applicability of circle rate on past sale

Dear Mr. Batra, Just now, I had the good fortune of going through your erudite answers to variety of questions. Your untiring zeal and fir grip on various legal issues is remarkable.You must have received bouquets of compliments for your clarity of thought and thorough knowledge. With your kind permission, may I seek your guidance on a typical LTCG issue. The facts of the position are as under:
i. I booked a flat in a society, costing Rs.14 lac, by paying Rs. 4.7 lac in 2003-04. The society did not allow transfer, sale etc. though any means i.e. deed, gift, mortgagee etc.
ii. I paid another installment of Rs.2.1 lac in 2004-05.
iii. There was an High Tension line passing very close to the proposed building. Later I came to know about the health risks of proximity to HT line. I wanted to surrender the membership of the society, but as per society rules, surrender would have implied forfeiture of 20% of the paid amount.
iv.The property market was improving at that time. I could easily find a customer and sold my membership to him.(I was only allotted a Registration No. by that time and flat nos. were to be allotted later by draw, after completion of construction). I sold to him (Let us call him “B”)in 2004-05.I took payment of Rs.6.8 lac through cheque, gave original papers to him and signed a sale agreement with him on plain paper.
v. ‘B’ paid another installment of Rs. 1.2 lac in 2004-05 and sold the membership to another person (let us call him 'C’) in 2005-06. As B was personally well known to me, he requested me and I executed a General Power of Attorney in favour of ‘C’ in 2005-06.
vi. ‘C’ paid the remaining installments to the society.The original papers and physical possession of the flat are with ‘C’. However, the society records and all papers are naturally in my name. Possession was given by the Society in 2006-07 in my name.
vii. Now the society has started the process of registering the flats with local Registrar i.e.Tehsildar. As per Society rules, first the flat shall be registered in my name (i.e. conveyance deed) at the original cost of Rs. 14 lac. After that, I shall get it registered in the name of ‘C’ at the present Collector Rate (2012-13) which is Rs. 42 lac.
viii. Now my problem is…….as you must have understood by now, would I have to pay capital gain on Rs. 42 lac, though I had made the sale way back in 2004-05 to B who then sold it to C in 2005-06.

Kindly help me out…..Your advice shall be the most valuable to me….like a guiding post

I eagerly look forward to hear your wise words. Your grasp on Section 50C has few equals.

With regards and thanks……….Alka

asked Apr 06 '12 at 00:25 by alka gupta 111

This is really a complicated case :)

As per legal terms, this would be a long term gain (of around 19-20 lakh with indexation rules) and 20% income tax is payable on gain amount. Now if you don't pay this tax and registration authority sends this transaction in Annual Information Return (AIR) for High Value Financial Transactions, then IT department may send you notice for same.

In that case you would have to fight with IT department with all these facts. They may or may not agree with you.

In case you paid income tax on short term gains you made (of 1.2 lakh in 2005-06) by selling property, this can come handy in your case. If not, it may create issues.

I would advise you to consult a tax professional experienced in real estate matters. He may give you proper direction about this case.

answered Apr 06 '12 at 11:17 by Pankaj Batra 5.2k320


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Asked: Apr 06 '12 at 00:25

Seen: 1,499 times

Last updated: Apr 06 '12 at 11:17