Welcome To New Seminar

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
Seminar onTax 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 [phone],
  9810001665
• E-mail slakhotia_at_satyam.net.in
  thelakhotia_at_gmail.com
• lakhotia49_at_gmail.com

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 Ideas in
  Real Estate.

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
2(2) Real Estate Planning Ideas and practical
saving examples for Investment in Real
Estate

• Think Boldly
• Yes, I Can
• Yes, I Will

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
2(4) Expanding horizons of new Tax Entities in
your family.

• Find out whether all family members are having a
  separate Income-tax File.
• 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
2(5) Expanding horizons of new Tax Entities in
your family contd.

• 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
2(6) Expanding horizons of new Tax Entities in
your family contd.

• 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
2(7) Expanding horizons of new Tax Entities in
your family contd.

• 5. Think of Real Estate Investments in your minor
  children and grand childrens 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
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
2(9) Expanding horizons of new Tax Entities in
your family contd.

• 7. Other Tax Entities for your Real Estate
  Investment
• A Tax entity in the form of AJP Artificial
  Juridical Person.
• A Tax entity in the form of Partnership Firm,
  Limited Liability Partnership, Private Limited
  Company or Public Limited listed company.
• A Tax entity in the form of an AOP.
• A Tax entity as a Discretionary Trust with or
  without will for investment in Real Estate.

13
3(1) Important points in Buying, Selling
Renting properties including
Capital Gains Tax saving vistas.

• Important Points in Buying Real Estate
• Think of the name in which to buy Property.
• Property can be purchased in single or joint
  names.
• Meditate first on the objectives of buying new
  property and then buy out.
• Always lay special emphasis on Location only.
• It makes a sense to pay little more for
  Preferred Location Charges (PLC) in long run.
• Consider loan as preferred theme of making
  investments in Real Estate specially residential
  property for self use.

14
3(2) Important points in Buying,Selling Renting
properties including Capital Gains Tax
saving vistas.

• ( Important Points in Selling Real
  Estate
• 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.
• As certain the fair market price before selling.
• Meet brokers in the vicinity and advertise in
  Newspapers.
• Peep into tax aspects before taking a management
  decision to sell a property.
• Understand the impact of section 50C of the
  Income-tax Act on your property sale registration.

15
3(3) Important points in Buying, Selling
Renting properties
including Capital Gains Tax saving vistas.

• Important Points in Renting Real Estate.
• Ascertain the fair value of your property before
  actually renting out your property.
• 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.
• 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.
• Let property use be specified in your Rental
  Agreement.

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
• The size of the family.
• The age of different family members.
• The incomes of different family members
• To-days Income-tax Wealth-tax position.
• New investment impact on Income-tax Wealth-tax
• Time available at your disposal

17
3(5) Important points in Buying, Selling
Renting properties including
Capital Gains Tax saving vistas.

• Tips for Investment Planning of Immovable
  Property
• To purchase property jointly even between husband
  wife major minor children one property
  for W.T. exemption.
• Wife children can take loan from you.
• Taking loans is good.
• Watch Impact on Self-occupied property viz-a-viz
  let-out property.
• Clear cut demarcation of joint property.
• Dont invest in the name of person owing one
  property.
• Investment in the name of persons whose income
  and wealth is less.
• The concept of Sale of Roof Rights.
• For daughter 100 Trust.
• Agricultural land and Farm house (Buy cheap
  land).
• Adopt concept of Unite to Invest.
• Take care of s.50C.
• Buy a Plot of Land for every minor child.
• Invest in Agricultural Land.
• Multiply Money in Agricultural Land.

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
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
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 -
• Zero risk investment
• Investment in Mutual Funds
• Investment in Real Estate
• Investments in Insurance Policy
• Risky Investment options
• Jewellery other Investments
• ??? Let Real Estate be a part of your financial
  planner.

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
3(10) Residential Property with Loan
- tax gain.

• 1. Always buy a residential
• property with a Loan enjoy
• Tax benefit.
• Demarcate Loan and its
• payments for tax advantage.

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
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
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.

26
3(14) Housing Loan - Interest

• Interest can be claimed
• deduction U/S 24 even if
• not paid.
• Circular of CBDT - No.363
• Dated 24-6-1983.

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
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
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
3(18) TDS on Rental Income

• 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
3(19) Your second Residential
House

• 1. Never buy a second Residential House in
  your name.
• You may venture second residential house in
  your name but with a Loan, a big tax
  advantage.

32
3(20) Wealth-tax on Your
Property

• 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
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
3(22) Property in the name of your
Daughter.

• 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 Courts decision in M.R.
  Doshi.

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
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
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
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
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
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.

41
3(29) Depreciation on Property

• Registration of Property not
• necessary to claim
• Depreciation on Immovable
• Property

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
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
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
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-
• 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
3(34) Tax Saving On Capital Gains through Cost
Inflation Index Cost Inflation Index
for different years
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
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
• After -1-04-2006 Investment for section 54 EC
  can be made only in Bonds of NHAI REC with in 6
  months.
• 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
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 _at_ 8 of the Total
  Turnover if the Turnover does not exceed Rs.60
  lakhs. If exceeding Rs.60 lakhs then Tax Audit
  required.

49
3(37) Agricultural Land

• 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
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
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
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
3(41) Real Estate Finance

• Dynamism in Real Estate Finance
• Think of FDI Funding
• Selling 5 Stock at Cost Price OR even little
  lower
• Selling the next 10 stock at 10 profit.
• Developing BBG groups Bulk Buying Groups.
• Encouraging UTI concept in Real Estate.
• Super special Discount to NRI clients and doing
  road shows outside India.

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
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 ones personal
• assessment
• 3. Rate of tax, etc. like the testator.

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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
4(16) Identity of Shareholders Cash
Credit Addition

• 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)
• Share capital by poor farmers is taxable-
  
• Bhola Shankar Cold Storage Pvt. Ltd. v.
  ICIT (2004) 270 ITR 487 (Cal. H.C.)

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
4(18) Provision for Warranted Liability

• 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
• Provision for meeting Warranted Liability is
  tax deductible
• - Kerala High Court in CIT v. Indian
  Transformers Ltd. 2004 270 ITR 259

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
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
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
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
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
4(24) No Penalty for furnishing inaccurate
Valuation on the basis
of Valuation Officers 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 Officers 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
4(25) Purchase of Flats which were combined to
make one Residential Unit valid
for claiming tax exemption under
section 54

• 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.
• 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
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
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
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
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
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
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
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
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
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
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 assessees sons name
  as co-owner, entitled to tax deduction u/s 54B
  CIT v. Gurnam Singh 327 ITR 278

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
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
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).