A invests Rs.10 lakhs in cash to purchase a piece of land but takes his brother B as joint holder in the registration though B does not invest anything for the land at the time of regn.
Later B takes a housing loan based on his income for Rs.13 lakhs taking A as a co-applicant for the loan but without any liability. A and B invest 4 lakhs cash each to build a residential house on the said land. Their total investment is as follows A Cash for land 10 lakhs cash for building 4 lakhs
B Loan for building 13 lakhs cash for building Rs.4 lakhs
The property fetched a rental income of Rs.20,000 of which RS.15000 was appropriated by B towards his loan every month and Rs.5000 taken by A.
Seven years later the said property is sold for 80 lakhs and the loan of B was repaid in full. The market value of a similar vacant land at the time of sale is 5 times the original purchase price. Balance Loan of A is around 10 lakhs.
My question is how will the sale proceeds be distributed between A and B and the amount of Capital Gains liable by each?
Since the land value has multiplied five times and B has already taken a substantial amount of the returns on the property for appropriation towards the loan Principal and interest, Can A claim that the original investment in land was made by him and the it is the value of the land that has increased while the building actually depreciates over time.
for EG. Land value at the time of sale Rs.60 lakhs to A and
Balance being value of the building Rs.20 lakhs in the proportion of their investment in the building after setting off the balance of the loan of Rs.10 lakhs. Then both are entitled to Rs.5 lakhs each. But even then they have not shared the income from property equally. Will B have to repay a proportionate amount of the rental received over the past seven years? Then B's share will again reduce substantially.
Since this is a very tricky situation, I would appreciate an answer that should be substantiated with some legal facts.
Sale proceed will be divided on the basis of their share in property as per the their ownership in property. That ownership in property will be decided from their registration of property .in Registry what so ever the share of ownership.
19 March 2008
Assume A holds 13000 Sq. ft and B holds 7000 Sq. Ft, then the Indexed cost and sale proceeds will be apportioned between A and B in the ratio of 13:7
CAclubindia
