Rollover benefits on propertyT.C.A.RAMANUJAM Share · print · T+
T.C.A.RAMANUJAM RelatedPHOTOS Real estate market knows no slump.
Prices continue to be on a high. The temptation to buy new property
faces price constraints. Who will not like to have a new residential
house inspite of the prices being so high? If you own an old house,
you can dispose it off and invest in a new house without attracting
the provision for taxation of the resulting capital gains on the sale
of the old house. This law applies even to agricultural lands.
Despite the law being in existence for more than 3 decades, certain
areas still require clarification at the highest level. Is it
mandatory that the new house should be purchased only in the name of
the assessee seller of the old house?
Delhi HC View
Ravindra Kumar Arora sold his property for Rs 4.33 crore in 2006 and
invested a major part of the sale proceeds in the purchase of a new
house in 2009 in Safdarjung Enclave. He claimed abatement of capital
gains to the extent of the investment into the new property. While the
property sold was in Arora's own name, the purchase was made jointly
in the names of the assessee and his wife.
He explained that in order to avoid litigation after his death, he had
included his wife's name also though the entire investment flowed from
him only. The Assessing Officer allowed exemption only to the extent
of 50 per cent and taxed the balance as capital gains.
The Delhi High Court heard the Revenue appeal in the matter. It noted
that stamp duty and registration charges and all other expenses were
all borne by Arora. Arora was physically handicapped. He was the real
owner of the house.
The Delhi High Court considered these facts and ruled that merely
because Arora had included the name of his wife and made it joint
property, roll over benefits cannot be denied. Such a conduct has
rather to be encouraged. It gives empowerment to women.
Even the Supreme Court has accepted the theory of constructive
ownership in Podar Cement's case. The Section nowhere insists that the
house should be purchased by the assessee only. Joint purchase should
not stand in the way of benefits.
The objective behind the provision is to provide impetus to the house
construction. As long as this purpose is achieved, hyper-technicality
should not impede the claim of deduction which has been allowed by the
Parliament. Purposive construction is to be preferred as against the
literal construction.
A beneficial provision should be interpreted liberally in favour of
exemption and deduction to the taxpayer. The word ‘assessee' must be
given wide and liberal interpretation so as to include legal heirs
also. This was also the view of the Andhra (165 ITR 228) Madras High
Court (287 ITR 271) and the Punjab High Court in 327 ITR 278.
ROLLOVER BENEFITS
The above liberal interpretation was not accepted by the Bombay High
Court in 312 ITR 40. Purchase in the name of adopted son was
considered not eligible for rollover benefits on transfer of the old
property. Again the Punjab High Court itself chose to deny the benefit
in 306 ITR 335 choosing to give a strict interpretation of the term
‘assessee'. The Bombay High Court specifically dissented from the
views of the Madras and Andhra High Courts.
Rollover benefits are made available for residential house,
agricultural land and even for construction and flats. Even
investments in two flats will be permitted. It should however be shown
that the two flats are meant exclusively for residence 309 ITR 329
(Kar).
The term ‘purchase' in Section 54 of the Income Tax Act, 1961 must be
given its normal meaning. It will take in payment in kind such as
adjustment towards an old debt. There is no stress in the Section on
‘cash and carry'. Release by three-brothers in favour of the eldest
brother for a consideration will amount to purchase by the eldest
brother of the share of each of the brothers for a price 120 ITR 46
(SC).
Date of taking possession is relevant for computing the time limit
within which the roll over benefit has to be availed off. The date of
registration is not so important for computing the prescribed time
limit. Purchase of a portion of the self occupied house is also
eligible for exemption even though the assessee was residing in the
same house both before and after purchase.
Time limits are also laid down to take advantage of the capital gains
exemption deposit schemes. Courts have held that the due date for such
deposit can be the due date under the extended time limit given in
Section 139(4).
The profits from the sale of the property must be utilised for
specified purpose before the date given under Section 139(4). It is to
be hoped that the conflict in interpretation of these provisions will
be settled finally in the next Finance Bill.
--------------------------------------------------------------------------------
You can sell an old house and use the proceeds to invest in a new one
without attracting the provision for taxation of the resulting capital
gains.
--------------------------------------------------------------------------------
(This article was published in the Business Line print edition dated
December 26, 2011)
T.C.A.RAMANUJAM RelatedPHOTOS Real estate market knows no slump.
Prices continue to be on a high. The temptation to buy new property
faces price constraints. Who will not like to have a new residential
house inspite of the prices being so high? If you own an old house,
you can dispose it off and invest in a new house without attracting
the provision for taxation of the resulting capital gains on the sale
of the old house. This law applies even to agricultural lands.
Despite the law being in existence for more than 3 decades, certain
areas still require clarification at the highest level. Is it
mandatory that the new house should be purchased only in the name of
the assessee seller of the old house?
Delhi HC View
Ravindra Kumar Arora sold his property for Rs 4.33 crore in 2006 and
invested a major part of the sale proceeds in the purchase of a new
house in 2009 in Safdarjung Enclave. He claimed abatement of capital
gains to the extent of the investment into the new property. While the
property sold was in Arora's own name, the purchase was made jointly
in the names of the assessee and his wife.
He explained that in order to avoid litigation after his death, he had
included his wife's name also though the entire investment flowed from
him only. The Assessing Officer allowed exemption only to the extent
of 50 per cent and taxed the balance as capital gains.
The Delhi High Court heard the Revenue appeal in the matter. It noted
that stamp duty and registration charges and all other expenses were
all borne by Arora. Arora was physically handicapped. He was the real
owner of the house.
The Delhi High Court considered these facts and ruled that merely
because Arora had included the name of his wife and made it joint
property, roll over benefits cannot be denied. Such a conduct has
rather to be encouraged. It gives empowerment to women.
Even the Supreme Court has accepted the theory of constructive
ownership in Podar Cement's case. The Section nowhere insists that the
house should be purchased by the assessee only. Joint purchase should
not stand in the way of benefits.
The objective behind the provision is to provide impetus to the house
construction. As long as this purpose is achieved, hyper-technicality
should not impede the claim of deduction which has been allowed by the
Parliament. Purposive construction is to be preferred as against the
literal construction.
A beneficial provision should be interpreted liberally in favour of
exemption and deduction to the taxpayer. The word ‘assessee' must be
given wide and liberal interpretation so as to include legal heirs
also. This was also the view of the Andhra (165 ITR 228) Madras High
Court (287 ITR 271) and the Punjab High Court in 327 ITR 278.
ROLLOVER BENEFITS
The above liberal interpretation was not accepted by the Bombay High
Court in 312 ITR 40. Purchase in the name of adopted son was
considered not eligible for rollover benefits on transfer of the old
property. Again the Punjab High Court itself chose to deny the benefit
in 306 ITR 335 choosing to give a strict interpretation of the term
‘assessee'. The Bombay High Court specifically dissented from the
views of the Madras and Andhra High Courts.
Rollover benefits are made available for residential house,
agricultural land and even for construction and flats. Even
investments in two flats will be permitted. It should however be shown
that the two flats are meant exclusively for residence 309 ITR 329
(Kar).
The term ‘purchase' in Section 54 of the Income Tax Act, 1961 must be
given its normal meaning. It will take in payment in kind such as
adjustment towards an old debt. There is no stress in the Section on
‘cash and carry'. Release by three-brothers in favour of the eldest
brother for a consideration will amount to purchase by the eldest
brother of the share of each of the brothers for a price 120 ITR 46
(SC).
Date of taking possession is relevant for computing the time limit
within which the roll over benefit has to be availed off. The date of
registration is not so important for computing the prescribed time
limit. Purchase of a portion of the self occupied house is also
eligible for exemption even though the assessee was residing in the
same house both before and after purchase.
Time limits are also laid down to take advantage of the capital gains
exemption deposit schemes. Courts have held that the due date for such
deposit can be the due date under the extended time limit given in
Section 139(4).
The profits from the sale of the property must be utilised for
specified purpose before the date given under Section 139(4). It is to
be hoped that the conflict in interpretation of these provisions will
be settled finally in the next Finance Bill.
--------------------------------------------------------------------------------
You can sell an old house and use the proceeds to invest in a new one
without attracting the provision for taxation of the resulting capital
gains.
--------------------------------------------------------------------------------
(This article was published in the Business Line print edition dated
December 26, 2011)
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