Tax planinng


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Tax planinng

  1. 1. Welcome To New Seminar Tax Planning of Real Estate AND Money Making Ideas in Real Estate For the first time in India a real power packed seminar on Tax planning of Real Estate as also unique innovative ideas in Real Estate for making your money grow. Strongly recommended for all those who are in the real estate sector as also for all those who would like to join real estate sector as a business or as investment. By SUBHASH LAKHOTIA Tax Guru: CNBC Awaaz Director: Lakhotia College of Taxation & Management Director: R.N. Lakhotia & Associates LLP
  2. 2. Seminar on Tax Planning of Real Estate & Money Making Ideas in Real Estate by Subhash Lakhotia Important topics to be covered in the Seminar: 1. Real practical objectives of Tax Planning of Real Estate. 2. Real Life tax planning ideas and practical tax saving examples for Investment in Real Estate. 3. Important pointers in Buying, Selling & Renting Properties including Capital Gains tax saving vistas. 4. Important Judicial decisions which help the process of Tax Planning in the wonderland f Real Estate. 5. Money Making Ideas in Real Estate. 6. Utilising Limited Liability Partnership Firms for your Real Estate Investments. 7. The new concept of “Real Estate Business Oxygen Company” for making money in Real Estate. 8. Investment in India by Non Resident Indians. 9. Miscellaneous aspects of Tax Planning of Real Estate Unlimited Questions & Answers. Lakhotia College of Taxation & Management S-228, Greater Kailash Part-2, New Delhi-110 048 Phone : 011-29215434, 29215420, 29217768, 9810001665 E-mail : &;
  3. 3. 1. Real Practical Objectives of Tax Planning of Real Estate 1. To achieve best results in Property Buying , Selling & Renting. 2.To achieve Optimum tax advantages of Tax benefits and gains by making Investment in Real Estate. 3.To encourage cash rich people to be a part of Real Estate sector. 4. To debate and analyse Judicial thinking for tax benefit and relief. 5. To think and meditate on Money Making
  4. 4. 2(1) Real Life Tax Planning Ideas and practical tax saving examples for Investment in Real Estate Have faith in the dictum of Walt Disney If you can… Dream it You can, Do it …
  5. 5. 2(2) Real Estate Planning Ideas and practical saving examples for Investment in Real Estate Think Boldly : Yes, I Can Yes, I Will
  6. 6. 2(3) Expand the horizons of Tax Entities in your family for Tax Planning of Real Estate. 1. Jot down on a piece of paper the various tax entities that are available under the Income-tax Law. 2. Compare with Tax entities existing in your group right now. 3. Now proceed to think of “New Tax Entities” which can be a part of your growth story.
  7. 7. 2(4) Expanding horizons of new Tax Entities in your family. 1. Find out whether all family members are having a separate Income-tax File. 2. Does your spouse have a separate tax entity. - If not what care to take. - The importantce of “Technical & Professional Qualification” of your spouse. - Building brick by brick, the tax entity of spouse - Tax advice to young couples to be – before marriage, at marriage and after marriage. - The Cross & Transfers and impact of Real Estate Transactions.
  8. 8. 2(5) Expanding horizons of new Tax Entities in your family – contd. 3. It is time to take care of your major children for your Tax Planning. - The sons and daughters in the family who are 18 plus. - Transfer of liquid money to major children. - Aspects connected with Real Estate transfer through gift to major children.
  9. 9. 2(6) Expanding horizons of new Tax Entities in your family – contd. 4. It is time not to ignore your Parents and your-in-laws to reach out for best fruits of your Real Estate Investment. - If not done till now, just start promptly a separate tax entity in their names. - Think of investing in Real Estate in their names. - Plan their Real Estate succession through Will & Gifts.
  10. 10. 2(7) Expanding horizons of new Tax Entities in your family – contd. 5. Think of Real Estate Investments in your minor children and grand children’s name. - Plan tax entities of Minors with no Clubbing of Income if out of their earned income. - Plan through 100% specific beneficiary trust for minors. - Plan to have fixed Rental Income for minor children. - Specific Beneficiary Trust for safety and security of your dear daughter.
  11. 11. 2(8) Expanding horizons of new Tax Entities in your family – contd. 6. Have you planned a tax entity in the name of your Hindu Undivided Family (HUF) - HUF is a separate tax entity with basic Income tax exemption of Rs.1,80,000. - HUF enjoys separate tax deduction for Interest on Residential house property and Repayment of Housing Loans. - HUF possible even today. - HUF even without children. - HUF full Partition & Tax benefits in Real Estate.
  12. 12. 2(9) Expanding horizons of new Tax Entities in your family – contd. 7. Other Tax Entities for your Real Estate Investment (a) A Tax entity in the form of AJP = Artificial Juridical Person. (b) A Tax entity in the form of Partnership Firm, Limited Liability Partnership, Private Limited Company or Public Limited listed company. (c) A Tax entity in the form of an AOP. (d) A Tax entity as a “Discretionary Trust” with or without will for investment in Real Estate.
  13. 13. 3(1) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. (1) Important Points in “Buying” Real Estate 1. Think of the name in which to buy Property. 2. Property can be purchased in single or joint names. 3. Meditate first on the objectives of buying new property and then buy out. 4. Always lay special emphasis on “Location” only. 5. It makes a sense to pay little more for “Preferred Location Charges” (PLC) in long run. 6. Consider loan as preferred theme of making investments in Real Estate specially residential property for self use.
  14. 14. 3(2) Important points in Buying,Selling & Renting properties including Capital Gains Tax saving vistas. ( Important Points in “Selling” Real Estate 1. From tax angle always sell Real Estate after holding it for a period of 36 months so that the gain becomes Long – Term Capital Gain with tax advantages. 2. As certain the fair market price before selling. 3. Meet brokers in the vicinity and advertise in Newspapers. 4. Peep into tax aspects before taking a management decision to sell a property. 5. Understand the impact of section 50C of the Income-tax Act on your property sale registration.
  15. 15. 3(3) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. Important Points in “Renting” Real Estate. 1. Ascertain the fair value of your property before actually renting out your property. 2. Execute a “Lease Deed” which in particular must contain details of Rent increase in the terms of Lease, the penal action for default in payment of Rent. 3. Keep in mind the impact of Service Tax and who would bear it, let there be specific mention in the Lease deed or Rent agreement. 4. Let property use be specified in your Rental Agreement.
  16. 16. 3(4) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. General principles of Investment in Real Estate : For optimum INVESTMENT PLANNING of your REAL ESTATE please stop pause for a moment and always see – A. The size of the family. B. The age of different family members. C. The incomes of different family members D. To-day’s Income-tax & Wealth-tax position. E. New investment impact on Income-tax & Wealth-tax F. Time available at your disposal
  17. 17. 3(5) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. Tips for Investment Planning of Immovable Property A. To purchase property jointly even between husband & wife + major + minor children + one property for W.T. exemption. B. Wife & children can take loan from you. C. Taking loans is good. D. Watch Impact on Self-occupied property viz-a-viz let-out property. E. Clear cut demarcation of joint property. F. Don’t invest in the name of person owing one property. G. Investment in the name of persons whose income and wealth is less. H. The concept of “Sale of Roof Rights”. I. For daughter – 100% Trust. J. Agricultural land and Farm house – (Buy cheap land). K. Adopt concept of “Unite to Invest”. L. Take care of s.50C. M. Buy a Plot of Land for every minor child. N. Invest in Agricultural Land. O. Multiply Money in Agricultural Land.
  18. 18. 3(6) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. Tax Saving on Self-Occupied House property Property : - Guaranteed Tax Saving - You can save as much as Rs.45,000 by way of Income-tax. - For Self-occupied house property for the A.Y. 2011-2012 interest on loan deductible upto Rs.1,50,000. Provided : - Loan after 1.4.1999 - Completion of House within three years from the end of the financial year in which loan taken. - Employee can get benefit on submission of details of interest - Interest loss adjusted against any Income of the year.
  19. 19. 3(7) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. Tax Saving on Let -out House property - - Know the new formula for computation of House Property income. Income from House Property (Let Out) Rent received {Actual Rent received only to be taxed.} Less: Vacancy & Unrealized rent. Less: Corporation Tax. Annual Value Less: (i) Standard Deduction = 30% of Annual Value u/s 24 Less: (ii) Interest on Loan = Net Taxable Income. - Just remember : House tax/Corporation tax will be allowed only if actually paid. - No upper limit on deduction of interest on loan. - Loan can be from any one at any rate of interest. Set off and Save Tax: Loss from House property allowed against any other head of income. Less: (ii) Interest on Loan = Net Taxable Income. - Just remember : House tax/Corporation tax will be allowed only if actually paid. - No upper limit on deduction of interest on loan. - Loan can be from any one at any rate of interest. Set off and Save Tax: Loss from House property allowed against any other head of income.
  20. 20. 3(8) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. Let “Real Estate” be a part of your “Financial Planner” It is time to prepare a Financial Planner for every investor – by dividing your Investments broadly under following groups and deciding the percentage of investment as per your family situation :- 1. Zero risk investment 2. Investment in Mutual Funds 3. Investment in Real Estate 4. Investments in Insurance Policy 5. Risky Investment options 6. Jewellery & other Investments ●●● Let Real Estate be a part of your financial planner.
  21. 21. 3(9) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. Real Estate can be your Tax Saver for section 80C Deduction. - Claim deduction upto Rs.1,00,000 on Repayment of Residential Housing Loan. - Payments for Stamp Duty, Registration Fee also eligible for deduction. - Payment eligible for installments paid under self financing or other scheme of any Development Authority, Housing Board, Co-operative Society, etc. - Payment of Amount borrowed from Central or State Government, Bank, Life Insurance Corporation of India or assessees employer (Corporate entity).
  22. 22. 3(10) Residential Property with Loan - tax gain. 1. Always buy a residential property with a Loan & enjoy Tax benefit. 2. Demarcate Loan and its payments for tax advantage.
  23. 23. 3(11) Property in Joint Names. 1. Take Property in Joint names of different family members and save Income-tax. 2. All co-owners enjoy separate tax deduction even if it is one Property. 3. The Rental Income of Joint Property is taxed separate as per s.26.
  24. 24. 3(12) Rented out Property purchase with Loan - A tax gain Entire amount of Interest on Loan amount is allowed as a deduction. Even if the net figure is loss, it is allowed adjustment during the year.
  25. 25. 3(13)Purchase of Business/Industry Property with Loan 1. Entire Interest on Loan taken for Business/Industry property allowed as a deduction from Business Income. 2. Claim Depreciation & also enjoy deduction on Interest on Loan. 3. Best buy : Loan and Building and Not Land alone so as to get full Depreciation on full
  26. 26. 3(14) Housing Loan - Interest 1. Interest can be claimed deduction U/S 24 even if not paid. 2. Circular of CBDT - No.363
  27. 27. 3(15) Interest on second Housing Loan 1. Second Loan if borrowed and used merely To repay the original loan and this fact is proved to the satisfaction of the Income-tax Officer, then the interest on the second loan would also be allowed as a Deduction. - CBDT Circular No.28 Dated 20-8-1969
  28. 28. 3(16) Tax benefit on Interest on Loan by Employer. In the case of Salaried Employees, the benefit of Interest on Loan as per section 24 would be granted by employer only if the employee furnishes a Certificate, from the person to whom any interest is payable on the Capital borrowed, specifying the interest payable by the assessee for the purpose of acquisition or construction of property.
  29. 29. 3(17) HRA & Rent Payment 1. You can make Rent payment for a residential house property to your spouse, father, mother, any relative or any person and enjoy tax benefit. 2. You can enjoy HRA benefit by making rent payment and you may also enjoy the benefit of interest on loan for residential house property
  30. 30. 3(18) TDS on Rental Income 1. TDS only if yearly Rent exceeds Rs.1,80,000 p.a. 2. In the case of co-owners, this limit to be applied separately for each co- owner.
  31. 31. 3(19) Your second Residential House 1. Never buy a second Residential House in your name. 2. You may venture second residential house in your name but with a Loan, a big tax advantage.
  32. 32. 3(20) Wealth-tax on Your Property 1. One Property/500 yd. Plot is exempt from Wealth-tax without any limit. Aim at this benefit for all family members. 2. All commercial properties are Wealth tax free. 3. All residential property let out for more than 300 days in a year are Wealth-tax free.
  33. 33. 3(21) Gift – tax on Properties. 1.No Gift-tax either on donor or donee on Gift of Properties – 2.Now applicability of section 56 of the Income-tax Act, 1961 w.e.f. 1-10-2009 3.Gift of Properties to Relatives -no restriction.
  34. 34. 3(22) Property in the name of your Daughter. 1. Adopt planning and give Property to the daughter preferably through a 100 % specific beneficiary Trust. 2. Separate tax Return and separate exemption even for Minor Trust receiving property in a Trust as per Supreme Court’s decision in M.R. Doshi.
  35. 35. 3(23) Special Provision for Properties received in Gift/Will. In case the “Property” becomes Capital asset of the assessee under a Will or a Gift the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by cost of improvement – s. 49 of the I.T. Act, 1961.
  36. 36. 3(24) Special Tax Provision for taxing Capital Gains. As per s.50C of the Income-tax Act. 1961 the consideration received for Capital Gains purpose would be the value adopted for Stamp Duty valuation. Also applicable for Power of Attorney & Agreement to Sell transactions from 1-10-2009
  37. 37. 3(25) Agricultural Properties 1. Separate set of Rules for Wealth-tax. 2. Separate rules for Computation of Capital Gain. 3. Reinvestment in Agricultural Land to save Tax. 4. Exemption of tax on “Rent” from Agricultural Land.
  38. 38. 3(26) AIR & Properties All property transactions over Rs.30 lakhs are to be informed to the tax department as per Annual Information Return.
  39. 39. 3(27) Unaccounted Money, I.T. Raid & Properties. 1. Never use unaccounted money for Real Estate Transactions. 2. Impact of Income-tax Raid & Survey in Property transactions. 3. Penalty and Prosecution under the Income-tax Law. 4. Tax Scrutiny-on Real Estate Transactions
  40. 40. 3(28) Real Estate Investment Abroad1. Have a deep study of the provisions contained in FEMA law. 2. Investment permitted for every individual upto US $2,00,000 every year. 3. Think of Investing in USA specially if you have a relative. 4. Comply with Tax regulations. 5. Declare your income in Indian Tax Return. 6. Very bulk cheap Agricultural Land in Africa.
  41. 41. 3(29) Depreciation on Property Registration of Property not necessary to claim Depreciation on Immovable Property
  42. 42. 3(30) Facing old age blues with Real Estate 1. Reverse Mortgage. 2. No Income Tax on Reverse Mortgage. 3. No Payment of Interest etc.. 4. Let your “inheritors” take care of your Real Estate.
  43. 43. 3(31) Unique Idea to preserve your primary Residential House. 1. No Loan 2. No Mortgage 3. Keep Title Deed in Bank Locker with Joint operation only.
  44. 44. 3(32) Tax Saving on Capital Gains from Residential House Long -term C/G for individuals and HUF is fully exempt u/s 54 on transfer of Residential house, if - A. C/G invested in purchase of a residential house within 1 year before or 2 years after transfer or C/G invested in construction of a residential house within 3 years of transfer; AND B. No sale of such house for 3 years; AND C. Utilization of C/G by the date for filing of I.T. Return u/s 139 or deposit of unutilized amount as per C/G A/Cs scheme by last date of voluntary filing of I.T. Return u/s 139 (1).
  45. 45. 3(33) Tax Saving On Capital Gains of other assets by investment in Residential House Property Long -term C/G for individuals and HUF exempt u/s 54F - if the consideration of any other Asset is invested in- A. Purchase of a residential house before one year or within two years after transfer; or construction of a residential housewithin three years of transfer; AND B. Then not sold for 3 years; AND C. Not to Purchase within one year or construct within three years after transfer & to own not more than one residential house on the date of transfer. Note: Utilization of the net consideration by the date of furnishing I.T. Return u/s 139 is a must or unutilised amount is deposited under Capital Gains A/c Scheme by last date for voluntary filing of I.T. return u/s 139 (1). The amount is to be deposited with a Nationalised Bank. Two optional schemes are available to tax payers. For details, contact nearest branch of state Bank of India or other Nationalised Bank (other than Rural Branch)
  46. 46. 3(34) Tax Saving On Capital Gains through Cost Inflation Index Cost Inflation Index for different years Sl. No. (1) Financial Year (2) Cost Inflation Index (3) 1. 1981-82 100 2. 1982-93 109 3. 1983-84 116 4. 1984-85 125 5. 1985-86 133 6. 1986-87 140 7. 1987-88 150 8. 1988-89 161 9. 1989-90 172 10 1990-91 182 11. 1991-92 199 12. 1992-93 223 13. 1993-94 244 14. 1994-95 259 15. 1995-96 281 16. 1996-97 305 17. 1997-98 331 18. 1998-99 351 19. 1999-2000 389 20. 2000-2001 406 21. 2001-2002 426 22. 2002-2003 447 23. 2003-2004 463 24. 2004-2005 480 25. 2005-2006 497 26 2006-07 519 27 2007-2008 551 28 2008-2009 582 29 2009-2010 632 30 2010-2011 711 31 2011-2012 785 The Formula for finding out index cost of acquisition or the “Indexed cost of any improvement” would be as under :- Cost of Acquisition X Cost Inflation Index for F.Y. 2011-2012 ------------------------------------------- Cost Inflation Index for F.Y. 1981-82 on later F.Y.
  47. 47. 3(35) Tax Saving On Capital Gains by Investment in Bonds Exemption of long -term Capital Gains is possible on Investment in certain Bonds - s. 54 EC (i) Available to all tax payers (ii) After -1-04-2006 : Investment for section 54 EC can be made only in Bonds of NHAI & REC with in 6 months. (iii) Invest in 54EC Bonds by 30th Sept. 2006, if gains accrue during the period 29/9/05 to 31/12/05 and by 31st December 2006 if accruing from 1-1-06 to 30-6-06.
  48. 48. 3(36) Real Estate Business with No Accounts As per section 44AD if an Individual, HUF or Partnership Firm Carries on Real Estate Business with no accounts the Income on “Presumptive Basis” would be Calculated @ 8 % of the Total Turnover if the Turnover does not exceed Rs.60 lakhs. If exceeding Rs.60 lakhs then Tax Audit required.
  49. 49. 3(37) Agricultural Land 1. Capital Gains exemption on selling Agricultural Land and buying new Agricultural Land in two years. 2. Exemption of Capital Gains regarding shifting of Industrial Undertaking –s.54G.
  50. 50. 3(38) Distribution of Assets of Firm Non Distribution of the Assets on change of Partners in the Partnership Deed or on Dissolution of Firms, no Capital Gains to the Firm.
  51. 51. 3(39) Depreciation on Land No Depreciation on Land for Business or Profession, whether Office Building or Factory Building hence buy land in the name of separate tax entity and pay Lease Rent.
  52. 52. 3(40) Depreciation & Block of Assets Depreciation & Block of Assets Concept – A Big MMI in Real Estate specially for all those in Business or Profession
  53. 53. 3(41) Real Estate Finance Dynamism in Real Estate Finance 1. Think of FDI Funding 2. Selling 5 % Stock at Cost Price OR even little lower 3. Selling the next 10% stock at 10% profit. 4. Developing “BBG” groups = Bulk Buying Groups. 5. Encouraging “UTI” concept in Real Estate. 6. Super special Discount to NRI clients and doing road shows outside India.
  54. 54. 3(42) Know more about WILLS for Real Estate Investments & succession planning Please remember the salient features relating to wills:- (a). Will may be Registered or Unregistered. (b). Through Will distribution of Real Estate and other assets as you like it - to whom you like it-in the proportion as you like it. (c). Special Family Trust through will in the Family can be created for tax advantage. (d). New HUFs can be created through the Will. (e). Change Will as often as you like. (f). Continue Income-tax file of a Dead Person ? Note: Will Recommended to all persons after the age of 50 years
  55. 55. 3(43) IT FILE of a Dead Person can be continued. 1. Section 168: Will & executor of a Will for the estate 2. Separate assessment of executor of Will apart from one’s personal assessment 3. Rate of tax, etc. like the testator.
  56. 56. 3(44) Special new innovative idea for your WILL:- •••• It is time to VIDEO RECORDING Your Will•••• - To avoid challenges to the WILL and safeguard “Real Estate”.
  57. 57. 4(1) Important Judicial decisions which help the process of Tax Planning in the Wonderland of Real Estate. If you want to adopt Tax Planning In Real Estate Either as a Developer or Investor then Please keep yourself Updated on new and latest Judicial thinking of the Judges which will surely kelp you to plan better.
  58. 58. 4(2) Income of a Company dealing in Property from Letting out Building The Income of Letting out of Buildings belonging to Company : = Income from House Property = Settled by Madras High Court in the case of CIT v. Chenai Properties & Investments Ltd. (2004) 266 ITR 85 = The assessee company owning two Buildings in Chennai and receiving Rental Income. = The Income from Service Charges would be Business Income.
  59. 59. 4(3) Earnest Money & its Forfeiture The Earnest Money and Advance Forfeited by Vendor is a Capital Receipt says the Supreme Court of India in the case of Travancore Rubber & Tea Co Ltd. v. CIT (2000) 343 ITR 158 (SC); hence not liable to tax - New thinking – Madras High Court in the case of K.R. Srinath v. ACIT (2004) 268 ITR 436
  60. 60. 4(5) Construction Amount Paid to a Builder The Delhi High Court in the case of CIT v. Brinda Kumari (2002) 253 ITR 343 has held that where the amount spent for construction of new residential house is to be deducted from the amount of capital gain, the amount advanced to the builder for specific purpose of construction of flat in the new building would be treated as amount spent by the assessee on such construction
  61. 61. 4(6). Expenditure Incurred for Vacating Hutment Dwellers The compensation paid by the assessee for eviction of hutment dwellers from its land was allowed deduction while calculating the amount of capital gain. It was held that the expenditure so incurred by the assessee for vacating the land actually amounted to incurring of an expenditure for improvement of the asset. This was the view of the Bombay High Court in the case of CIT v. Miss Pooja C. Patel (2000) 243 ITR 582
  62. 62. 4(7). Land & Building Bifurcation Where a consolidated PRICE is paid for two Capital Assets, the price can be bifurcated - Rajasthan High Court in the case of CIT. v. Vimal Chand Golecha (1993) 201 ITR 442. - Kerela High Court in the case of CIT v. Smt. Lakshmi B. Menon & Another (2003) 264 ITR 76. - Madras High Court in the case of CIT v. T.C. Itly Ipe (2001) 249 ITR 591. - Madras High Court in the case of CIT v. Dr. D.L. Ramachandra Rao (1999) 236 ITR 51.
  63. 63. 4(8). Capital Gains Taxable on the basis of Agreement When a document shows a fixed price, there will be a presumption that that is the correct price agreed upon by the parties. It is not necessary that the price stated in the agreement will be the price shown in the sale deed. Sometimes, it may be higher and sometimes it may be lower. Sometimes intentionally a lesser value may be shown in the sale deed. Even if it is assumed to be so, unless it is proved that the agreement was acted upon and unless the amount stated in the agreement was paid for the sale, the court cannot come to the conclusion that the price mentioned in the sale deed is not correct. - Kerala High Court in the Case of CIT v. K.C. Agnes & Others (2003) 262 ITR 354
  64. 64. 4(9). Capital Gain or Profit on Adventure in the nature of Trade on selling a Plot of Land Sale of a PLOT assessable as Capital Gain & not Speculative Trade or Business - M.P. High Court in CIT. v. Smt. Saraswati Bai Jaiswal (2003) 264 ITR 366
  65. 65. 4(10). Cost of Construction accepted - No Subsequent Reopening When the cost of construction is accepted subsequent reopening of tax Assessment is not permissible -M.P. High Court in the case of CIT v. S.R. Construction (2002) 257 ITR 502
  66. 66. 4(11). Additions for understatement of Sale Value of flats without evidence The addition made by the Assessing Officer in the case of Civil construction on ground of understatement of Sale Value of flats but the Tribunal found that the I.T. Department had not established its case; hence as there was no evidence, the addition was deleted. - Madras High Court in the case of K. Manikam v. CIT (2002) 258 ITR 175
  67. 67. 4(12). Cost of Construction as per Registered Valuer Cost of Construction as per Registered Valuer to be accepted and no addition can be made under section 69 B. - Income-tax Appellate Tribunal, Hyderabad Bench in the case of ACIT v. Vinod Kumar Agarwal (2002) 257 ITR 65 (AT)
  68. 68. 4(13) Cash Credits by Accounts Payee Cheque Amounts received by account payee cheques – the initial burden of proving the cash credits would be considered to be discharged by the assessee - Gujarat High Court in the case of DCIT v. Rohini Builders (2002) 256 ITR 360
  69. 69. 4(14) Dissolution of Firm & Non- Distribution of Capital Assets No Capital Gains arise on Dissolution of Firm if no Distribution is effected of Capital Assets. - Karnataka High Court in the case of CIT v. Mangalore Ganesh Beedi Works (2004) 265 ITR 658
  70. 70. 4(15) Valuation of Closing Stock at just 10% of cost It may be possible to value your Closing Stock at just 10 percent of cost and this would not call for any addition to the total income. - Bombay High Court in the case of Alfa Laval India Ltd. v. DCIT (2004)266 ITR 418
  71. 71. 4(16) Identity of Shareholders & Cash Credit Addition (A) Cash Credit addition of Share Capital not justified where identity of share- holders is established. - ITAT, Delhi in the case of Skyhigh Properties Pvt. Ltd. v. ITO (2002) 258 ITR 98 (AT) (B) Share capital by poor farmers is taxable- Bhola Shankar Cold Storage Pvt. Ltd. v. ICIT (2004) 270 ITR 487 (Cal. H.C.)
  72. 72. 4(17) Property Joint Ventures 1. Business Income or Capital Gain - P.M. Mohammed Meerakhan v. CIT (1969) 73 ITR 735 (S.C) 2. Understand the meaning of Venture - CIT v. Smt. Minal Rameshchandra (1967)167 ITR 507 - Raja J. Rameshwar Rao v. CIT (1961) 42 ITR 179 (S.C)
  73. 73. 4(18) Provision for Warranted Liability 1. Estimate of Accrued liability to be discharged at a future date - Supreme Court of India in the case of Calcutta Co. Ltd. v. CIT (1959) 37 ITR 1 2. Provision for meeting Warranted Liability is tax deductible - Kerala High Court in CIT v. Indian Transformers Ltd. [2004] 270 ITR 259
  74. 74. 4(19)Income from PlinthGodowns Monthly income from Plinth Godowns for storage of commodities is “Business Income” and not income from House Property - MP High Court in the case o Babulal Agrawal v. CIT (2005) 272 ITR 454
  75. 75. 4(20). Payment to Corporation for Infringement of By-Laws. Payment of Rs 4 Lakhs paid to Corporation for infringement of Bye Laws allowed -“consideration for getting the Revised Plan sanctioned” - Delhi High Court in the case of CIT v. Loke Nath & Co. (Construction) 147 ITR 624
  76. 76. 4(21) Purchase / Construction of New Residential House to Save Capital Gains Under a Joint Development Agreement, the assessee gave property to a Builder for putting up flats. Under the agreements eight flats were to be put up on the property and four flats were the share of the assessee. Held, that these four flats constituted “a Residential House “ as per Karnataka High Court in the case of CIT v. Smt. K.G. Rukminiamma 331 ITR 211.
  77. 77. 4(22) Firms’ Immovable Property and Partners. The whole concept of Partnership is to embark upon a joint venture and, for that purpose to bring in as Capital, money or even property including immovable property. Once that is done, whatever is brought in would cease to be the exclusive property of the person who brought it in - it would be the trading asset of the partnership in which all the partners would have interest proportion to their share in the business of Partnership – CIT v. Kedarnath Poddar & Co. 201 ITR 639
  78. 78. 4(23) Interest on amount Borrowed for Purchase of Property Interest on Loan paid for purchasing property will have to be included while calculating the cost of acquisition of the asset –CIT v. Sri Hariram Hotels Pvt. Ltd., 325 ITR 136
  79. 79. 4(24) No Penalty for furnishing inaccurate Valuation on the basis of Valuation Officer’s Report. Where the assessee enclosed Registered Valuation Report in support of Capital gain, it was not accepted by the Assessing Officer who made the Assessment of Capital Gains on the basis of District Valuation Officer’s Report, it was held that it did not amount to furnishing of inaccurate particulars and penalty under section 271(1)(c) not leviable – Dilip N. Shroff v. CIT 291 ITR 519 (sc).
  80. 80. 4(25) Purchase of Flats which were combined to make one Residential Unit valid for claiming tax exemption under section 54 1. Karnataka High Court in the case of CIT V.D. Ananda Basappa 309 ITR 329 held that purchase of two flats which were combined to make one Residential unit would be eligible for granting exemption under section 54 of the Income-tax Act, 1961. 2. Transfer of Residential house & purchase of four flats in the same Residential Building -Assessee entitled to exemption u/s 54. - CIT v. K.G. Rukminiamma 331 ITR 211.
  81. 81. 4(26) Reinvestment of Capital Gains in New Floor of the same Building. The benefit of tax exemption for investment in Residential House would be available in case the investment is made in new floor in the existing building owned by the assessee. – Addl. CIT v. Vidya Prakash Talwar 132 ITR 661. It was held that two units of the assessee comprising the house in South Extension, New Delhi could be occupied independently, hence these two residential units of the property should be considered separate.
  82. 82. 4(27) Repurchase of House Sold and Availability of Exemption. The seller of the House Property would be eligible to exemption if he decides to repurchase a part of the property which he had earlier sold. – CIT v. Phiroze H. Patel 112 CTR 254 – exemption would still be available in such cases as per section 54. Good Judgment for Property Collaborations.
  83. 83. 4(28) Sale Proceeds Invested in a Flat under Construction amounts to Construction As per the decision of CIT v. Bharti C. Kothari 244 ITR 352 the entire purchase price paid by assessee within three years from the date of the sale of the flat would be treated as as amount invested in a flat which was under construction and tax benefit can be availed under section 54
  84. 84. 4(29) Sale of Land & Building - Demolition of Building Assessee sold property with land and building. Purchaser sought permission to demolish the super structure and therefore there was no value for the building and what remained was only land which was not depreciable asset, hence gain treated as Long-term Capital Gain and provision of s.50 not applicable – CIT v. Union Co (Motors Ltd. 283 ITR 445.
  85. 85. 4(30) Purchase of four portions of property by four sale deeds and tax exemption. Purchase of four portions of property by four sale deeds would be valid to save Capital Gains because properties constituted one single unit. Held, that execution of four different sale deeds in respect of four different portions of the property did not materially affect the nature of the transactions or the nature of the property acquired – CIT v. Sunita Aggarwal 284 ITR 20
  86. 86. 4(31) Sale of Residential House and investment in new House, Possession received but Registration not completed. In order to attract the application of section 54F, it is not necessary that the new house should be Registered in the name of the assessee. Section 54F speaks of purchase and Registration is not imperative – CIT v. Ajitsingh Khajanchi. 297 ITR 95.
  87. 87. 4(32) Deduction of Expenses incurred in connection with transfer Expenditure incurred on obtaining Probate, Travel expenses of Executors and expenditure incurred on evicting illegal tenants held to be expenditure incurred wholly and exclusively in connection with Transfer and hence deductible – June Perrett v. ITO 298 ITR 268
  88. 88. 4(33) Short-term or Long-term Capital Gain. Where the assessee was in possession of Property under Agreement of sale entered in 1976, sale deed executed in July, 1986 and Registered on 26-9-1986, Property sold on 30-9-1986, the Capital Gain would be long-term Capital gain as the assessee held the property from 1976 - Madathil Brothers v. DCIT 301 ITR 345.
  89. 89. 4(34) Income –tax Exemption under section 54F. Where the assessee established investment of entire Capital gain in purchase of Land within the stipulated period but construction of the house was not completed, the assessee was entitled to exemption. Held, that in order to get the benefit under section 54F of the Act, the assessee need not complete the construction of the house and occupy it, it was enough if the assessee established the investment of the entire net consideration within the stipulated period – CIT v. Sardarmal Kothari & Others 302 ITR 286.
  90. 90. 4(35) Agricultural Land & Tax Exemption 1. Agricultural Land sale – No Capital Gains even if Agricultral Income not shown in Income-tax Return – CIT v. Debbie Allmao 331ITR 59. 2. Agricultural Land sold and new land purchased in sons name still benefit of deduction u/s 54B granted – CIT v. Gurnam Singh 327 ITR 278. 3. Report of Tehsildar that land was beyond eight Kilometres from Municipal limits, hence gains arising from such transfer not taxable – CIT v. Lal Singh 325ITR 588. 4. Sale of Agricultural Land & Investment in purchase of New Land in assessee’s son’s name as co-owner, entitled to tax deduction u/s 54B – CIT v. Gurnam Singh 327 ITR 278
  91. 91. 4(36) Family Arrangement When parties enter into a family arrangement for rearranging shareholding of the members to avoid possible litigation among themselves, this does not amount to transfer and is not eligible to Capital Gains Tax – CIT v. Kay Arr Enterprises & Others 299 ITR 348.
  92. 92. 4(37) Adventure in the Nature of Trade Delhi High Court decision in the case of CIT v. B.K. Bhaumik 245 ITR 614 – The expression Adventure in the Nature of Trade relates to the existence of certain elements in the adventure which in law would invest it with the character of trade or business.
  93. 93. 4(38) No payment of Stamp Duty for transfer, hence s.50C not applicable. The guideline value is not conclusive proof. Section 50C is applicable in cases of payment of Stamp Duty for Transfer – Asst. CIT v. V.N. Meenakshi 319 ITR 262 (AT).