Know about your right to rightful compensation

Q. My agriculture land which I was using for agricultural purposes, situated within eight kilometer from the local limits of MC, was compulsorily acquired by the government after April 2004 at a throw away price of Rs 10 lakh per acre. I filed an appeal for increasing the compensation amount. The compensation amount was enhanced by the district court in the year 2006 from Rs 10 lakh to 15 lakh per acre. I again filed another appeal in the high court for increasing more compensation. The high court has also increased the compensation in the year 2009 from Rs 15 lakh to 20 lakh per acre. Now the state government has filed an appeal in the Supreme Court of India and sought the reduction of compensation amount from Rs 20 lakh to 10 lakh per acre. The appeal is pending in the Supreme Court of India.    

I received enhanced compensation from the district court in December 2007 and the same is kept in saving bank account. But the compensation amount enhanced by the high court has not been paid to me so far. I am told by my lawyer that the amount of enhanced compensation already received by me from the district court should be used for the purchase of agriculture land within two years from its receipt. But at this stage, it is not possible for me to purchase the agriculture land because the state appeal for the reduction of enhanced compensation is pending in the Supreme Court. In case the SC reduces the enhanced compensation then it will have to be refunded to the government. Secondly, the compensation amount has not been paid to me so far. Kindly advice me at the earliest on the following points:

1. Whether the time limit of two years will start from the date of the receipt of the balance amount of enhanced compensation from HC or from the date of the receipt of the enhanced compensation from the district court i.e. December 2007 or from the final decision of the Supreme Court in the state appeal.

 2. In case, the land is not available for sale, can I use the amount for some other purpose, and what would be my tax liability. — Kamal Yadav

A.Your queries are replied hereunder: 

(i) The amount of capital gain arising on compulsory acquisition of Agricultural land shall be exempt from tax under section 10(37) of the Act subject to the conditions specified hereunder:- 

a) The land is situated in the local limits of the municipal committee or corporation. 

b) Such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such individual or a parent of his. 

c) Such transfer is by way of compulsory acquisition under any law, or a transfer which is determined or approved by the Central Government or the Reserve Bank of India.

d) Such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the April 1, 2004.

The facts in the query indicate that the land was acquired after April 2004 and the agricultural land was being used by you for agricultural purposes. The amount of capital gain would not be taxable and therefore you need not purchase another agricultural land within a period of two years as advised by your lawyer.

(ii) The amount of capital gain being exempt from tax, you can utilise the same in the manner you decide.

How to gift a house to the son?

Q. What is the tax liability for a person who settles his apartment to his son and has no other real estate property but only some bank deposits? What is the position for the son in respect of tax? Is there any capital gain on such a transaction? — Ranjit Singh

A. It seems you intend gifting the apartment to your son. You will have to execute a gift deed in favour of your son and get it registered with the Sub-Registrar's office of the city where the property is based. This will involve the payment of stamp duty on the market value of the property as on the date of the execution of the gift deed. Such a gift would not be exigible to income tax under section 56 of the Income-tax Act 1961 (the act) and your son would not be liable to pay any income tax on the receipt of such a gift. This is because gift received by an individual from a relative as defined in the aforesaid section is exempt under the provisions of the said section. There is no capital gain chargeable on such a transaction. 

Exemption is meant for one house 

Q. I have read somewhere that section 54 of the Act provides for an exemption of capital gains in case a residential house is purchased within the specified time limit. Does this mean that exemption under the section would be for one house or it can be for more than one house? — Naval Ahuja

A.The term residential house used in section 54 of the Act has now been substituted by the words "one residential house" by the Finance Act 2014 w.e.f. April 1, 2015. The amended section is applicable for the assessment year 2015-16 and onwards. In view of many contradictory decisions by courts, the Act has now been amended to clarify the intentions of law.

Know the intricacies of hire-purchase

Q.I have the following queries with regard to purchase of a house on hire-purchase basis:

I purchased a house on hire-purchase basis in August 2000 and the possession was taken immediately. The cost of the house excluding interest was approximately Rs 14 lakh. The payment was made in installments spread over a period of 12 years, commencing September 2000 and completed in August 2012. I sold this house and the conveyance deed was executed in May 2014. I purchased a share in a co-operative group housing society in June 2014. The second last installment of Rs 6 lakh of this flat was paid in February 2015 and last installment of Rs 3 lakh was paid in July 2015. Can this amount of Rs 9 lakh be reduced from the long-term capital gain arising from sale of said house for calculating income tax on long term capital gain? The possession of the society flat is to be taken next month.  — Tilak Raj

A.You should be able to claim the exemption from the taxability of long term capital gain under section 54 of the Act to the extent of Rs 9 lakh paid within three years after the date of transfer of the flat purchased on hire purchase which was transferred in May 2014.

What all does not qualify as capital asset

Q.What is covered in the term capital asset for the purposes of computing capital gains on the transfer of immovable property under the provisions of the Income-tax Act? —Alok Soni

A. The expression 'capital asset' means property of any kind held by an assessee, whether or not connected with his business or profession. However, the following assets are excluded from the definition of capital asset:

1. Any stock-in-trade, consumable stores or raw material held for the purposes of business or profession. 

2. Personal assets of the assessee, i.e  movable property including wearing apparel and furniture held for his personal use or for the use of any member of his family dependent upon him. 

3. Agricultural land in India provided it is not situated -

a. In any area within the territorial jurisdiction of a municipality or a cantonment board, having a population of 10,000 or more; or 

b. In any area within the distance, measured aerially, I. Not being more than two kilometers from the local limits of any municipality, or cantonment board referred to in item (a) and which has a population of more than  10,000 but not exceeding one lakh; or

II. Not being more than six kilometers, from the local limits of any municipality, or cantonment board referred to in item (a) and which has a population of more than  one lakh but not exceeding 10 lakh; or

III. Not being more than eight kilometers, from the local limits of any municipality, or cantonment board referred to in item (a) and which has a population of more than  10 lakh.

4. 6.5 per cent gold bonds, 1977, or seven per cent gold bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government. 

5. Special bearer bonds, 1991 issued by the Central Government. 

6. Gold deposit bonds issued under Gold Deposit Scheme, 1999 or deposit certificates issued under Gold Monetisation Scheme 2015 notified by the Central Government. 

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