Dhruva Kalamanji
(Chartered Accountant )
(1996 Points)
Replied 06 January 2014
Hi Shiva,
In the case mentioned above to decide whetheh it is under capital gain or PGBP we shold know two things
1. Whether the said property is converted into business stock nd then sold; or
2. It is sold in the personal right of ur clint
On analysing the fact
1.if it is converted as stock for the real estate biz, then both the head is applicable,
When he coonverted he shold have calculated capital gain and when he sold he shold have calculated profit under the head pgbp both will be taxed in the year in which such asset is sold. Here for the purpose of cost of aqui his ancestor coat will be taken.
If he has sold the asset in personal right then capital gain only applicable. Coast of aqui is same as above
anj
(Student CA Final )
(22 Points)
Replied 07 January 2014
As the property recieved is inherited, cost of acquisiotion will be the cost to the previous owner which is in your case is your client's grandfather.
Sale consideration will be the sale amount when the property is sold however if the declared sale price is less than the stamp value than sec 43CA cn be applied and sale consideration will be the stamp value.
If your clent has been using this property as place of business than it will be his capital asset & capital gain will computed while selling it. otherwise it will used as stock and pgbp income will be computed.
thanks
CAclubindia
