Capital Gain

IT treat as capital gain

 this amount of rs. 1 crore will be treated as capital receipts and will not be taxable.

this amt. will be reduced from the value of property that is Rs. 25 lakhs. Now at the time of sale the cost of property becomes NIL and the full sale price will be capital gain. 

Remaining Rs. 75 lakhs is capital receipt and not taxable.

 I completely agree with manish he is right 

Section 51 of the income tax act is applicable here

according to the said section advance money (forfeited) will be deducted from cost of the asset and taxable at the time of real sale.

in given case cost of acquisition will be in negative and that will be more taxable at the time of real sale.

I agree with Manish.

 I disagree with Mr Manoj. The cost of acquisiton can never be less than zero. In one case, due to additional depreciation concept and also due to huge sale of Plant on a block, the current year depreciation exceeded the wdv. The court held that depreciation is restricted to available wdv and that the closing wdv or cost can never be negative. so here , the cost of acquisition is ZERO and not a negative. I dont remember the case law

Dear friends      

  its the indexed cost of acquisition  at the time of sale of this property     which shall be reduced by Rs 1cr

so cost shall not become nil.,

i hope your problem is solved now.

 no mayank, it's not indexed cost. 

advance money is deducted from cost of acquisition and after that if any cost remain then indexation will b done of that balance amount.

 yes manish is right

THERE IS TWO VIEWS WHICH BOTH R ACCEPTABLE BY DEPT ONE IS TO DEDUCT THE FORFEITED AMT FROM COA  OR TO REDUCE IT FROM INDEXED COA OF ACQUITION AT THE TIME OF SALE OF ASSEST.

IF THERE IS NEGATIVE FIGURE IN THIS DEDUCTION IS TO BE IGNORED

Hii Every One

This case is simmilar to the case of Travancore Rubber & Tea Co. Ltd v/s CIT which state that if advance money forfeited exceeds the cost , the excess shall be a capital receipt and not taxable.

THANKS AND REGARDS

SANDIP RAI

@ manish

as per your explanation in the given situation cost of acquisiton is taken as zero and capital gain at time of sale is 75 lakhd...

if that is right, it is a real loop hole in law.....

every one will cancel their first contract with some advance forfeited wantedly and again contract with same person for balance amt as sale consideration , in which case amt received in first contract as excess advance over the cost will escape from tax, and balance amt received as consideration in 2nd contract will alone be subject to capital gain....

but wat really happend is , sale consideration actually received is both advance forfeited n 2nd time contract amt....

I some how dont agree with this method, i feel tat its not the intention of law....

can u please support your method( not taxing the escess advance ) with decided case law or any clear provision which specifies so.....

i welcome for comments on my answer....