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Kolkata Tribunal holds that income from ‘transfer of right to purchase flat’ as ‘capital gains’
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Kolkata Tribunal holds that income from ‘transfer of right to purchase flat’ as ‘capital gains’

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The Kolkata Income-tax Appellate Tribunal in the case of Subhas Chandra Parmanandka held that income from the transfer of right to purchase a flat is taxable as capital gains. Further, in case, the …

The Kolkata Income-tax Appellate Tribunal in the case of Subhas Chandra Parmanandka held that income from the transfer of right to purchase a flat is taxable as capital gains. Further, in case, the right was so held for more than 36 months, the gain will be treated as a long term capital gain, thereby allowing relief from capital gains if invested in residential property.


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  • 1. KPMG FLASH NEWS KPMG IN INDIA Kolkata Tribunal holds the income from ‘transfer of right to purchase flat’ as ‘capital gains’ 24 January 2014 Background Recently, the Kolkata Income-tax Appellate Tribunal (the Tribunal) in the case of Subhas Chandra 1 Parmanandka (the taxpayer) held that income from the transfer of right to purchase a flat is taxable as capital gains. Further, in case, the right was so held for more than 36 months, the gain will be treated as a long term capital gain, thereby allowing relief from capital gains if 2 invested in residential property .  The taxpayer offered the differential amount of compensation received and advance paid as Long Term Capital Gains (LTCG) and claimed exemption in respect of investment in another residential property.  The Assessing Officer (AO) treated the compensation paid as ‘income from undisclosed source’. Per the AO, the booking of the space was never converted into the ownership of the flat and hence was not a long term capital asset, consequently denying exemption on the LTCG.  On appeal, the Commissioner of Income-tax (Appeal) [CIT(A)], concurred with the AO, by holding that the income should be treated as ‘income from other sources’ under the provisions of the Act, and not as LTCG Facts of the case  The taxpayer had booked a space with a builder in Kolkata by paying an advance amount. Subsequently, the builder being unable to provide the booked space paid compensation towards cancellation of the agreement. _________________ 1 Subhas Chandra Parmanandka v. ITO (ITA No.1614/Kol/2010, Assessment Year 2006-07, dated 16 January 2014) 2 Section 54F of the Income-tax Act, 1961 © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  • 2. Issue before the Tribunal Our comments Whether gain from the relinquishment of the right to purchase a flat is a Long Term Capital Gain, eligible for exemption? This is a welcome decision, which deals with a critical tax issue faced by persons investing in under construction properties. This will help the persons in claiming the income as capital gains at the time of transfer of the right to purchase property. Tribunal’s ruling The Tribunal held that the receipts on the transfer of the right to purchase the flat was LTCG, and was eligible for deduction under section 54F of the Act. The observations of the Tribunal were as follows:  Once the taxpayer has entered into an agreement, it becomes the right of the taxpayer and such right is an asset which has a value. When surrendered or transferred after 36 months, gains if any, arising on the transfer of such asset is liable to be treated only as LTCG.  Further, when an income falls under a specific head (income from capital gains) it cannot be taxed under a residuary head (income from other sources).  Since the source of the income is not disputed, the income cannot be treated as ‘undisclosed income’. The Tribunal concluded by reversing the decision of the AO and CIT(A) in favour of the taxpayer by allowing the exemption under the Act regarding LTCG. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  • 3. www.kpmg.com/in Ahmedabad Commerce House V, 9th Floor, 902 & 903, Near Vodafone House, Corporate Road, Prahlad Nagar, Ahmedabad – 380 051 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bangalore Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi 4/F, Palal Towers M. G. Road, Ravipuram, Kochi 682 016 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Infinity Benchmark, Plot No. G-1 10th Floor, Block – EP & GP, Sector V Salt Lake City, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. ©2014 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.