Capital gains in distress selling

788 views 8 replies

Vinay Katiyar

82 Points Joined October 2014

Hi All,

I have tricky situation and need an answer, please help.

1. I have got into an agreement with a builder for land plus construction in Dec 2012. He made a Sale agreement for Land for 26 Lacs and Construction Agreement for 32 Lacs

2. He registered the land at govt guidance value i.e. at 6 Lacs to save the stamp duty. I paid rest of the mony for the land i.e 20 Lacs in cheque. I have receipt for the same.

3. He started the construction and i paid first 20 Lacs baased on 50% constuction which he did .

4. Later we had a dispute and then he left project in between. He absconded and we cannot trace him. We issues legal notice to him and it returned back.,

5. After waiting for 5 long years, i decided to sell the property and found a buyer for the same. However due to very bad state of construction, he decided to buy only land and no mention of construction in sale deed which got executed between me and new buyer. The sale deed is done at 40 Lacs.

Now my questions is,

1. Will i be eligible for Long Term Capital Gain

2. If yes, what will be the cost of acquisition, 6 Lacs as i purchased land as per sale deed at 6 Lacs. Or It will be total cost of Land + construction ie. cost mentioned in Sale and Construction agreement which i actually paid to builder i.e. 46 Lacs. Please keep in mind that while selling i shown it as Land as no one was willing to register a half constructed house which was damaged and not good enough to build further,

I paid 46 Lacs for the property and sold it in 40 Lacs...i hope i should be able to show it as capital loss. But sadly there are some glitches and i believe IT department can show some liniency

Appreicate your help in this regard.

Thank you,

Replies (8)

Rupinder Kaur

CA Practice

89 Points Joined April 2012

hello sir,

As per my opinion cost of acquisition of land will be stamp duty value 6 lac in this case. indexation can be done. and long term capital gain to be paid on balance sale consideration

Vinay Katiyar

82 Points Joined October 2014

Hi Rupinder Thank you for your answer.So you don't think I will get any benefit for the construction cost I paid . I have all the proofs for the same Regards Ankush

Studentsca

CA Practice

3577 Points Joined September 2012

Hello Sir,

If you have all the documents proofing construction, the same can be claimed as improvement in the original asset, since the new asset has not come into existence.

Studentsca

CA Practice

3577 Points Joined September 2012

You can show as improvement in the original asset, and claim the indexed cost which you have actually spend, based on the above calculation you may not have to pay any capital gain taxes an will be able to carry forward the long term capital loss of any.

Rupinder Kaur

CA Practice

89 Points Joined April 2012

Hello Studentsca,

thanks for the clarity on the topic.

But i have few questions :

Rs. 20 lacs half construction cost was not actually incurred for improvement of land? Still can it be claimed as COI?

What will be the COA Rs. 26 lacs which he actually paid or Rs. 6 lacs stamp duty value?

Studentsca

CA Practice

3577 Points Joined September 2012

Hello Rupinder,

COA will be 6 Lacs
But you can claim COI as it is allowed under income tax, since you are actually selling half constructed structure.
You could make agreement for sale of house only if the house would be completed, since in this case house half done based on payment proof we will claim half amount paid as COI, since we have actually incurred the same.