Capital Gain Tax
We have one old building in Bommanahalli- Bangalore. We were trying to give for rent of the same, but we could not get correct people for that.
One promotor has approched us, and he wanted to demilice the old building to build the apartment in the same land.
He has given Rs.40,00,000 for that. The Agreement is like that...
He Builds the Apartment and maintain for 100 Years then the same will be demolised and he gives back the land to us.
Now my question is that whether the 40,00,000 is taxable in any income tax head.
Kindly clarify the same.
Thanks in advance
You cannot consider lease as sale so Capital gain is not applicable. Lease income received is to be charged under income from other sources.
You can either consider income on cash basis, and pay tax on entire 40 Lakhs or applu mercantile accounting and apportion 40 lakhs over 100 years and pay taxes accordingly.
This is my opinion and we shall wait for better professional advice with correct section and facts.
Let us analyse this situation from lessee's point of view.
Sec 27 of Income tax act defines deemed owner. It says any person acquiring lease rights of a building for a period in excess of 12 years is a deemed owner too. Extending this definition to land also, we may say the lessee is a deemed owner.
Basically, these long term leases allows the lessee to enjoy the ownership rights. At the end of the period of lease, the lessee generally pays a nominal amount and becomes the owner of the property. Going by the intention of the lessee , we can say that this lease is in the nature of finance lease and hence he can claim it as capital expenditure.
it therefor appears to me that, this is a clear case of deemed sale. If everyone follows by saying that this lease is a lease rental which must be apportioned over the lease period, then everyone would resort to this treatment to avoid Registration charges to subregistrar. It means practically there would be no Income tax on real estate transaction, which is not the intention of the law.
Be prepared for Litigations
Hi Anthony Raj,
The question you have raised has various dimension. If we can discuss on specifics it would let us reach on conclusion of question of fact and question of law involved.
Based on generic description, the transaction you have put forth may be a Joint development rights on property or an transfer of enjoyment of right of property. The transaction may be colored or flavoured, however the real intension for conveyance of property rights determine the nature of transaction. Usually Income Tax Act, 1961 is not the conclusive act to be referred on transaction involving immovable property. The Act that needs to be referred is Transfer of Property Act, 1882 and Indian Stamp Act 1899, which details the transaction that are registrable, non registrable, transfers and conveyancing of immovable property.
Unless we see the facts as a whole, all discussion above referred under section 27, Lease transactions etc are of just a discussion which shall not yield a direction on the subject. Further, Income Tax Act does not recognise term lease either as operating lease or finance lease.
Unless the nature of transaction is discussed, the write up on treatment as leased rentals, advance rentals,defferred rentals etc are more from accounting perspective and not from a taxation view.
Sundeep & Associates