Capital gains tax for my property:short term or long term

This is a unique case.

I will need some clarifications for below mentioned queries,

1) How did your grandfather transfer the plot of land to your name? Was it a proper sale or a gift? If it was a gift, whether the gift deed was prepared, stamped and registered?

2) How did the society transfer the plot to your name? sale deed or gift deed was submitted?

Now if an immovable property is gifted, and when the donee sells the property, the cost of acquisition for the donee for the purpose of capital gain computation shall be the cost of acquisition to the previous owner (your grandfather). Notwithstanding the plot was under litigation, the plot was transferred to your name in the year 1997, so 1997 shall be the year of indexation. However, the allotment letter and registration of the same is still not clear. 

3) What was the allotment letter for?

4) What document was registered in 2012?

5) If the allotment letter was given in 2007, why the registration was done in 2012?

Thank you Mr.Mihir. Let me explain as below:

1. My grandfather was holding the share certificates of the plot. So he just informed to the society to include my name in it. Thus it was neither via gift deed, nor sale deed.

2. The "Plot" was always under our name (grandfather till 1997 and me thereafter) in the form of share certificates. Grandfather had paid the relevant amount to society in 1948. Society, in turn, had issued share certificates in my grandfather's name.

3. Allotment letter: Once the litigation got over and society got legal ownership of the plot in 2004, plotting was carried out, ie. actual plot boundaries were demarcated, as the society contained several plots. The allotment letter mentions the plot number and area and that I was the owner of the said plot number B2.

4. The document registered in 2012 was the sale deed between me and the society, as till now the stamp duty had not been paid. No money transaction was done between me and the society.

5. Registration was done in 2012, because in 2007, I did not have the money to pay the stamp duty. If I had paid the stamp duty in 2007, registration could have been done at that time itself.

Please advise

Thank you,

Mandar

Technically, a right to purchase property was created in the year 1948. However, due to litigation, the documents related to sale transfer was not carried out. After winning the litigation 2005, allotment letter stating the plot number etc was given. In 2012, a proper sale deed was signed, stamp and registered. 

Right to purchase property is an important right in the eyes of law, and this right was purchased by your grandfather in 1948. I am assuming full price of the plot was paid to the society at that time, and no additional or balance payment was paid subsequently in 2005 during allotment letter or 2012 to the society.

The society could have asked some documents for adding your name onto the share certificate 1997, but did not.

I still think that cost of acquisition should be from 1948 - the amount paid by your grandfather to purchase the rights. But again, the share certificate created a right, but it was the allotment letter that specified clearly the name, plot number etc. 

So either it is 1948 (purchase the right to purchase property) or 2005 (issue of allotment letter). I know there is a vast number of years in between. 

Wait for an expert to reply. This is a tough one.

Thanks a ton again, Mr.Mihir.

Yes, full price for the plot was paid by my grandfather to the society in 1948. Thereafter till date there has been no financial transaction between the society and us.

My only concern was whether the Income tax department would see 2012 as the date of acquisition (as the sale deed was registered and stamp duty was paid then). Because if so, then I would be subject to Short term capital gains tax if I sell the plot now, as for legal concern, we would be owning the property only since 2012 (WHICH WOULD BE VERY VERY UNFAIR ACTUALLY  AS WE HAVE PAINFULLY WAITED OVER 50 YEARS TO OWN OUR PLOT)!!

So I am happy either way, if the law considers our ownership as either 2005 or 1948.

Thank you!

Mandar

Yes, 50 years is a very long term. That is how our legal system works.

I am sure the reason for such a delay for sale deed and registration will be more than acceptable by the IT dept. There is nothing that you could have done. Only after the final decree from the court, can the society issue allotment letter and finalise all pending deals with respect to that plot of land.

1948 should be the cost of acquisition for computing your capital gains. 

Let us have some opinions from others.

Dear Mandar,

In case of your grandfather, he is holding the plot from 1948 (date of purchase).

And in your own case, the holding period comes from 1997 to till date (LONG TERM). (Assuming that you are residing there since 1997). Because registration of 2012 is not of much relevance, if the person has given all the payment and he has taken possession of the property, then, he will be deemed as the owner of that property.

In case of shares of society, the date of share certificate is to be taken care of, for determining the owner of the property.

Best Regards,
CA Lovely Arora
ca.lovelyarora @ gmail.com

Thank you Mr.Mihir and Mr.Lovely Arora for your kind inputs.

Yes,my grandfather had done the full payment for the plot in 1948 itself. But it is an open plot and we do not reside there. 

IT department could take a stand that we became 'legal' owners only after paying stamp duty and registering the sale deed with society. Till then the plot was with society and all paperwork from 1948 till 2012 was only internal, ie. between me and society and hence not considered official.

Can this be a possibility? If  IT files a case, will we stand a fair chance?

Mandar

Dear Sir,

At the time, when you were allotted shares of the society, you were deemed as the owner of the plot/property. Registration in that case is not required/not much relevant. As the plot is in the name of the society, however, you would be a DEEMED OWNER u/s 27 of Income Tax Act. And if you transfer such shares to other person, that would be considered as transfer and capital gains would be attracted in your hands.

Kindly read sec. 27, which is also attached herewith for you reference. And also Sec. 2(47).

Dear Lovely Sir,

Sec 27 is applicable when building or part thereof is transferred to the Member. Here the discussion is about Plot of Land

Dear Shivam,

Sec. 27 started with the line "For the purposes of Sec. 22 to 26...... ".

If this section is only for building, then kindly tell in which section the income from plot of land comes?? how to determine the owner of the plot of land?? 

I referred here sec. 2(47) also. Kindly read (vi) clause of 2(47) also.

Dear sir ,

    Income from plot of Land comes under Income from other sources. Please refer Sec 22 

House property covers only that part of Land which is appurtenant to any building & such building is on Rent. Then the income arises from such building(Rent) will be assessed under IHP

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