Sale agreement, income tax on 3rd person.

Tax queries 535 views 1 replies

Sir, Request your advice on the following.

Original Owner who is agriculturist bought Agriculture Land in year 2000 for Rs.200000/- 2.5Acre in Mysore.

I/m not an agriculturist. But I bought the same land  from him in year 2007 for Rs.35Lakh while exeucting "Agreement of Sale" which is unregistered. Entire sale consideration paid to land lord during year 2007 February and took possession of the said land and original documents.

Due to legal issues, I had to obtain govt permision to get the land registered in my name so Sale Deed could not be exeucted.

In the meantime, in year 2011, 3rd party involved inbetween myself and original land owner and created sham documents claimed land with suite for perpormance in the court and after 4 years of struggle, court dismissed the 3rd party suite. Now year 2015 the land remained with us without registration in my name.

A new buyer bought this land from my land-lord where Im the consenting witness and handed over possession and documents to him by receiving Rs.50/- Lakh. I received entire sale proceeds of this at my request land-lord came and executed sale deed in fabour of purchaser.

Now the question: who has to pay long-term tax?

Since original land-lord executed sale deed in favour of purchaser where I'm the consenting wittness to the deal, who has to declare sale consideration in their income-tax?

At what price?: If we look at the original land-lord, he bought land for Rs.2lakh and sold to me for Rs.35Lakh.?

Whereas, I bought land for 35Lakh and sold to purchaser for Rs.50Lakh after a gap of 8 years?

Please help to understand tax implications. Thanks much.

 

Replies (1)

The way I look at it, there are two transfers of the same property - one in 2007 when you bought it and in 2015 when you sold it.  Capital gains is on the property and not on the person.  Since the land remained in your possession for all these years, you are the owner, even in the original landlord executed the sale deed in 2015. There will be two instances of capital gains - one for the landlord in the year 2007 where Rs.35 lakhs is treated as the sale proceeds of the land and taxable in his name and another one in the year 2015 where you will be assesseable on the capital gains of the property for which the cost is Rs.35 lakhs and the sale price is Rs.50 lakhs.  Since the land is held for 8 years, you can claim the benefit of indexation, which means your cost will calculated at more than Rs.35 lakhs (probably around 38-39 lakhs) and the difference between this cost and sale price will be your capital gains on which you have to pay tax. The fact of landlord executing sale deed in 2015 is not relevant from taxation point of view.


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