Tax planinng

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

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 : slakhotia@satyam.net.in & thelakhotia@gmail.com;
lakhotia49@gmail.com

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
Ideas in Real Estate.

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 …

2(2) Real Estate Planning Ideas and practical
saving examples for Investment in Real Estate
Think Boldly :
Yes, I Can
Yes, I Will

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.

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.

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.

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.

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.

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.

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.

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.

3(2) Important points in Buying,Selling & Renting properties
( 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.

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.

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

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.

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.

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.

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.

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).

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.

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.

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.

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
value.

3(14) Housing Loan - Interest
1. Interest can be claimed
deduction U/S 24 even if
not paid.
2. Circular of CBDT - No.363
Dated 24-6-1983.

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

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.

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

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.

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.

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.

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.

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.

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.

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

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.

3(26) AIR & Properties
All property transactions
over Rs.30 lakhs are to
be informed to the tax
department as per
Annual Information Return.

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

3(28) Real Estate Investment
Abroad
1. 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.

3(29) Depreciation on Property
Registration of Property not
necessary to claim
Depreciation on Immovable
Property

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.

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.

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).

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)

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.

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.

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.

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.

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.

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.

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

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.

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

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.

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”.

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.

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.

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

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

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

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.

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

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

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

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

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)

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

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

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

4(16) Identity of Shareholders &
Cash Credit Addition
(A) Cash Credit addition of Share Capital not
justified where identity of shareholders
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.)

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)

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

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

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

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.

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

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

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).

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.

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.

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.

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

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.

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

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.

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

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.

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.

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

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.

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.

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).

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