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capital gain on form house

CA ANIL Nehra (MANAGER (Finance)) (34 Points)

24 May 2011

Dear friends,

I want to knoe the answer of this question. Please help me

an assessee sale his farm house to a company and for taking capital gain exemption u/s 54 purchase two house and in filling return claim it. but the purchaser demolish the farm house and mention in registery land purchased. when the case open in scruiteny the ITO cancel the exemption u/s 54 and give the instruction to the assessee take u/s54f exemption in which one house is allowed,. ITO take the land as commercial property not a farm house because of registery proof. so please advise me what i do to prove that the property sale a farm house. assessee have some picture of farm house.

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2 Replies

tanuj sharma (CA-PCC) (47 Points)
Replied 04 June 2011

assesee cannot do anything because the proof is of vacant land sold and only pictures is not the proof to be a farm house. in my opinion go for 54f exemption. Even if an assesee purchase 2 houses then one house is exempt upto capital gain or amount invested which ever is lower and the other one is taxable as let out u/h income from house property.The amount of sale consideration is also determined by ito through registry.

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CA NITUL MEHTA (KPMG-Senior Consultant-International Tax ) (236 Points)
Replied 04 June 2011

tanuj is not correct under section 54f if you purchase more than one house then you wont get exemption ofr any one of them, and on the other hand you can keep a point that while selling the land it was a farm house only , it was used by your client as farm house only, and what income tax wants is how was the land or building used by the seller of land or building before selling ir and not how it is going to be used by the buyer of it, just becoz buyer demolished it and sale got registered as vacant land sse can not be denied the exemption, moreover sections also no where say that registry also must be done in the same state as it was used by the seller, the section was bought out to allow such persons exemption who were owning a farm house and sold it to buy an other house, what buyer has done with that property is immeterial, and the registry done as vacant land if possible try to change the registry if it is possible legally, plead to ITO that how seller has treated that land is important for the exemption and not how the buyer is going to use it.