U S Sharma (glidor@gmail.com) (21056 Points)
Replied 04 December 2010

Originally posted by : Saurabh
	My Grandfather constructed a house in 1970. The cost of construction/land is unknown and probably not relevant. In 2006 he passed away, with my Grandmother being the sole occupant in this property. There was no registration done to officially transfer the ownership to my Grandmother at that point in time. In 2009 my Grandmother passed away and my mom along with her 2 brothers inherited the property and there was an official registration done at this point. They subsequently sold the property in May 2010 for 30 lakhs which they split 3 ways. My questions are: 1. To compute LTCG, will the date of acquisition on this property be 1970 or 2006? 2. If it's 1970, how do we calculate the LTCG given cost of acquisition is unknown and there is no CII available before 1982. 3. If it's 2006, how do we calculate the LTCG given cost of acquisition is unknown again. I am guessing we need some assessment of what the property was worth in 2006 and apply the CII from 2006 to 2010? My mother and I are now thinking of investing in another property to be jointly held by both of us, where she invests 20 lakhs (including the 10 lakhs she got from the sale above) and I invest 20 lakhs. Given that the property would be held jointly by us, does that still qualify her for an LTCG exemption? As a follow up question, if we invest in a property that is being constructed right now and if construction is delayed so that the final payment we make is 3 years later, does that still qualify for an LTCG exemption? Are there any other issues I should be aware of? Thanks a lot for your help! I know I am asking too many questions! :-)

Refer to highlighted field,

1) in 2009 when they registered the property to their name, the value sould be taken in account and appropriate tax is applicable thereafter as stcg

Saurabh (NA) (26 Points)
Replied 04 December 2010

From what I read in other posts on this forum, when property is acquired by way of gift, will or inheritance, the date of acquisition is the original date of purchase, not the date of transfer. Please refer to this post

Pankaj Gulati (Tax Advisor) (81 Points)
Replied 04 December 2010

Before I can give u my opinion, please clarify some things:

** u said that after the death of ur grand mother, ur mother and her 2 brothers inherited the property. How can ur mother's brothers inherit the property of ur grand mother ? was their any Will of ur grand mother ?

** in the absence of any registered Will, only u & ur mother is legally entitled to inherit the property of ur grand mother.

** if the registration in 2006 of that property was done alonwith ur mother's brothers then that registration was through a sale deed or gift deed in favor of brother ?

** what was the nature of the property sold was ita residential house or urban agricultural land ?

** what is the type of property u r purchaseing now, is it a residetial house or a shop or just land ?

Saurabh (NA) (26 Points)
Replied 04 December 2010

Thanks Pankaj, please see below:

** u said that after the death of ur grand mother, ur mother and her 2 brothers inherited the property. How can ur mother's brothers inherit the property of ur grand mother ? was their any Will of ur grand mother ?

** in the absence of any registered Will, only u & ur mother is legally entitled to inherit the property of ur grand mother.

I am talking about my maternal grandmother (Nani). My mother has 2 brothers, hence all 3 of them (my mother and 2 mamas) inherited the property.

** if the registration in 2006 of that property was done alonwith ur mother's brothers then that registration was through a sale deed or gift deed in favor of brother ?

That was in form of inheritance, from what I understand as there was no will and there was no sale executed

** what was the nature of the property sold was ita residential house or urban agricultural land ?

Residential house built on Residential land

** what is the type of property u r purchaseing now, is it a residetial house or a shop or just land ?

Residential Apartment

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 04 December 2010

Originally posted by : Saurabh
	From what I read in other posts on this forum, when property is acquired by way of gift, will or inheritance, the date of acquisition is the original date of purchase, not the date of transfer. Please refer to this post

once the registration is done in 2009 the cost must be taken in account on documents whatsoever it may be, so the inheritance chapter and taxability close here, .........now she is alive and going to sell the property acquited one year ago, so the STCG will be applicable and the aquisition value will be the one of 2009 documents.

Dheeraj (Learner) (1100 Points)
Replied 04 December 2010

as per my opinion

the coa will be fair value at 01/04/1981 and the indexation will be alowed from 2006

and yes u will get the exemption u/s 54, by purchasing a residential house or construct within 2 yrs

but u must wait for ohers' reply

Priyank (Learner) (98 Points)
Replied 04 December 2010

Dear Saurabh,

1. Your mother's period of holding shall be reckoned from 1970. But benefit of indexation shall be from year 2006, assuming property is directly inherited from ur Nana.

2. For calculating LTCG, get the property valuation done by registered valuer as on 01.04.1981

3.Your mother shall be eligible for exemption from LTCG, even if she is only joint owner of the new residential property. But make sure to deposit LTCG proceeds in Capital Gains Accounts Scheme by 31st July. If you are purchasing under construction property, then make sure that first tranche of payment of Rs. 10 Lakhs is made from your mother's account, to comply with condition of 3 years.

Lalit aggarwal (.) (371 Points)
Replied 05 December 2010

COA = FMV as on 1.4.1981.

INDEXED WITH CII OF 1981-82 and 2011-12.

(WHO SAYS INDEXED FROM 2006,ITS THE KNWLEDGE OF CA IPCC,BUT AS PER CORRECT INTERPRITATION OF LAW IT IS 1981-82.

Pankaj Gulati (Tax Advisor) (81 Points)
Replied 05 December 2010

** In case of inheritance of a capital Asset, cost of the capital asset in the hands of previous owner has to be established.

** In ur case, the previous owner of this capital asset was ur maternal grand father who made this property before 01/04/1981.

As per my opinion:
** For the purpose of calculating the long term capital gain, first the cost of the entire property as 01/04/1981 has to be worked out. This can be done by taking the services of Approved Registered Valuer (ARV), who shall on the basis of circle rates published in the official gazette of ur area will take into consideration along with other technical calculation related to construction will find out the value of entire property as on 01/04/1981..

** Whatever cost which the valuer determines, u can deduct the same (after indexing, take yr. 1981 & 2010) from sale consideration. The fees charged buy the ARV can also be deducted.

** The fact that ur grand mother became the deemed owner is need nor required to be discussed any where as u said that their was no formal agreement or mutation etc was done in her favor.

** The 1/3rd part of LTCG of ur mother can be invested in either purchasing another residential house within 2 years or the same can be utilized in constructing new residential house within three years. For claiming the exemption u/s 54, she cannot retain this capital gain with herself. The same has to be deposited in any nationalized bank under the scheme known 'Capital Gains Account Scheme 1988' before the due date of filing of her ITR. This amount can only be withdrawn from this account by way of account payee cheques only. If the same is left unutilized even after 3 years, the balance amount left in this account will become taxable.

** Even if she is the co-owner in new property, she can claim the exemption u/s 54.

yash bhartiya (final student) (245 Points)
Replied 06 December 2010

saurabh its very clear that the capital gain calculated will be long term capital gain because period of holding is from 1970 to 2010..

as far as cost of acquisition is considered u have an option to choose between the cost of construction in 1970(if cost of construction not known then take fair mkt value of that date) or fair market value on 1981..always take the higher value of the two because it will result in lower capital gain

as far as indexation of cost is considered .it will be from 2006(the year assessee acquired asset) to 2010(year of transfer )

AM 100% SURE ABOUT IT

I DON KNOW WHAT LALIT'S QUALIFICATION IS BUT HE IS TOTALLY WRONG WITH RESPECT TO INDEXATION PART..HE SHOULD REFER SECTION 48 COMPUTATION OF CG

yogeshwar malhotra (partner) (112 Points)
Replied 11 January 2011

earlier the following was the position

1. the cost of acquisition was to be taken from the higher of cost of acquisition or fmv as on 1/4/1981.

2. indexation was to be done on the basis of 2006 .

but in recent past , a case has been decided in favour of assessee where indexation has been allowed from 1/4/1981.

Ritesh Jain (CA, CS in Job) (675 Points)
Replied 28 March 2011

Dear all,

I think the confusion over the CII would be clarified by the following:

"

Capital gains in case of asset received by gift, inheritance etc. or received on conversion of an asset in another asset is the core issue. Of this write-up As discussed an amendment is desirable in the meaning of indexed cost of acquisition on line of meaning of indexed cost of improvement, which is incurred after acquisition. An analysis of provisions and a decision of ITAT Special bench about CII in case of capital asset received by way of gift etc. or acquired in some circumstances is made.

When it is deemed that there is no transfer of a capital asset for the purpose of levy of capital gain tax there is deemed continuity of holding for computation of capital gains. In such situations the actual cost of original asset or actual cost in hands of the previous owner is considered as actual cost of the new asset or actual cost in hands of new owner. The period of holding of previous owner or holding of original asset is considered as continuing period of holding of the new owner/ new asset. In such circumstances the indexed cost of acquisition should be inflated with reference of CII of the year in which cost of acquisition or deemed cost of acquisition was incurred and not with reference to the year in which the asset is first held by the assessee who sell the capital asset. An amendment in the meaning of ‘indexed cost of acquisition’ is desirable to avoid litigation, un-necessary demands, and harassment of assesses, because this aspect mainly concerns individuals and HUF in major way.

Relevant case laws:

DCIT Vs MANJULA J SHAH 2009-TIOL-698-ITAT-MUM-SB on the issue in hand. In this case the Tribunal was concerned with CII of the capital asset sold by assessee which was acquired by assessee by way of gift and the donor had acquired the capital asset many years ago. Tribunal has interalia relied on / referred to the following decisions on the rules of interpretation:

CIT vs. Laxmi Machine Works, 290 ITR 667 = (2007-TIOL-72-SC-IT)

K.P. Varghese vs. ITO 131 ITR 597 = (2002-TIOL-128-SC-IT).

C.W.S. (India) Ltd. Vs. CIT, 208 ITR 649 (SC)

of K.P. Varghese vs. ITO 131 ITR 597 = (2002-TIOL-128-SC-IT)

CIT vs. G. Narasimhan And Others, 236 ITR 227 (SC).

The Tribunal also considered the following decisions of other benches of ITAT on the same issue:

Smt. Meena Devgan vs. ITO, 117 TTJ 121 (Cal)

Mrs. Pushpa Sofat vs. ITO 81 ITD 1

Tribunal also considered Cir. No. 636 dt. 31.8.1992 reported at 198 ITR 1(St.)

Regards.

RJ

LTCG on Inherited property - Unknown cost of acquisition

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COA = FMV as on 1.4.1981.

INDEXED WITH CII OF 1981-82 and 2011-12.

(WHO SAYS INDEXED FROM 2006,ITS THE KNWLEDGE OF CA IPCC,BUT AS PER CORRECT INTERPRITATION OF LAW IT IS 1981-82.

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LTCG on Inherited property - Unknown cost of acquisition

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Online classes for CA CS CMA. Professional courses for GST, Tally, Others & Books

COA = FMV as on 1.4.1981. INDEXED WITH CII OF 1981-82 and 2011-12. (WHO SAYS INDEXED FROM 2006,ITS THE KNWLEDGE OF CA IPCC,BUT AS PER CORRECT INTERPRITATION OF LAW IT IS 1981-82.

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COA = FMV as on 1.4.1981.

INDEXED WITH CII OF 1981-82 and 2011-12.

(WHO SAYS INDEXED FROM 2006,ITS THE KNWLEDGE OF CA IPCC,BUT AS PER CORRECT INTERPRITATION OF LAW IT IS 1981-82.