The Hindu Business Line : Two brothers with an equal share in property

For acquiring this house, we had taken a loan from a housing finance company. Towards this loan we pay an interest of around Rs 5.50 lakh. We have also borrowed some money from our friends and relatives for acquiring this property.

The annual interest payable on these loans is around Rs 1 lakh. The annual rent that can be derived by letting out the property is Rs 3 lakh. If the property were owned equally by me and my brother, how would the income from property be computed in our hands?

Avinash

Reply

Since the property is owned equally by you and your brother, the income or loss from the property should be assessed equally in your and your brother's hands. The income from the property will be computed as shown in the Table.

This will mean that the loss to be assessed in your and your brother's hands would be Rs 2,20,000 each.

Query

I refer to one of your earlier replies in these columns. You had clarified that when a landowner is allotted flats under a scheme of joint promotion along with a builder, the exemption under Section 54 will be computed by taking the cost of construction of such flats allotted to the landowner as the amount invested in the new asset.

Similarly, for computing the consideration received by the landowner, you have stated that the cost of construction of the builder is to be taken as the full value of consideration.

I would like to know whether a certificate from the builder's engineer stating the cost of construction would be sufficient to establish the claim before the assessing officer.

Please clarify what will be the position if in the course of assessment of the builder, the income of the builder is enhanced?

Will there be any effect in such a case in the landowner's assessment?

If the landowner is given only a consideration by way of flats and if he is given more than one flat, will the exemption under Section 54 be available for all the flats or only for one?

Divya

Reply

The nature of evidence that needs to be given with regard to the cost of construction of the builder will essentially depend on the facts of each case. It, however, appears that a certificate from the builder's engineer would normally suffice for this purpose.

The Tribunal, in Smt.Vasavi Pratap Chand vs DCIT (2004 89 ITD 73 Delhi), held that the cost of construction of the builder must be taken as the full value of the consideration.

A change in the income of the builder during assessment should normally not have any effect in the assessment of the landowner.

In the instant case, however, as per the facts established by the assessee — that is, a large family, a common kitchen and a common ration card — the four units should be treated as only one, which is used by the assessee for his residence.

Query

If I purchase a house in the current year, can I claim the amount invested in this house as eligible for exemption if I have a long-term capital gain from sale of shares in the next year?

S. P. Jain

Reply

Exemption under Section 54F will be available only if the following conditions are fulfilled:

The assessee is an individual or HUF; the gain arises from the transfer of a long-term capital asset not being a residential house; the assessee does not within a period of two years purchase or three years construct any residential house other than the new house; the assessee is not the owner of more than one residential house (other than the new asset) on the date of transfer of the original asset.

The quantum exempt will be on the following basis:

If the amount invested is more than or equal to the net consideration, then the entire capital gain;

If the amount invested is less than the net consideration, then the amount invested x capital gain / net consideration;

The investment should be made in the residential house by way of purchase or construction. In case of purchase it can be within one year before or two years after the date of transfer of the long-term capital asset.

In case of construction, the construction should be completed within three years from the date of transfer of the long-term capital asset.

In the instant case, provided you satisfy these time limits and the other conditions in the section, you can claim the exemption under Section 54F.

Query

I sold agricultural land in the suburbs of Bangalore in January 2004 for Rs 20 lakh per acre. How do I compute the capital gains? Is the cost inflation index same for all the States in the country?

Dr Lakshmi

Reply

You have not indicated whether you held the asset for more than 36 months or not. If you have, it will be long term. In such a case you can reduce the indexed cost of acquisition from the consideration to arrive at the capital gain. If you have not held the asset for more than 36 months, the gain will be short term. In such a case you can reduce the cost of acquisition from the consideration to arrive at the capital gain.

The indexed cost of acquisition is arrived at as follows:

Cost of acquisition x Cost inflation index of the financial year of transfer / Cost inflation index of the financial year in which the asset was first held by the assessee or the Cost inflation index of the financial year 1981-82, whichever is later

If the asset was acquired before April 1, 1981, you may at your option substitute the fair market value as of April 1, 1981, as the cost of acquisition.

The cost inflation index is prescribed every year and will apply uniformly irrespective of where the asset is located. You may note that the cost inflation index of the financial year 2003-04 is 463.

You may also note that if the land is agricultural, which is excluded from the definition of the term capital asset as defined in Section 2(14), there will be no capital gains that will be chargeable to tax on its transfer.

Mail your queries to taxtalk@thehindu.co.in or by post to Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

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