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Capital gain - very very interesting

Abhinandan Baid (CA Practice ) (113 Points)

16 August 2012

Hello Everyone ,

Please reply a case study :

A person purchased a property in 1977 with Rs 30000/- and after his death the property has been inherited by his only son by the court order in the year 1987 . The son has made regular cost of improvement expenditure of Rs15,000/- year after year by using local labour so he has no supporting for the cost of improvement.

The property is situated in a Village .Now he is selling the property for Rs 18lac although market rate is Rs35 lac. So how to calculate the LTCG and what is advisable to him in this situation.

Please reply very intreresting and relevant case.

Thanks

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9 Replies

Palash Gupta (Student...Hoping to pass Inter) (892 Points)
Replied 16 August 2012

take 18 lac as sales consideration nd deduct 30,000 as cost of acquistn nd wateva cost of impruvment wud b incurd wl b deductd after indexing..the balance wl b ltcg!

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Abhinandan Baid (CA Practice ) (113 Points)
Replied 17 August 2012

Thanks..

But whether can we consider cost of improvement as the person has no supportings for it .

Whether indexation in cost of improvement can be done as they have made regular expenditure in cost of improvement every year.

And indexation in cost of acquisition would be : Cost of acquisition to previous owner /Indexation of the year in which current owner received * Indexation of the year of sale.

Right ?

Varuna (CA Student) (102 Points)
Replied 17 August 2012

Indexation on Cost Of Acquisition would be allowed from The year in which the property was acquired by the previous owner ( modes defined in sec 49(1)) or from 1 4 1981 whichever is later. Case law [CIT vs. Manjula J. Shah (Bombay High Court)]- You can claim cost of improvement too.. also sale consideration should be stamp duty value or sale consideration whichever is higher.

Abhinandan Baid (CA Practice ) (113 Points)
Replied 17 August 2012

You mean to say I can claim cost of improvement even without any supportings. Do you have any supportings case law for that .That would be quite helpful.Any expert intervention in this matter would be highly appreciable.

I am quite aware about indexation rule.

Thanks

CA Hemang Shah (PRACTICE) (658 Points)
Replied 17 August 2012

Indexation is allowed in improvement if property is long term . And if improvement is on current year then also indexation is computed bcoz property is long term. And raise wrong bill of improvement in front of A.O. Is scrutiny is come. Practical me aesa hi hota he. But ensure ke vo improvement capital nature hona chahiye. Revenue nature include nahi hoga.

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CA Hemang Shah (PRACTICE) (658 Points)
Replied 17 August 2012

Abhinandan Baid (CA Practice ) (113 Points)
Replied 18 August 2012

As you can see it is a "LONG TERM CASE" .

You mean to say bill for cost of improvement in back date is possible ?

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 18 August 2012

improvement @ 15000 per annum represents only expenses like upkeep and maintainance nature and it does not add any utility to the property, normal maintainance and upkeep fees is not to be capitalized for taking COA and can not be considered as development,

painting / repair / maintainance etc also does not add any utility feature to the property, and can not be considered as property development.

Member (Management) (325 Points)
Replied 18 August 2012

Dear Baid,

You CANNOT claim indexation for the expenditure incurred year after year, as it was for current repairs and not for any addition and improvement to the property on capital account. In other words, current repairs do not qualify for indexation as rightly pointed out by U S Sharma.

Secondly, you should also keep in mind the provisions of Section 50C before you try to calculate the LTCG.