Capital Gain Tax

Dear Kamal Sir,

Case1 : Posession was given to B in 2005-06

Transfer of posession from A to B 2005-06 in pusuance of "agreement to sell" is covered in the meaning of Transfer  for the purposes of Capital Gains.

Therefore in 2005-06 Capital Gain shall be computed in the hands of A,

Sale Price (SUBJECT TO 50 C) =   1 crore

COA   (subject to indexation)       =   0.50 Crores

Further in 2008-09, Capital Gain shall be computed in the hands of B

Sale Price (SUBJECT TO 50 C) =  2 crore

COA (to be indexed)                     =   1 Crores

Now in 2008-09, there would be no treatment in the hands of A & Cost to C would be Rs. 2 Crores

Case 2 : Possession was NOT given to B in 2005-06

No tax implication in 2005-06

In 2008-09

Capital Gain in the hands of A

Sale Price(subject to 50C)                             = 2 Crores

COA(subject to indexation)                            = 0.50 Crores

Expenses on Transfer (sum paid to B)       =  1 Crore

Capital gain in the hands of B on relinquising his "Right on Agreement to Purchase"

Sale Price       = 1 Crore

COA                 =  Nil

Gain will be Long Term

Cost to C would be 2 Crores

Dear Kamal Sir,

Ur attention is also invited to this case law -

Legal effect prevails over substance of the transaction - In taxing a receipt to income-tax, the authorities are only concerned with the legal effect or character of the transaction and not the substance of the transaction - Pandit Lakshmikanta Jha v. CIT [1970] 75 ITR 790 (SC).

What will actually happen - no one can predict...........Logically the treatment enumerated in above post should be followed.

Hey amir, thanks a lot...

acha i wanted to furthur know that in first case i.e,when possession is transferred then whether the sale entry shall be made in 2005-06 and the same shal  be shown as sold to Mr. B.. right ?

I mean i shall treat the asset as sold in year 2005-06 and remove it from my fixed assets.... right ?

Now is there any law which states tat the agreeement to sale should be converted into sale deed. i mean is it necessary to get the property transferred in name of consentor...

Dear Kmal Sir,

What I didn't mention above in the first case is "Intention of the parties to perform/give effect to the agreement to sale" - it is the condition under Sec 53A of transfer of Property Act

Even in accounting AS -1 states "Substance shall previal over Form" - if Parties have intention to complete their part under the "Agreement" then it should be excluded from Fixed Asset.

It is not necessary that for excluding any Asset from the Balance Sheet, sale deed must be executed.

hey Amir,

In the second case, will the cost of acquiring the right of specific performance of the transaction of sale, entered into by B with A, not be considered at Rs. 1 crore??

It is what B pays to get the intangible right. Please clarify my doubt.

Dear Amittik,

Hmmm..........ur query is good but then I had to take certain assumptions regarding the facts.......which were very limited.....

Bhai, It was just an agreement to sale........ Further Possession was also not given, Do u think B would have paid anything in 2005-06 to A.........

U can say that answer was based on certain assumption regarding actual flow of funds......

I hope now it makes sense to u......:)

Amit sir is always rite

i havent seen his any answer wrong

in this case also i m agree with him

Originally posted by : Manish Makhecha
	Amit sir is always rite i havent seen his any answer wrong in this case also i m agree with him

 Bhai thanks a lot............but trust me its not like that I have given many incorrect answers on this very same forum..............

But Yes all those answers were given in good faith, I mean where my understanding was not correct......