Q: I had booked a flat with a property developer for Rs 10.50 lakh in May 2004. I paid Rs 9 lakh toward the cost in installments. When the building was ready for possession in October 2007 and the builder asked for the last installment of Rs 1.50 lakh, I found a buyer (with assistance from the builder), who is willing to buy this flat. The buyer is ready to pay the last installment directly to the builder and Rs 15 lakh to me. What is my tax liability?

?Rohit

A: You have earned a right to own a flat in FY 04-05. The cost of acquisition of this right is Rs 10.50 lakh. The fact that you have not paid the entire sum is immaterial and inconsequential. If the transaction goes through before the house is ready for possession, you have earned long-term capital gains, since the holding period of this right is over 3 years. The full value of consideration received is Rs 16.50 lakh. Here again, the fact that Rs 1.5 lakh is paid directly to the builder by the new buyer is immaterial. This is equivalent to you having received the amount directly and paid it to the builder. This is long-term capital gain, since you held this right for over 3 years.

Had you paid the last installment to the builder and immediately after taking possession, sold the flat, you are no more selling the right to possess but the residential flat itself. The cost of acquisition remains at Rs 10.50 lakh, and since you have not held this new asset for over 3 years, you will have earned short-term capital gains of Rs 6.00 lakh (=16.50-10.50)! This will be charged to tax at normal rates applicable to you. Strange, how a small action can make a big difference to the tax liability.

This is illogical and inequitable. I strongly feel that the legislation should permit the assessee to take the date of the booking of the flat, and not the date of its possession as its date of acquisition.

Q: I have inherited shares from my father who recently passed away and I desire to sell these. Unfortunately, I have records for the date but not the cost of acquisition.

Please help.

?Rakesh

A: Many of us would not know the cost of acquisition of the assets, when the documents are lost or destroyed through natural calamities like floods or fire, or sheer negligence. There are no guidelines in the Act indicating how to handle such situations. This deficiency requires correction. Until the authorities provide any solution, you have to fend for yourself.

This is what you can do –

If the assets were acquired prior to 1.4.81, you have the option to substitute the fair market value as on that date in place of their cost. In the case of equities, the prices prevalent on 1.4.81 of A-group shares at major bourses are available in all ready reckoners. If a scrip was purchased later or happens to be in B1 or B2 category, you can request the stock exchange to give you a certificate indicating the quote of the date and if you do not know the date, ask for the lowest price during the year of purchase. All exchanges provide such information at a fee, albeit a little stiff one.

Q: I have sold a house and invested the long-term gains in another larger house of which I took possession within two years for saving tax on the capital gains. Unfortunately, the registration of the property took a little more time and now my ITO is denying the benefit of Sec 54, because the registration was not carried out within the stipulated time. I am being denied the exemption due to circumstances beyond my control. Your comments please.

?Anwar

A: CIT v Dr LN Nagda 211ITR804 Bom (1991) is a landmark decision in this respect. It deals with a case where the ITO had declined to grant exemption u/s 54, on the grounds that the registered deed for the new house purchased was not executed within one year (raised to 2 years by FA86) of sale of the old house. The court observed, “taking into consideration the letter as well as the spirit of Sec 54 and the word ‘towards’ used before the word ‘purchase’ in Sec 54, it is clear that the said word is not used in the sense of legal transfer and, therefore, the holding of a legal title within a period of one year is not a condition precedent for attracting Sec 54.”

?The authors may be contacted at wonderlandconsultants@yahoo.com