CA Jatin Kacha (Chartered Accountant) (230 Points)
29 May 2012hello,
one tenant was paying rent of shop to the owner from last 40 years in gujarat.
in last year, owner collected rs. 6 lacs from tenant and purchased him a new shop of rs. 24 lacs.
and took the possession of his shop.
i want to ask that whether payment made by owner for purchase of shop is taxable in the hand of tenant or not???
you may also mail me answer at jkkojk @ gmail.com
PRITAM JAIN, CA , CS
(Practising CA CS)
(398 Points)
Replied 29 May 2012
I think there is no tax liability.
This transaction is not covered by sec. 56(2)(vii) or (viia) as this is a case of Immovable Property and the same is acquired for inadequate consideration (not for without consideration). But Cost of Acquisition for the purpose of capital Gain in case of sale in future will be Rs. 6 lacs and not Rs. 24 lacs.
As far as old shop is concerned it was not at all Capital Asset in the hands of tenant and neither he had any right which can be regarded as capital asset within the meaning of sec. 2(14) of the act.
Just for the Academic Interest....
Tax Implication on the Owner....
1) There will be Capital Gain\Loss impact as he has transferred the property.
Full Value of Consideration will be Value as per Stamp Duty or amount recieved whichever is higher...
Less: Cost of Acquisition or Indexed Cost of Acquisition
Less: Cost of Improvement,if any
Less : Exp. on sale
2) One more important point is noticed here is that there is Cost of Improvement of Rs. 18 Lacs (24-6) on the existing property which he got vacated from tanent after sacrificing Rs. 18 lacs...
Let the other experts comment before u take up any further action....
Regards
CAclubindia
