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Purchase of new house

mouniCA (article clerk) (44 Points)

22 May 2013

Please solve the following issue.

If a person has purchased a new house on paying the purchase amount immediately and he receives every month some amount as payback due to immediate payment.

How this amount shall be traeted?

Is it a capital receipt and goes to reduce the cost of house?

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6 Replies

CA Pooja Agarwal (Chartered Accountant) (3228 Points)
Replied 22 May 2013

i thnk it should be treated as interest received till you dont possess the house and if possession alredy taken, it might be treated as rent received..

this is just my view.

lets see what other members say on this..

2 Like

sonijohn (auditor) (53 Points)
Replied 22 May 2013

I agree with pooja

mouniCA (article clerk) (44 Points)
Replied 27 May 2013

Hi Pooja,

If the person has taken posession of the house and residing in it, can it be treated as rent from such self occupied property?

Z ( ) (2960 Points)
Replied 27 May 2013

I however have different view point.Your case is different . I had to think of you as a person dealing in such asset to come to this

Whether Before entering into agreement of purchase did you know that such condition was prevalant? If then it should be deducted from cost.

Lets say you paid 90 Lakhs for the property, so in that case full 90 lakh shall be cost of acquisition to you.

Cost of acquisition means what you have paid to get the property, this includes all the legit & true cost incurred.

In this case actual cost of house property should be 90 lakhs reduced by whatever amount you are receiving as payback. This is your actual cost of acquisition

I am only taking the spirit, am not saying that any AS or other framework should be applicable or not

When a seller sells the good then he often provides cash discount for immediate payment.

How does you (a buyer) deal it in the books?You record the goods at the quoted price and then treat cash discount as income.Cash discount is after agreement of sale

But your case is not in nature of cash discount. It resembles more to Drawback where you know before entering into written agreement that such amount will be paid back to you if you follow the condition (& u do intend to follow these conditions). Drawbacks do not form cost of purchase.

You must have know it before purchasing the asset didn't you? Lest you would not have made the payment in 1 go. And there must me agreement on same and you most probably entered this clause in the same agreement

EDIT: I want to add That AO might wanna claim it as income because that way it will give tax to department, but if it is allowed to be reduced from cost then they wont get any tax. Further If Cost is reduced there would be cap gain if property is sold and in most cases assesse will claim some exemption (S.54) on same. So AO might treat it as income, there is no case law in my knowledge but I gave an unbiased opinion

Z ( ) (2960 Points)
Replied 27 May 2013

I can not see how it can be treated as rental income. Property is not at all let out

If it can, then please enlighten me

mouniCA (article clerk) (44 Points)
Replied 28 May 2013

The assessee in this case knows about this well before purchasing the house.

Before taking posession he started receiving those amounts n seller has issued credit note for that. So i advised him that it will go to reduce the cost of asset.

I agree with u z...