Treatment of advance money (Income Tax)

This query is : Resolved

Harjot

( Author )
08 August 2011

I have purchased a property in August 2000 for Rs. 1 Crore. Now in August 2011 I have received an advance from buyer Rs. 10 Crore against total sales Consideration of Rs. 50 Crore. Now due to non completion of agreement advance of Rs. 10 Crore is forfeited with mutual consent of both the parties.

Kindly tell me what will be the tax treatment of Rs. 10 Crore whether it will be treated as Capital Gain or not?

Property is still retained by me.

CA PARAS BAFNA

( Expert )
08 August 2011

It seems that the month of August is very
lucky for persons of "Kark Rashi".

The amount received by you has to be dealt
by a Section having Lucky No as 51.

According to Section 51, the amount received is a capital sum and to be deducted from the cost of acquisition. The remaining Lucky amount sum of Rs 9crore is also a capital receipt and does not find its place in the return where it can be treated as income.

As the property is still with you , in the absence of any transfer, the amount of Rs 9.00 crore can not be taxed as Capital Gains as Section 48's mechanism fails here.

Now the residual possibility of taxing you remains in the residual head of IFOS Under section 56. (5+6=11)...but here sub-section (2) creates problem.

Sum exceeding Rs 50000/- received from non-relatives without consideration is treated as taxable income and IT may trap you in this section.

But luckily the clause No is (vii) i.e.
7 (Lucky) and it also keeps away your transaction from attracting any tax liability as it can be successfully argued that the sum has been received by you as a part of consideration for the property and not as a mere gift.

So Harjot Bhai .... Balle Balle.

Harjot

( Author )
09 August 2011

Thank You Sir,

what will be the treatment in case of Company?

Thanks & Regards

CA PARAS BAFNA

( Expert )
09 August 2011

Section 51 is applicable to all the assessees, including companies.