Capital gain utilised to buy flats for sons

S.C. Vasudeva

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Q. Affected by 1984 anti-Sikh riots, I sold my house at Delhi for Rs 2.5 lakh and purchased another one at Mohali for the same price in 1985. I lived in this house with my family from 1985 to 2015. During these 30 years my two sons got married and they now have their own families. My younger son was supported by his in-laws who purchased a house for him in Mohali and helped him financially also. I also contributed Rs 10 lakh out of accumulated funds of my father and also my retirement funds and Rs 30 lakh was still left outstanding against my son which was to be paid by us later on.

Now in the financial year 2015-16 I sold my house for Rs 80 lakh and this entire amount was utilised as under:

a) I bought a flat for Rs 50 lakh in the name of my elder son in the Kharar side.

b) Rs 30 lakh were paid to my younger son’s in-laws to clear off the outstanding amount.  Thus, I have sold my house for Rs 80 lakh and spent the amount on purchasing two different house for my two sons, which can be taken as their share in my property or a gift each to them from my side. 

My queries are:

(i) Am I required to show the above transactions in the income tax return for the assessment year 2016-17.  If yes, which IT return form I need to fill up.

(ii) Is sale and purchase of property done by me as above in order?

(iii) Is any income tax due to be paid by me in view of the above transactions? If yes, please advise accordingly so that I may not be in trouble at a later date. — Surinder singh

A.Your queries are replied hereunder:

a) You are required to show the transactions mentioned in the query in the income tax return for the assessment year 2016-17.  The return form applicable to you is ITR2.

b) There is nothing  wrong with the transaction  effected by you with regard to the purchase and sale of the property.

c) You would be liable to pay tax on the amount of capital gain arising on the sale of the house which has been utilised for purchasing house in the name of your son and towards repayment of outstanding loan  to the in-laws of your younger son. The amount of capital gain would be computed after  taking into account the indexed cost  of the house. The amount of tax payable would be as under:

It may be added that the liability in respect of tax on capital gain has arisen because you have  purchased the house  in the name of your son. You would have saved tax to the extent of the amount of capital gain utilised for the purchase of the house, if the residential house had been purchased in your name.

Should we pay transfer fee to society?

Q.We bought a flat on Mira Road in the name of three persons— my mother, brother & I in 2010. My mother passed away in 2015. I gave my brother his share of 50 per cent of the flat through a registered release deed document, I paid stamp duty and registration charges.

Now the secretary and committee members of the society in which this flat is are asking for a transfer fee of Rs 30,600. Is this justified? We have already once paid the transfer fee when we bought the house in 2010. I have not sold the flat to a third party. I have just purchased 50 per cent of my brother’s share. Can you find out whether it is legal or illegal for the society to charge transfer fee in this case? — Nitesh Thakkar

A.You have to check up this issue with the bylaws and rules of the society. It is not possible to give a reply to your query unless complete documents in this regard are made available.

Right over trees on ancestral land

Q.My grandfather’s brother did not have a son. My grandfather gifted a portion of agricultural land to his son-in-law through a gift deed though the land had not been divided between the two brothers.  The land so gifted had 2/3 mango trees.  The gift deed executed by my grandfather did not refer to those mango trees. My grandfather’s son-in-law has sold the land so gifted and the sale deed refers to the mango trees also. Kindly clarify the following issues in this regard.

a) Whether the mango trees have also become the property of the buyer?

c) Can I make a claim in respect of the land as it was part of the ancestral property as well as the mango trees? — Vinod Kumar

A .It has been mentioned in the query that your grandfather had gifted a piece of agricultural land to his son-in-law from his share of agricultural land owned by your grandfather and his brother.  Further, that a gift deed was duly executed and the stamp duty thereon had been paid at the time of registration of such a gift deed. This would  have enabled  your grandfather’s son-in-law to get the mutation done in his name in the revenue records. Reply to your queries  is based on the aforesaid presumptions.

a) A person to whom the agricultural land has been gifted  has a right to sell the same.  His title to land being legal, any sale would enable him to transfer a legal title to the other party by sale or any other mode.

b) The particulars of agricultural land with specific Khasra No. etc; would have been specified in the gift deed for the  purpose of identification of the agricultural land which has been gifted. Even if the gift deed did not mention about the mango trees existing on the said land, the same being part of the agricultural land which had been gifted, the buyer would become the owner of such mango trees also.  

c) In case the documents executed by your grandfather were legally valid  it would not be possible for you to make a claim in respect of the land which has been sold by your grandfather’s son-in-law. 

Releasing rights to freehold property

Q.Can a co-owner release his rights of a freehold jointly owned property in Delhi to other blood relation through release deed on payment of requisite stamp duty? — Ashok Bhalla

A. A co-owner can release his rights in a freehold property jointly owned with another person by execution of a release deed. Such a release deed is required to be registered and stamp duty as leviable thereon shall have to be paid in accordance with the prescribed rates applicable in Delhi.

The release deed so executed can also entail the payment of tax on the amount of capital gain which will have to be computed on the basis of the market value of the share so released unless it is a case of blood relation in whose favour the release deed has been executed and such a relative happens to be covered within the definition of ‘relatives’ defined in Section 56 of the Act. The relatives so covered are as under:

a) Spouse of the individual;

b) Brother or sister of the individual;

c) Brother or sister of the spouse of the individual;

d) Brother or sister of either of the parents of the individual;

e) Any lineal ascendant or descendant of the individual;

f) Any lineal ascendant or descendant of the spouse of the individual;

(g) Spouse of the person referred to in item (b) to (f).

Tax on compensation amount

Q.My agricultural land 4K 13 M, was agreed by HUDA. The land was never recorded as being used for agricultural purpose, though, in fact, it was. It is situated on DHS Road near city and is perhaps within municipal limit. TDS was deducted on compensation paid even though the High Court never ordered it.

My  query is:

Whether  the deduction is valid and legal 

Can I gift this money to my married elder sister. — Vijay Singh

A. You have pointed out in the query that the land was being used by you for agricultural purposes.  It is presumed that it was so used by you for two years before the date of acquisition.  Therefore, in case you you can prove the fact of the land had been used for agricultural purposes within the last two years by any supporting evidence, the compensation received would not be taxable in accordance with the provisions of section 10(37) of the Income Tax Act 1961 (The Act). 

In case it is not possible to prove that the agricultural operations were  being carried out on the land so acquired, you would be liable to pay tax on the amount of capital gain arising on account of acquisition of land by HUDA.  

The cost of agricultural land or fair market value of such land as on 1.4.81 (in case the land was acquired prior to 1-4-1981) would be indexed on the basis of the notified cost inflation index. Such indexed cost would be deductible from the amount of compensation receivable by you.  You would be liable to pay income-tax thereon.  

Tax deducted at source would be adjustable against tax payable on the amount of capital gain.  The issue whether tax has been deducted legally is of no consequence as you would be entitled to refund of such tax in case the amount of compensation is not taxable.

In the alternative, tax so paid will be adjusted against the tax payable on the amount of capital gain.

You can gift any amount to your married daughter out of the net amount i.e. the amount of compensation so received, less tax, if any, payable thereon.

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