Even after reading at length Income heads there are some issues which holds worth for Further consideration, some of them are being discussed here.

Capital gains from long-term capital asset – Investment in a flat/house under the self-financing scheme of the City Development Authority / Housing Board – Whether to be treated as construction for the purposes of capital gains :- Under the SFS of the D.D.A., the allotment letter is issued on payment of the first instalment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the scheme. The allotment is cancelled only under exceptional circumstances. The allottee gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking the delivery of possession is only a formality. If there is a failure on the part of the D.D.A. to deliver the possession of the flat after completing the construction, the remedy for the allottee is to file a suit for recovery of possession. The Board have been advised that under the above circumstances, the inference that can be drawn is that the, D.D.A. takes up the construction work on behalf of the allottee and that the transaction involved is not a sale. Under the scheme the tentative cost of construction is already determined and the D.D.A. facilitates the payment of the cost of construction in instalments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in instalments does not affect the legal position stated above. In view of these facts, it has been decided that cases of allotment of flats under the Self-Financing Scheme of the D.D.A. shall be treated as cases of construction for the purpose of capital gains. In Mrs. Seetha Subramanian v. ACIT [1996] 59 ITD 94 (Mad. – Trib.) with the following observations :

“. . . The assessee also relied upon certain circulars issued by the CBDT. One of the circulars was [Circular No. 471, dated 15th October, 1986. This was issued by the CBDT clarifying the posi­tion that where an assessee acquires a flat by an allotment under the self-financing scheme of the Delhi Development Authority, the allotment itself is sufficient compliance for getting the benefit under section 54F, even though the assessee has not paid all the instalments due under the said scheme. Later by another Circular No. 672, dated 16th December, 1993, the CBDT has issued clarifi­cation extending the same benefits for acquisition of houses or flats on allotment under similar schemes. Therefore it was con­tended that the intention of the Legislature was to invest in the acquisition of a residential house and completion of construction or occupation is not required. We find force in the argument of the learned counsel for the assessee. The said intention is very clear from the two circulars issued by the CBDT, where it was held that an assessee is entitled to the benefit of sections 54 and 54F, if an assessee gets an allotment under the self-financing scheme and pays the first instalment of the cost of the construction. From that it is clear that in order to get the benefit under section 54F the assessee need not complete the construction of the house and occupy the same. . . .” (p. 98).

If assessee has retained more than one house for the purpose of his own or parents own residence and not for any other purpose, the capital gain arising on transfer of each house would qualify for the exemption under section 54 provided other conditions are satisfied [ Letter No. 207/24/76 dated 25th March 1977]

Whether capital gain arising from transfer of a self-occupied residential house would be entitled to exemption : The question appeared to have been raised because Asset sold should be a residential house income of which is taxable under the head Income from House Property. As the annual value of a self-occupied house would be taken to be nil by virtue of section 23(2) of the Act, an Assessing Officer may take the plea that the income of such a house is not chargeable under the head ‘Income from house property’. The Board held the view that such a construction of the aforesaid provision in section 54 of the Act is not correct. Income from a self-occupied residential house is chargeable under the head ‘Income from house property’ even though in certain circumstances such income may be computed at nil or at a negative figure by virtue of section 23(2) read with section 24 of the Act.[ Circular 538 dated 13th July 1989]

Clarification regarding computation of tax in respect of long-term capital gains under section 112:- Some people are interpreting the provisions of section 112 in such a manner that the tax payable on long-term capital gains is to be computed on the entire amount of long-term capital gains without applying the provisions of set-off of loss contained in section 71(2) where there is loss under any other head. As a result, it has been interpreted that the provisions of section 112 will override those of section 71, effectively denying the benefit of set-off of loss from a source other than “capital gains”. The confusion in interpreting the provisions of section 112 is arising mainly from the interpretation of the initial part of section 112 :

‘Where the total income of an assessee includes any income arising from the transfer of a long-term capital asset, which is chargeable under the head “Capital gains”…’

The above phraseology contains two significant expressions, “total income” and “includes any income”. The total income is to be computed in the manner prescribed in the Income-tax Act. Set-off of loss as per the provisions of sections 70 to 80 is a stage which is part of this procedure. When this procedure is adopted for computing gross total income or total income, only the amount of income after set-off remains under a head as part of gross total income or total income. Only that amount of long-term capital gains which is included in the total income would be subject to tax at a prescribed flat rate. Thus, if there was a loss of Rs. 10,000 from business and there is long-term capital gains of Rs. 30,000, then after setting off of loss of Rs. 10,000 with long-term capital gains, only Rs. 20,000 would remain under the head “Capital gains” to be included in the gross total income or total income. The flat rate of tax will be applicable in respect of Rs. 20,000 and not Rs. 30,000, since the amount of long-term capital gains included in that total income is Rs. 20,000. (Here it is assumed that the total income ignoring, long-term capital gains, is above the exemption limit).

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  1. Vijay Kumar Dadoo says:

    Kindly enlighten me. I purchased a flat from DDA in year 1989, value Rs. 2.90 Lacs. After keeping my flat with me, I transferred my flat to my daughter as a Gift in year 2018. The Circle Value of the flat in 2018 was Rs. One Crore. Now, if my daughter wants to sell the property, and she gets say 1.5 Crores, then what is the capital gain in the hands of my daughter 50 Lacs Less indexed amount or it has to be calculated on the basis of original cost of the flat, 3 Lacs indexed till the date of Sale.

    1. Rahul Sharma says:

      Section 49 (1) (ii) specifically says that cost of the previous owner shall be the cost in such cases. Further if there is any Addition then that will be added even if that was done by person making gift. Benefit of indexation shall be available

  2. Srs says:

    Inspite of of all how can the AO ONTERUPTING the issue of construction agreement into the following points which is the matter of 2008-10, construction of apartments booked under construction on land agreement and construction agreement value all has been on installments during construction under progress and in 2010 got pocession of flat, rented out till 2015, govt got tax on rental flat, and 2015 sold the apartment and deposited full sale proceeds into LTC deposit scheme in the bank and immediately on the date of sale and income declared in the return ITR submitted in AY 2016-17, and inspite of all is done when assessee applied for NOC from G applied to close LTC deposits account after blocking 3 years period in 2019 the department AO at that point delaying NOC to close LTC deposits and twisting the whole case into the following points that
    The observations of ACIT CIR. 5 (3) (2), Bangalore.


    “Both the unregistered agreements filed by the assessee cannot be considered as they do not have any evidentiary value. Since the agreements to sell were not registered, assessee’s claimed that he paid certain amount in addition to that mentioned in registered sale deed cannot be relied upon. (In fact, the unregistered agreements are also not adequately stamped.) Hence, the claim of assessee qua unregistered documents do not survive. It is settled law that an assessee would not be entitled to explain the difference between apparent consideration and fair market value by relying on an agreement of sale unless the agreement is registered.”


    • This bring to question was it necessary to register the two unregistered documents produced by the assessee in the first place?

    • What was the law as existing in the State of Karnataka as on 05-01-2008?
    Where does it says that property should be registered property for eligibility of claiming LTCG and how there be discriminations for assessee who are reqularly investing property buying and selling in a cyclic manner where department not even question or verifying whther property bought or sold are registered property under registration act
    Where as when assesse sold the apartment and deposited LTC in into bank LTCG deposit scheme and while requesting for NOC in
    form G the lowest level officer ACIT DCIT without applying any mind reopening cases interrupting the various sections and then issuing notices after notices clueless misusing the powers vested on them and taking advantages of lockdown exercise etc etc. towards carno pandemic situation in delaying the matters further period

    [20/05, 08:17] CA RAMAVARMA: The Income Tax department is contesting the evidentiary value of the unregistered construction agreement. This is not an agreement which needs to be compulsorily registered in Karnataka. Your son-in-law has made a single payment towards undivided share in land and construction of apartment.
    [20/05, 08:21] CA RAMAVARMA: At the same time in LTCG computation what you require is proof of investment in purchase of apartment which is evidenced by various payments as reflected in bank statement. So ultimately, income tax department may not have a case. But they can be nasty and drag your son in law through a litigation proceedings.. Hope for the best.
    This is pending since 2019 and in between COVIND-19 lockdown exercise in 2020, 2021and in between faceless assessment, reopening of assessment of 2016-17 etc etc. How can the normal salary income earnings tax payer is to handle the matter. No CA NOR ADVOCATE ARE READY TO HELP EVEN OTHERWISE WHY INDIVIDAL ASSESS TO INCURE COST OF LITICATION WHICH IS TOTALLY AVOIDABLE.

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