Taxation of Real Estate - nirc@icai of Sunil Arora.pdfConsequences of higher valuation by DVO...

Taxation of Real Estate transactions

CA Sunil Arora [email protected]

Finance Act, 2015

Section 269SS & 269T amended to include payment for immovable property as well.

“….. Whether as advance or otherwise in relation to transfer of an immovable property, whether or not the transfer takes place.”

Exemption in case both have agricultural income and do not have income chargeable to tax.

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Section 56(2)(ix)

Any sum of money received as advance for transfer of a capital asset: ◦ Such sum is forfeited

◦ No transfer of such capital asset

Year of taxation?

Whether „tax on income‟ as referred to in Entry 82 in List I of the Seventh Schedule


Section 56(2)(ix)

Retrospective implication: ◦ Received prior to 1/4/14 but forfeited later

◦ Received between 1/4/14 & 10/7 and forfeited before or after 10/7

Amount forfeited and tax paid subsequently amount refunded or property transferred

Capital asset transferred subject to earlier advance


Section 50C

Value for the purpose of stamp duty, deemed to be the full value of the consideration from transfer of the capital asset for calculating capital gains

Applicable in the case of seller of a capital asset being land &/or building.

In case the value is disputed before the AO and the stamp duty valuation has not been disputed; the AO may refer to a Valuation Officer for ascertaining FMV

05/29/2015 5 Sunil Arora & Associates

Consequences of higher valuation by DVO

Section 50C

Consequences in case value arrived at by the Valuation Officer is: ◦ less the than stamp duty valuation

◦ more than the stamp duty valuation

In case the stamp duty valuation is disputed before the concerned authority; Section 155(15)


Section 43CA

Applicable to asset other than a capital asset

Consideration received or accruing for transfer of land and/or building is less than the stamp duty value of the property

Value for the purpose of stamp duty deemed to be consideration for computing income

Provision applicable wef AY 2014-15


Section 43CA

Difference between date of agreement to sell and actual registration of transfer

Advance against the agreement to sell has been received by mode other than cash

on or before the date of such agreement

Deeming fiction to apply on the rate as on the date of the agreement

Provisions of section 50C(2) & (3) to apply


Section 56(2)(vii)

Deeming fiction of adopting stamp duty value extended to the buyer of an immovable property

Provision enacted by Finance (No. 2) Act, 2009 reintroduced in the statute

Clause (vii) applicable only to individuals and HUF

Provisions parallel to 43CA regarding agreement to sell


Immovable property

Any immovable property received by an Individual or an HUF

Without consideration ; the stamp duty value of which exceeds Rs50k

With consideration ; in case difference with the stamp duty value is more than Rs50k

Proviso similar to section 50C (2) & (3)

Exceptions provided

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Exceptions

Clause not to apply in case received from: a) from a relative

b) On the occasion of the marriage of the individual

c) Under a will or by way of inheritance

d) In contemplation of death of the donor

e) Local authority

f) Institution referred to in section 10(23C)

g) Institution registered u/s 12AA


Section 56(2)(vii)

Difference between date of agreement to sell and actual registration of transfer

Advance against the agreement to sell has been paid by mode other than cash

on or before the date of such agreement

Deeming fiction to apply on the rate as on the date of the agreement

Provisions of section 50C(2) & (3) to apply


Issues in section 50C

Not applicable in case of tenancy rights

Kishori sharad Gaitonde v. ITO 2010 TIOL 297 ITAT

(Mum.)

Not applicable in the case of transfer of lease

hold rights

Atul G Puranik v. ITO 11 Taxmann.com 92 (ITAT Mum)


Issues in section 50C/ 56(2)(vii)

Whether difference can be reflected as additional funds in the hands of the seller?

Can the seller avail exemption u/s 54/ 54F/ 54EC by investing additional amount? Gouli Mahadevappa V.ITO [2013] 33 taxmann.com 47

(Karnataka)

Raj Babbar v. ITO [2013] 29 taxmann.com 11 (Mum.)


http://taxmann.com/

Booking of property

Whether provisions applicable to booking of a flat?

All the 3 relevant sections talk of immovable property

Deeming fiction to be applied only for the limited purpose for which brought into the statute

Transfer of booking of flat with the builder outside the purview of section 50C

ITO v. Yasin Moosa Godil 20 Taxmann.com 424 (Ahd.)


Exceptions

Clause not to apply in case received from: a) from a relative

b) On the occasion of the marriage of the individual

c) Under a will or by way of inheritance

d) In contemplation of death of the donor

e) Local authority

f) Institution referred to in section 10(23C)

g) Institution registered u/s 12AA


Relative

(e) "relative" means,—

(i) in case of an individual—

(A) spouse of the individual;

(B) brother or sister of the individual;

(C) brother or sister of the spouse of the individual;

(D) brother or sister of either of the parents of the individual;

(E) any lineal ascendant or descendant of the individual;

(F) any lineal ascendant or descendant of the spouse of the individual;

(G) spouse of the person referred to in items (B) to (F); and

(ii) in case of a Hindu undivided family, any member thereof;]

Whether gift received from cousin is taxable?

Whether gift received from nephew is taxable?


Relative

Gift from Cousin ACIT v.Masanam Veerakumar 34 taxmann.com 267

(Chennai-ITAT)

Gift from HUF Vineetkumar Raghavjibhai Bhalodia*[2011] 11

taxmann.com384 (Rajkot)

Reverse relationship


Without consideration

Alimony from ex husband ACIT v.Meenakshi Khanna ;[ 2013 ] 34 taxmann.com 297

(Delhi - Trib.)

Right to contest Purvez A. Poonawalla v. ITO ;[2011] 10 taxmann.com 221

(Mum.)

On the occasion of the marriage of the individual

Rajinder Mohan Lal v. DCIT (2012) 18 taxmann.com 91 (Chd.)


Property

Explanation (d) to the clause (vii) has defined the “property” means the following capital assets of the assessee, namely:- i. Immovable property being land or building or both

ii. Shares and securities

iii. Jewellery

iv. Archaeological collections

v. Drawings

vi. Paintings

vii. Sculptures

viii. Any work of art

ix. bullion


Consideration / Stamp duty value

Deeming fiction applicable in the hands of a seller: ◦ As a capital asset / stock in trade

◦ All persons including companies

Applicable in the case of a recipient / transferee: ◦ Only in case of individual / HUF as a capital asset

◦ exception in case received from a relative

◦ In case held as as stock in trade?


Shares of a property company

Property appearing at its historical cost in the Financials of the company may not represent its real value

Whether FMV of shares as per Rule 11UA is to be taken or the FMV of the property in question

Primarily Rule 11UA to prevail

Implications of clause (vi) and Explanation 2 to Section 2(47)


Clause (vi) Section 2(47)

Any transaction (whether by way of becoming a member of or acquiring shares in a co-operative society company or other AOP or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring or enabling the enjoyment of any immovable property


Explanation 2 (Inserted by FA,2012 wref 1/4/62)

For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India


Changing dynamics

Booking of flats

Transfer of booking

Transfer of flat acquired by booking

At what stage the assessee shall be deemed to have acquired the new asset

Joint development agreements

Home loans

Jurisprudence

Transformation of an asset

Assessee books a flat / becomes member of a CGHS in 2007

Possession of the flat is given to the assessee in 2011

Flat sold in 2012 Capital gain; whether long term or short term Flat is only an incidental right flowing from the shareholding

in the CGHS CIT vs Jindas Parchand Gandhi (2005) 279 ITR 552 (Guj) Vinod KumarJain v. CIT ITA No. 140 of 2000 (Pb.& HAR)

Flat booked with the builder ACIT v. Sharad Thadani 104 TTJ 567 (ITAT Lko)


Link capital gain & investment

Capital asset sold resulting in long term capital gains and sale proceeds utilized for business.

New residential house property purchased after getting the same financed from bank

Other stipulations for exemption complied

Whether assessee entitled to deduction u/s 54F?

Utilisation of net consideration

Section 54F(4) provides for depositing of net consideration under the Capital Gain scheme to the extent the same is not appropriated towards purchase of the new house one year before the transfer or which is not utilised for purchase or construction of the new asset

Exemption u/s 54F not admissible Milan Sharad Ruparel v. ACIT 121 TTJ 770 (Mum)

Utilisation of net consideration

Money does not have any color. The law does not impose any condition that the money has to be kept in a locker and can be used only for the purpose of purchase of the new asset.

Assessee entitled to exemption Muneer Khan v. ITO 7 Taxmnn.com 30 (Hyd- ITAT)

JV Krishna Rao v. DCIT 54 SOT 44 (Hyd .) Sita Jain & other v. ACIT (Delhi)

Pushpa Devi Tirbrewala v. ITO 33 taxmann.com 305 (Hyd)

Whether one residential house for 54 & 54F

Jewellery sold for Rs 50 Lacs resulting in capital gains of Rs 30 Lacs

Residential house property sold for Rs 125 Lacs resulting in capital gains of Rs 65 Lacs

Assessee acquired: ◦ New Residential house for Rs 110 Lacs

◦ Capital gain bonds for Rs 5Lacs

Whether exemption u/s 54, 54F and 54EC can be combined

Yes Venkata Ramana Umareddy v. DCIT 32 taxmann.com 157 (Hyd.)

ACIT v. Deepak S. Bheda ITA No. 5011 (Mum.) 2010

Mode of Computation of Capital Gains

Section 48

Full value of the consideration received or

accruing as a result of transfer of capital asset less;

(i) expenditure incurred wholly & exclusively in connection with such transfer

(ii) the cost of acquisition of the asset & the cost of improvement there to

Interest on borrowings

Revenue expenditure

Allowable u/s 57 or u/s 24 of the Act

Balance interest can be taken as allowable deduction for calculation of capital gains

CIT v. Mithlesh Kumari (1973) 92 ITR 9 (Del) Addl CIT v. K.S.Gupta (1979) 119 ITR 372 CIT v. Mithreyi Rai (1989) 152 ITR 247 (Ker) Vasanji Sons & co Pvt Ltd (1975) 99 ITR 148 (Del)

K. Rajagopala Rao 252 ITR 459 (Mad.)

Section 54F

Assessee should not own more than one residential house other than the new asset

Booking of flats with a builder ?

Ram Prakash Miyan Bazaz v. DCIT

45 taxmann.com 550 (Jaipur ITAT)


Investment in the new house

To avail exemption u/s 54F the assessee books a flat with a builder

Whether entitled to exemption ?

Yes Ram Prakash Miyan Bazaz v. DCIT 45

taxmann.com 550 (Jaipur ITAT)


Purchase of residential house

Payment for the flat made 1 yr prior to transfer of the capital asset

Payment partially made by taking loan from a bank

Sale deed registered in favour of the assessee within the stipulated period

Whether assessee entitled to the exemption? [2014] 42 taxmann.com 390 (Bangalore - Trib.)

Gopilal Laddha v. ACIT

Section 54

Whether booking of flat is purchase or construction?

Circular No. 471 dt 19-10-1986

Circular No. 672 dt 16-12-1993


Purchase/ construction

Property being developed by the builder under collaboration agreement

Assessee to get some portion of the dwelling unit Whether time limit of 2 yrs or 3 yrs would apply

? The case would fall under purchase of property

by way of construction ITO v. Abbas Ali Shiraz (2006) 5 SOT 422 (Bang.)

I.T.A. NO. 7159/Mum/2010 Smt. Veena Gope Shroff, Vs. ITO:dt 04-07-12.

Construction may be by a third party CIT v. Uma Budhia (2004) 141 Taxman 39 (Kol.)

Payment to a builder for purchase of flat not an agreement of construction but sale by the builder

PK Datta v. ITO 100 TTJ 133 (ITAT Pune)

Construction within 3 yrs

Exemption claimed by purchasing land.

Construction not carried out within 3 yrs

Brief facts; ◦ Capital gains on 10-03-2007;

◦ land purchased on 25-06-2007;

◦ construction not carried out by March, 2010

Taxable for the AY 2007-08 or 2010-11? Sri Prasad Nimmagadda v. DCIT [2013] 32

taxmann.com 5 (Hyd.)

Adjustment of gain

More than one house sold and purchased

Sale of two residential houses resulting in capital

gain

◦ House A Rs 20 Lacs

◦ House B Rs 30 Lacs

Flats Y & Z purchased @ Rs 25 Lacs each

Exemption only on one to one basis and each set

of sale and purchase

Rajesh Keshav Pillai v. ITO (2010) 7 Taxmann.com 11

(Mum.)

More than one residential house

More than one residential house can be purchased for claiming exemption u/s 54

[2013] 40 taxmann.com 138 (Mumbai - Trib.) Meher R. Surti v. ITO

Asset which is getting transferred

Vacant land after demolition of Residential house

CIT v. Ved Prakash Rakhra 210 Taxman 605 (Kar.)

Excess land adjacent to a residential house

Floor not in existence

Transfer of agricultural land after changing the land use


Land status

Farm house

Residential house constructed on agricultural land eligible for exemption u/s 54 / 54F

ACIT v. Om Prakash Goyal ITA NO. 647 (JP) OF 2011 AY 2008-09 dt 2.2.12

Land cost in case purchased earlier than one yr before the date of transfer of original asset

Sale of the new residential house

Assessee sold residential house at Andheri Immediately thereafter purchased flat in

Juhu Sold the Juhu house within 6 months &

purchased flat in Ville Parle Flat in Ville Parle purchased within 2 yrs

from sale of Andheri house Whether assessee entitled to benefit u/s

54 of the Act KC Kaushik v. ITO (1990) 185 ITR 499 (Bom)

Whether residence necessary

Basement of a residential house purchased for claiming exemption u/s 54F of the Act.

It is not necessary that a person should reside in the house to call it a residential house. If it is capable of being used for the purpose of residence than the requirement of the section is satisfied. Amit Gupta v. DCIT (2006) 6 SOT 403 (Delhi)

Mahavir Prasad Gupta (2006) 5 SOT 353 (Del)

Shyamlal Tandon v. ITO [2014] 43 taxmann.com 155 (Hyderabad - Trib.)

Purchase of residential house outside India

Whether assessee entitled to exemption u/s 54/ 54F

Held: No, Income Tax Act, 1961 applies only to India

Leena J Shah v. ACIT (2006) 6 SOT 721 (Ahd)

Held: Yes, section 54 does not impose any

bar on acquisition outside India

Prema P Shah v. ITO 100 ITD 60 (ITAT) (Mum.)

Legislative amendment by FA 2014

Construction whether before or after the date of transfer

Whether construction of house property can be completed before the date of transfer of the original asset

Held, No Smt Shantaben P.Gandhi (1981) 129 ITR 218 (Guj)

CIT v. JR Subramanya Bhat (1987) 165 ITR 571

Whether it can be started before the date of

transfer

Held, Yes CIT v. HK Kapoor (1998) 150 CTR 128 (All)

CIT v. Bharti Mishra* [2014] 41 taxmann.com 50 (Delhi)

Construction with in 3 years

Assessee has made payments out of the capital gains with in the stipulated time

Builder failed to hand over the property with in the prescribed time

Exemption u/s 54/ 54F cannot be denied

CIT vs RC Sood (2000) 108 Taxman 227 (Del)

CIT vs Ms Hille JB Wadia (1995) 216 ITR

Incomplete house

Capital gains invested in construction of residential house with in the stipulated time

More funds required to complete the construction in a particular manner

Assessee entitled to exemption as the utilization of the capital gains is complete

CIT v. Sardarmal Kothari 302 ITR 286

[2014] 41 taxmann.com 325 (Bangalore - Trib.) ITO v. Smt. B.S. Shanthakumari*

Smt. Usha Vaid v. ITO ITA No. 98 (Asr.) of 2011 AY 2006-07 dt July 27, 2012

Residential house

The house purchased may not have all the amenities

[2014] 41 taxmann.com 411 (Karnataka) CIT v. Dr. R. Balaji*

Section 54EC

Investment with in six months

How the period of six months to be calculated

Date of transfer; 15.9.2011

Whether investment possible after 15.3.2012 but before 31.3.2012

Held; Yes Yahya E Dhariwal v. DCIT (2012) 17 Taxmann.com 159

(Mum.) Alkaben B. Patel v. ITO [2014] 43 taxmann.com 333 (Ahmedabad - Trib.) (SB)

Indexation

Father purchased house property for Rs1.16 lac in the year 1983.

Father died in the year 2004 and son Mr. X inherits the property.

Mr. X sells the property in Nov,05 for Rs5.00 lacs. Cost Inflation Index:

◦ 1983-84: 116 ◦ 2004-05: 480 ◦ 2005-06: 497

Taxability under the head capital gains: ◦ Short term/ long term ◦ Cost of acquisition ◦ indexation

Capital asset acquired u/s 49

Explanation (iii) to Section 48: Indexed cost of acquisition means an amount which

bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year begining on the 1-4-81 which ever is later.

Date from which indexation to be done ? From the date of inheritence; Kishore Kanungo 102

ITD 437 (ITAT-Mum) From the date of acquisition by the previous owner CIT v. Manjula J. Shah (2011) 16 taxmann.com 42

(Bom.) Arun Shugloo Trust v. CIT (2012) 18 taxmann.com 261

(Delhi)

Indexation

Capital asset acquired during the FY 1993-94

Payment for the aforesaid asset made in

instalments from 1993-94 to 1996-97

Indexation ?

Indexation on the value of the asset from the

date of acquisition of the asset and not from the

date of actual payments made by the assessee

Charanbir Singh Jolly v. ITO (2006) 5 SOT 89 (Mum.)

Lata G. Rohra v. DCIT 21 SOT 541 (Mum)

Capital Gains Scheme

Funds given as advance instead of depositing in the Capital Gains Scheme

Later received back Property purchased during the stipulated

time Whether benefit u/s 54 or 54F will be

available to the assessee “Deminimus non curat lex”

Rupali R Desai v. ACIT (2005) 273 ITR 109 (ITAT- MUM)

Mukesh G. Desai (HUF) v. ITO 120 TTJ 792(mum)


Capital asset sold on 15/3/2009 No deposits under capital gain deposit

scheme before 31/07/2009 New residential house purchased on

13/01/2011 ITR filed on 28/2/2011 Whether capital gains exempt u/s 54/ 54F ? Exemption available in case utilised before

filing of ITR even u/s 139(4) CIT v. Rajesh Kumar Jalan 286 ITR 274 (Gauhati)

CIT v. Jagriti Agg 15 Taxmann.com 146 (P&H) Nipun Mehrortra 110 ITD 520 (ITAT- Banglore)


ITR not filed within the time stipulated u/s 139(4)

Fathima Bai v. ITO ITA No. 435 of 2004 dt 17.10.2008 (Kar.)

Assessee filed ITR declaring taxable capital gains before the due date of filing u/s 139(1)

Subsequently residential house purchased within the stipulated time of 2yrs

Can the assessee claim exemption u/s 54/ 54F by filing a revised ITR u/s 139(5) ?

Section 54

One residential house in India

Prolonged litigation

Retrospective implication: ◦ Prior to 1/4/2014

◦ Sold before 1/4/2014 purchased after

◦ Sold later purchased prior to 1/4/2014

◦ Sold after 1/4/2014 before 10/7/14


Issues not addressed

Construction 1 yr before

JDA

Taxation of real estate developers

Booking of flats and consequences


Section 54F

One residential house instead of „a‟

Purpose achieved ?

Whether multiple adjoining units still possible ?

CIT v. Geeta Duggal 30 taxmann.com 230 (delhi)


Agricultural Land

Capital asset (Section 2 (14)) ◦ Municipality having population of 10k or more

◦ Within the notified area (not being more than 8 KM from local limits)

Notification No. SO 10(E) dt 6/1/1994 as amended by Notification No. SO 1302 dt 28/12/1999

Agricultural land Within municipality

Having population of less than 10,000

Having population of 10,000 or more

:

Not a capital asset u/s 2(14)

Capital asset liable to tax


Outside the municipality

Population

Less than 10k

>10k but <1 lac

>1 lac but <10

lacs

>10 lacs

Aerial Distance

Nil

2 KM

6 KM

8 KM


Sunil Arora M.Com., F.C.A.

A-1/118, Safdarjung Enclave, N.Delhi-110029

Ph: 011-26711114-17 [email protected]


Taxation of Real Estate - nirc@icai of Sunil Arora.pdfConsequences of higher valuation by DVO...

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