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Sec. 54 investment query - ltcg on house property

CA. Abhishek K. Pandey (Manager (Advance)) (901 Points)

29 June 2013

Hello all. This is a query in regard to investment u/s 54. The case is that Mr. X transferred a House Property to his spouse a few years ago. Now, Mrs. X sold that house and this results in LTCG. Now, as per sec. 27 and clubbing provisions, this LTCG should be of Mr. X. So, if they want to save tax, then investments u/s 54 should be done by whom?? Mr. X - the deemed owner u/s 27 or Mrs. X - assessee, who sold the house. In my opinion, it should be by Mr.x, but just want to confirm. Also, if Mrs. X has to do this - Can MR. X take a loan of requisite amount and deposit it for MRS. X as per sec. 54. Regards.

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6 Replies

CA Vinay parmar (Chartered Accountant) (1318 Points)
Replied 29 June 2013

Dear Abhishek

Mr X has to invest under sec 54.

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CA. Abhishek K. Pandey (Manager (Advance)) (901 Points)
Replied 29 June 2013

Originally posted by : CA Vinay parmar
	Dear Abhishek Mr X has to invest under sec 54.

Ok. Thanks Vinay. Do you know any case/circular in this regard???? Also, just for knowledge, if Mrs. X, would have to do it. Can Mr. X could have took the loan and deposit it for Mrs. X as per sec. 54 (i.e. amount for investment came from Mr. X, when responsibility for this is on Mrs. X). I think its possible, since, I was going through a case law, which states that, there is no need that the amount invested should come from the sale proceeds only.

@sh jais (live the life otherwise life leaves u.....) (1539 Points)
Replied 29 June 2013

Dear Abhishek

Clubbing of income

Mrs. X, would have to do it.

as clubbing of income means clubbing would be done after all computation in the hand of spouce. means head to head will be clubbed not computation would be done in assessee hand.

net consideration xxxxx

less: COA xxxxx

LTCG xxxxxx

less 54 xxxxx

taxable LTCG xxxxxx

so this taxable LTCG will be clubbed.

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CA. Abhishek K. Pandey (Manager (Advance)) (901 Points)
Replied 30 June 2013

Originally posted by : @ sh jais
	Dear Abhishek Clubbing of income Mrs. X, would have to do it. as clubbing of income means clubbing would be done after all computation in the hand of spouce. means head to head will be clubbed not computation would be done in assessee hand. net consideration xxxxx less: COA xxxxx LTCG xxxxxx less 54 xxxxx taxable LTCG xxxxxx so this taxable LTCG will be clubbed.

Thanks. That is true. Just researched bit more and found an ITAT ruling on that. I am posting the article found on ET here, so that everybody can read it.

CA. Abhishek K. Pandey (Manager (Advance)) (901 Points)
Replied 30 June 2013

MUMBAI: The Kolkata Income Tax Tribunal has put to rest the vexatious issue of whether long-term capital gains (LTCG) earned by minors when clubbed with that of their parents are eligible for deduction separately under Section 54 EC of the Income-Tax Act. The clause exempts long term capital gains up to Rs 50 lakh if they are reinvested in prescribed securities. The tribunal ruled in favour of an assessee who earned Rs 5.5 crore long-term capital gains from the sale of shares of one Arc India. His daughter and son, both minors, earned Rs 49.47 lakh and Rs 39.5 lakh, respectively, from the share sales. The assessee invested Rs 50 lakh in Rural Electrification Corporation bonds in his name and the respective LTCGs earned by his minor children under their names. The assessing officer clubbed the long-term capital gains made by the assessee's minor children in his hands, but limited deduction under Sec 54 EC only to investment of Rs 50 lakh in the assessee's name. He disallowed deduction for investment in REC bonds made by the assessee's minor children on the ground that the upper limit of Rs 50 lakh applied to the aggregate amount of LTCG, including that of the parent and children. However, a division bench of the Kolkata ITAT ruled in favour of the assessee, saying that only the net taxable LTCG needs to be clubbed with the parent's income and not the gross LTCG as was done by the assessing officer. For example, if a parent and his minor child earn Rs 51 lakh each in long-term capital gains, only 1 lakh of the minor's gain, and not the whole Rs 51 lakh, need to be clubbed with the parent's Rs 1 lakh for tax assessment. "The Kolkata ITAT ruling will come as a major relief to the parents whose income includes taxable long-term capital gains of their minor children by way of clubbing," said chartered accountant Bhupendra Shah. The judgement also applies equally to clubbing of LTCG between spouses.

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CA. Abhishek K. Pandey (Manager (Advance)) (901 Points)
Replied 30 June 2013

Sorry for that formatting. Don't know why, enter button don't work on CCI. It shows spaces and lines while writing the post. But not, when get posted.....