Capital gain tax

Dear Sir, I had sold a residential flat in May,2009 and made a long term cap-gain of Rs.10 lacs. To avail tax exemption I deposited Rs. 10 lacs in cap gain account with a bank before filing the return for FY 2009-10. Subsequently I had invested Rs. 20 lacs in a flat under construction in April,2011 and built up flat was to be handed over to me in Oct,2012. But the builder has handed over the flat only in Nov,2015. Now I wish to sell the flat and the selling price is likely to be Rs.30 lacs, much after 3 years of my investment of Cap. gain in the flat under construction. Please advise :- a. How much will be the cap. Gain-long term or short term? b. Whether benefit of earlier cap. Gain will be withdrawn? c. Will it make any difference if the flat is not completed by builder even now and I sell the incomplete flat for 30 lacs.

What was the reason for such a delay and what steps were taken by you to claim the property?

If the reasons are geniune then it is still possible to claim the exemption provided the ACTUAL INVESTMENT (Outflow of money) also took place.

B.B. Sarkar v. CIT [1981] 132 ITR 150 (Cal.). "The main purpose of the statute is to give relief for the acquisition of a new residential house. In that context, it does not really matter whether the new residential house is partly constructed or partly purchased."

In the case of Satish Chandra Gupta v. Assessing Officer [1995] 54 ITD 508 and Tribunal after considering the provisions of section 54 as well as section 55 held that the claim cannot be denied on the ground that the construction the house started by the assessee was not completed within the stipulated period of three years and some work was carried out thereafter. "

Commissioner of Income-tax v. R.L. Sood :- The assessee had paid a sum of2,39,850 out of the total sale consideration of2,75,000 for the purchase of the flat within the period of one year from the date of sale of his old residential house. Thus, on payment of a substantial amount in terms of the agreement of purchase dated September 25, 1981, i.e., within four days of the sale of his old property, the assessee acquired substantial domain over the new residential flat within the specified period of one year and complied with the requirements of section 54 of the Act. Merely because the builder failed to hand over possession of the flat to the assesee within the period of one year, the assessee cannot be denied the benefit of the said benevolent provision. "

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There are several contrary judgements in respect of considering the date of acquisition of the under construciton property. The safest route is to pick the date of possession (which would prolly be the last one) . I do not wish to bring case laws in this respect because the law is not explicitly clear, somewhere the court have allowed on the basis of agreement to sale and at some places at the time of payment whereas at some cases at the time of possession. The fact of the each case has to be considered and as the facts would be changed, the judgement to be applied would also change. Further there is a limitation of HC judgements as their applicablility is somewhat restricted to that state only and AO of your state might take a different opinion.

The amount involved in this case is not very significant so I can somewhat presume that you would not like to incur any additional costs on litigation.

Kindly note, if you intend to claim exemption from long term capital gain relating to financial year 2009-10 , then the date you consider as cost of acquisition for claiming the exemption u/s 54 should be the same as you would consider the date of acquisition for the purpose of computing gain relating to 2015.

If however the flat is not constructed and you sell it as an under construction property, then you would not be entitled to exemption u/s 54 which you claimed previously and the same shall be treated as your income , after the expiry of 3 years.