Sale of property

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 December 2013 Case : Mr. A enters into an agreement with Mr. B for selling a Immovable Property worth Rs. 1 Crore.As per agreement, Mr. B advances a sum of Rs. 10,00,000/- to Mr. A. As per the agreement, in Mr. B's inability to pay the balance amount within six months, the advance amount shall be forfeited by Mr. A.On the lapse of the said period, Mr. B cancelled the deal as he was not able to pay the balance amount. Now, since the amount of Rs. 10,00,000/- (as required by the agreement) was forfeited by Mr. A, how will the amount be shown in Mr. A's Income Tax Return. Moreover, is it a case of Capital Gain in Mr. A' s hands??

Nikhil Kaushik

Nikhil Kaushik (Expert)
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13 December 2013 1. No there won't be capital gains impact in the hands of Mr A immediately. it is a capital receipt.

2. However, when on a future date Mr A sells the said property, the advance received earlier shall be deducted from the cost of acquisition to arrive at the cost of asset and capital gains (Section 51).

Refer https://www.camkagarwal.com/Image/file/Tax%20treatment%20of%20Advance%20Money-2_new.pdf

Travencore Rubber & Tea Co. Ltd. v. CIT [2000] 109 Taxman 250 (SC).

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