Clearance must U/S 37(i) if deal is over exemption ceiling

G P Khungar

My mother and I jointly own a plot of Land at Pune that we purchased in 1994. Pursuant to recent amendments in the Finance Act whereby capital gains from the sale of a plot of land can also be invested towards the purchase of a home under Section 54 (e) of the Income Tax Act we are considering selling the land and investing the sale proceeds towards the purchase of an apartment. Before we embark upon this exercise we would very much appreciate your clarifying the following points:
Considering that we expect to sell the plot for about Rs 35 lakh, will we require clearance under Section 269 UC of the Income tax Act especially as we are joint owners with equal share in the land?
Since both of us are income tax assesses in our individual capacities would it suffice if only one of us secures Section 34-A clearance?

Will there be any capital gains tax liability if we leave the entire sale proceeds resting in our individual bank accounts and take the decision to invest or not to invest ineither a built-up house or individually owned plot of land over the next two years?
--D S Kulkarni, Khandala

Your understanding that the capital gains from sale of land can also now be invested towards purchase of a ready built house in correct. This is however subject to certain stipulations and to derive the benefit of exemption from payment of capital gains tax on the gains that are likely to accrue to you from land sale you should ensure strict compliance.

The specific answers to the queries raised by you are:

You do require a clearance under Section 37(i) of the Income Tax Act if it is proposed to enter into a single conveyance deed with the purchasers, this is because the exemption ceiling specified for Pune is Rs 25 lakh. However if the purchasers are ready to purchase the property in at least two names and enter into two conveyance deeds of nearly equal value instead of one then it would not be necessary for you and your mother to secure any clearance under Section 269 UC ofthe Income Tax Act.

Since you and your mother are tax assessee independent of each other it would be necessary for both of you to separately apply for and obtain a `No Objection Certificate' from your respective income tax assessing authorities in Form 34-A under section 230 of the Income Tax Act.

To avail the benefit of exemption from the payment of capital gains tax by effecting investment into a ready built house you have to meet the under-noted stipulations.
(a) You need to establish a capital gains account with a scheduled bank and place your entire share of the capital gains receipts (that is total sale consideration less your share of indexed cost of acquisition) in this account within six months of the receipt of each and every payment installment.
(b) The purchase of a ready built house should be completed during the two financial years following the financial year in which the land sale was effected. In case the entire sum deposited in the specified account is not utilised forthe purpose during this period then you would be liable to pay the capital gains tax on a prorata basis on the un-invested sums that are still available in the capital gains income account.
(c) As the law stands at present the facility of investing into another cause is only available under section 54(e) of the Income tax Act provided you do not own another house in your name. There is however a proposal mooted by the Honourable Minister for Urban Affairs & Employment that the stipulation regarding the owning of one house be withdrawn. Unless the law is amended the restriction shall continue.

You would be well advised to consult your tax expert as he is bound to be more conversant with your case. My advice is not case specific because your narration does not contain information on all the relevant points.

My family owns about two hectares of land in village Naib Serai of Delhi which was declared as Lal Dora land in 1908. The land has remained unutilised for the past 90 years and we are now planningto undertake plotted development upon the same.

When we approached the Village Panchayat for the requisite permission we were advised that the entire village had been notified as `urban settlement area' by the Government as far back as 1973 and in pursuance of this notification the Government had also initiated acquisition proceedings under Section 4 of the Indian Revenue Act in 1979. However no notice under either Section 6 or Section 9 of the Act were issued.

As per the Supreme Court Ruling it follows that if notices under section 4 and 6 are not issued within a period of one and three years respectively then the earlier notifications would be deemed to have automatically lapsed and in such an eventuality if the Government still wishes to acquire the land, then they would have to commence acquisition proceedings de novo. Could you kindly advise the manner in which we should proceed with our plans for the commercial exploitation of the area?
--Umrao Singh, Delhi

If the village has alreadybeen notified as an `Urban Settlement Area' then it would seem that the regulations governing `Lal Dora' are not applicable. You should however check this with the District Revenue Officer.

If indeed the Lal Dora regulations are not applicable in `Urbanised Village Areas' then you have to ascertain the land usage as per the Master Plan of Delhi 2001 and any development plans that you may conceive will have to conform to the specified usage and various clearances and approvals that are required under the Delhi Development Act of 1957 and any other subsisting statute will also have to be secured prior to the commencement of developmental activity.

In this connection you would be well advised to undertake a prior consultation with the Delhi Development Authority and the Municipal Corporation of Delhi.

G P Khungar is a real estate consultant and a former director (corporate affairs) of Ansals Ltd

(Readers are requested to send in their queries to the Associate Editor, The Financial Express,Fortune Towers, 2nd Floor, 198/2/1, Ramesh Market, Near Sapna Cinema, East of Kailash, New Delhi-110 065).

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