gains on sale of residential property

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Meera Joisher (Querist)
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26 April 2010 I had booked a residential property say 3 years back when the project was about to start construction. I had paid the entire purchase cost. I received the allotment letter.

Today when the property got ready & just before i got the possesion, I sold the property to someone else. All paperwork about sale etc was done (A tri-party agreement was entered into between the builder, myself & the buyer).

What will the situation of this transaction with regards to the capital gain rules?
I mean the property was booked legally, with full consideration & good intension to live in the house once it is built. So can it be considered as Long term capital gains from sale of House proeprty? or just as a sale of rights?
If long term gains can the shelter of Sec 54, with regards to investment into new house property, be taken?

CA Shiv

CA Shiv (Expert)
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26 April 2010 It will be considered as a long term capital gain and sec 54 is applicable and can buy new property and so.....
Indexation will be of the 3 years back...

K V Subba Rao

K V Subba Rao (Expert)
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26 April 2010 Until and unless Sale Deed is registered in your favour, you don't legally become owner of the property. So I am afraid you would not become eligible to claim Sec 54 benefit

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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26 April 2010 It is a sale ,as far as capital gain is concerned, of the right in the property. Capital gains tax provisions attracts. Section 54 benefit will not be allowed.

CA Shiv

CA Shiv (Expert)
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26 April 2010 Mr. Subba Rao, can you please give me detail about that what you mean by registered..
WHen a constructing property is purchased, the sale agreement made at the time of first advance payment means the date of purchase only. And the buyer wont pay a single penny if there is no sale agreement. In this case there is no need of contract as the property is not come into existence.

One side you saying that the buyer is not the owner and other side you talking of section 54. than the income will be of IOS.??????

And mr. Subbao RAo & MR. Chakrapani can you please tell me that if i am wrong and the property is not in existence than why the provision of capital gain will attract.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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26 April 2010 My answer is based on the following points:-

1) Section 2(14) of the Income tax Act,1961.
'Right to own a property' is a capital
asset.
Citation:- CIT Vs Tata Teleworks Ltd
(122 ITR 594(Mum).

2) Section 2(47) of the Income tax Act,1961.
Capital asset is transfered. Section
referred attracts.

3) Holding period.
The assessee is deemed to be the owner
from the date of executing the agreement
with the builder and hence holding
period commences from the agreement
date.
Citation:- M.Syamala Rao V CIT (1998)
234 ITR 140 (A.P)

4) LTCG/STCG
As per 1st line of question and in view
of (3) above it is LTCG.

5) Section 54 of the Income tax Act,1961.
Asset transferred is not a residential
house,for the purpose of taxation, since
there is a tri-party agreement and it is
not registered in the name of seller
before the date of transfer. Benefit u/s
54 will not be allowed.

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