TAX TALK-13.06.2011-THE HITAVADA
TAX TALK-13.06.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“SOLD FLATS @ RS. 600/- PER SQ.FT. WHETHER TAX PAYABLE @ RS. 2500/- PER SQ.FT?”
Query 1]
I own an ancestral property at Bajaria, Nagpur. In the year 2001, I started construction of flats of about 600 sq. ft over the aforesaid property. I entered into an agreement of sale of flats at the rate of Rs. 600/- per sq. ft on installment basis with different purchasers. Now, the purchasers want to register the property in their names after paying the installments. My queries are:
1. Now the value adopted by the Registrar for the purpose of levy of stamp duty is Rs. 2,500/- per sq. ft. In that case, whether the income tax department will treat the sale at the price adopted by registrar for the purpose of levy of stamp duty, though I had entered into agreement to sell the said property at the rate of Rs. 600/- per sq. ft?
2. What will be long term capital gain?
3. How to handle this problem? [saamir75@gmail.com]
Opinion:
1. If any capital assets is sold by an assessee, then capital gain is required to be computed by taking the sale consideration as higher of a] Actual sale deed valueORb] The value adopted by the Registrar for levy of Stamp duty.The provision is applicable if the capital assets is sold & not on sale of business assets (like flats/shops sold by the Builder).
2. In your case, prima facie, it is appearing that on your ancestral plot you have started a Flats scheme (Business of Builder-ship) and have sold the goods (i.e., flats) in installments. It is further appearing that you have not so far offered the income on sale of flats as income in the year in which you have probably handed over the possession to the flats owners as the entire sale consideration was not received by you.
3. If the presumptions & assumptions elaborated above are correct, then the taxability of the income on sale of flats would be as under:a] It can be considered that you have converted your capital assets (i.e., Ancestral Plot) in to your Business Assets i.e., stock in trade. Accordingly, the difference between the fair market value of the plot and (the indexed cost of acquisition & improvement) would be treated as Long Term Capital Gain (LTCG) and would be taxable in the year in which you transfer those assets (i.e., Flats). In respect of acquisition / improvement done prior to 01.04.1981, you can replace it with the fair market value of the property as on 01.04.1981 for computing long term capital gain.b] The difference between the sale consideration (@ Rs. 600/- per sq.ft) AND [Cost of Construction of those flats + Fair market value of the property as on the date of conversion of capital assets in to stock in trade + Expenses incurred for earning the income] would be taxable as your business Income.
4. To conclude:a] The Stamp duty valuation of Rs. 2,500/- would not be at all relevant & Sale price of Rs. 600/- per sq. ft will be taken as sale consideration.b] You would be having Business Income as well LTCG on the above transaction.
5. The above opinion is based on certain set of assumption/ presumption drawn on the basis of query. In view of the multiple implications involved in the income tax issues, you are advised to have detailed consultation with your counsel before arriving at any final conclusion.
Query 2]
I am a Government Servant & received salary arrears from the year 2005 to 2010 in the financial year 2010-2011. Now can I get the advantage of section 89(1) regarding splitting the income year wise and get the relief in refund of tax (as the tax already deducted from arrears) while filing the return for F.Y.2010-2011?
[pallavi.chp@gmail.com]
Opinion:
Yes, you can get relief Under Section 89(1) by splitting the income year wise & can also get the refund of tax. The required particular for relief u/s 89 is required to be worked out in Form No. 10E.
Query 3]
I was an officer in Government of Maharashtra & draws pension from Nagpur treasury. I am filing my I.T. returns in Nagpur for many years. I have shifted to Banglore since last one year. On enquiry in I.T. office in Bangalore, I was told that as my PAN address is of Nagpur, it is better that I file my returns there only. To overcome this, I have applied for change of address of my PAN card to Banglore but I don’t want to change in treasury from where I am drawing my pension. Please let me know where should I file my I.T. returns physically, after getting PAN Card at Banglore address? [n_premkumar@hotmail.com]
Opinion:
You have changed the PAN Data from Nagpur to Banglore. You can now very comfortably file the return of income in Banglore I.T. office even though the payment is received elsewhere.
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“SOLD FLATS @ RS. 600/- PER SQ.FT. WHETHER TAX PAYABLE @ RS. 2500/- PER SQ.FT?”
Query 1]
I own an ancestral property at Bajaria, Nagpur. In the year 2001, I started construction of flats of about 600 sq. ft over the aforesaid property. I entered into an agreement of sale of flats at the rate of Rs. 600/- per sq. ft on installment basis with different purchasers. Now, the purchasers want to register the property in their names after paying the installments. My queries are:
1. Now the value adopted by the Registrar for the purpose of levy of stamp duty is Rs. 2,500/- per sq. ft. In that case, whether the income tax department will treat the sale at the price adopted by registrar for the purpose of levy of stamp duty, though I had entered into agreement to sell the said property at the rate of Rs. 600/- per sq. ft?
2. What will be long term capital gain?
3. How to handle this problem? [saamir75@gmail.com]
Opinion:
1. If any capital assets is sold by an assessee, then capital gain is required to be computed by taking the sale consideration as higher of a] Actual sale deed valueORb] The value adopted by the Registrar for levy of Stamp duty.The provision is applicable if the capital assets is sold & not on sale of business assets (like flats/shops sold by the Builder).
2. In your case, prima facie, it is appearing that on your ancestral plot you have started a Flats scheme (Business of Builder-ship) and have sold the goods (i.e., flats) in installments. It is further appearing that you have not so far offered the income on sale of flats as income in the year in which you have probably handed over the possession to the flats owners as the entire sale consideration was not received by you.
3. If the presumptions & assumptions elaborated above are correct, then the taxability of the income on sale of flats would be as under:a] It can be considered that you have converted your capital assets (i.e., Ancestral Plot) in to your Business Assets i.e., stock in trade. Accordingly, the difference between the fair market value of the plot and (the indexed cost of acquisition & improvement) would be treated as Long Term Capital Gain (LTCG) and would be taxable in the year in which you transfer those assets (i.e., Flats). In respect of acquisition / improvement done prior to 01.04.1981, you can replace it with the fair market value of the property as on 01.04.1981 for computing long term capital gain.b] The difference between the sale consideration (@ Rs. 600/- per sq.ft) AND [Cost of Construction of those flats + Fair market value of the property as on the date of conversion of capital assets in to stock in trade + Expenses incurred for earning the income] would be taxable as your business Income.
4. To conclude:a] The Stamp duty valuation of Rs. 2,500/- would not be at all relevant & Sale price of Rs. 600/- per sq. ft will be taken as sale consideration.b] You would be having Business Income as well LTCG on the above transaction.
5. The above opinion is based on certain set of assumption/ presumption drawn on the basis of query. In view of the multiple implications involved in the income tax issues, you are advised to have detailed consultation with your counsel before arriving at any final conclusion.
Query 2]
I am a Government Servant & received salary arrears from the year 2005 to 2010 in the financial year 2010-2011. Now can I get the advantage of section 89(1) regarding splitting the income year wise and get the relief in refund of tax (as the tax already deducted from arrears) while filing the return for F.Y.2010-2011?
[pallavi.chp@gmail.com]
Opinion:
Yes, you can get relief Under Section 89(1) by splitting the income year wise & can also get the refund of tax. The required particular for relief u/s 89 is required to be worked out in Form No. 10E.
Query 3]
I was an officer in Government of Maharashtra & draws pension from Nagpur treasury. I am filing my I.T. returns in Nagpur for many years. I have shifted to Banglore since last one year. On enquiry in I.T. office in Bangalore, I was told that as my PAN address is of Nagpur, it is better that I file my returns there only. To overcome this, I have applied for change of address of my PAN card to Banglore but I don’t want to change in treasury from where I am drawing my pension. Please let me know where should I file my I.T. returns physically, after getting PAN Card at Banglore address? [n_premkumar@hotmail.com]
Opinion:
You have changed the PAN Data from Nagpur to Banglore. You can now very comfortably file the return of income in Banglore I.T. office even though the payment is received elsewhere.
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