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Property rec in legal process

CA Lokesh Pokharna (CA (Ahmedabad Bhilwara Chittorgarh)) (4128 Points)

29 August 2013

Hi all, i have a query about taxation approach in case of property rec in legal process. case of ms x who is is sister of y & z. their father was died & then both brothers taken property in their names by whatever means. then ms x sister filed suit in court & in this legal process she was able to get her share .. now i want to know overall income tax procedure applicable for ms x. how her income will be computed for this particular event.

thanks & regards:

CA Lokesh Jain

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8 Replies

Mihir (Wealth Manager) (5293 Points)
Replied 29 August 2013

Now that the property is owned by all three, tax implication begins when the property is sold. Until then there is no real earning from this event. It is only inheritance.

CA Lokesh Pokharna (CA (Ahmedabad Bhilwara Chittorgarh)) (4128 Points)
Replied 30 August 2013

What would happen in above case, if she is getting cheques of say rs. 10 lac from her brothers for her share due to sacrifiying her share in property... pls do reply urgently.

Mihir (Wealth Manager) (5293 Points)
Replied 30 August 2013

If she releases her share in the property in favour of her brothers for a sum, that sum shall be taxable. She will have to prepare a release deed duly stamped and registered. Since she is releasing her right in a capital asset, capital gain will arise. There have been cases where such transfer from a family settlement to avoid any further litigation does not give rise to capital gains, but one cannot bank on these isolated cases.

I am not sure if TDS u/s 194-ia will be applicable here.

CA Lokesh Pokharna (CA (Ahmedabad Bhilwara Chittorgarh)) (4128 Points)
Replied 30 August 2013

Thanks mihir . as per income tax “transfer”, in relation to a capital asset, includes, -

(i) the sale, exchange or relinquishment of the asset so its clear if there is relinquishment then capital gain will be levieble.

here are two thing can be emerge. one is of relinquishment and other one is without relinquishment . what will happen if this is situation of without relinquishment i.e. she is getting amount in mutual understanding or say in family settlement.

Mihir (Wealth Manager) (5293 Points)
Replied 30 August 2013

We can call relinquishment or release, it has the same meaning; she is releasing her right in a capital asset in favour of others. Sometimes the releaser prepares a release deed or can prepare settlement deed, but the content shall have the same substance. She won't release her rights unless the other heirs (more than one) agree to pay some money which why they could make a settlement deed instead of a release deed. If she is releasing her right in property on receipt of a sum, this receipt shall be taxable.

CA Lokesh Pokharna (CA (Ahmedabad Bhilwara Chittorgarh)) (4128 Points)
Replied 30 August 2013

Will it make any difference or not ,that this right is related to property which is of her parents .can it be taken as gift from parents in inheritance???????????

Mihir (Wealth Manager) (5293 Points)
Replied 31 August 2013

How can she take a gift from parents in inheritance when she has already received her share as per the decision of the court? The receipt of her share in parent's property is non-taxable. She received her share in the property as per the court ruling which is a inheritance, there is no tax on it.

But when she releases this same share in favour of others, she will be liable to tax.