Harishchandra is a property dealer and Rajnikanth is an automobile spare parts dealer.They entered …
Harishchandra is a property dealer and Rajnikanth is an automobile spare parts dealer.
They entered into an agreement to sell a building on 1.9.2017 for Rs90lakh. Rajnikanth made a cash down payment of Rs15lakh through a crossed check.
The building was finally sold on 1.1.2018. The stamp duty value of building on 1.1.2018 was Rs150 lakh and on 1.9.2017 was Rs140Lakh.
Please explain the tax implications in the hands of Harishchandra and Rajnikanth.
The other details are:
-Harishchandra purchased the building for Rs75 lakh on 12.7.16
-Harishchandra sold building in the course of his business.
Taxability of Harishchandra:
Income calculation:
1. Cost of building = 75,00,000
2. Stamp Value of building = 1,40,00,000
3. Business income (2-1) = Rs 65,00,000.
Reasons for doing above:
1. In this case, building is a business asset.
2. The above calculations are done according to section 43CA of the Income tax Act.
3. As the building is sold below the stamp value, so stamp value is used for calculating income.
4. Sale value is taken as stamp value on date of agreement (viz 1.9.2017) because
a. This is a business transaction.
b. Before selling building the two parties entered into agreement to sell and
c. Buyer made a cash down payment.
Taxability of Rajnikanth:
As Rajnikanth bought building at a value lesser than stamp value so the difference between stamp value and cost of purchase would be taxed as "Income from Other sources".
Income calculation:
1. Cost of building = 90,00,000
2. Stamp Value of building = 1,40,00,000
3. Income from other source (2-1) = Rs 50,00,000.
Reasons for doing above:
1. The above calculations are done according to section 56(2)(vii) of the Income tax Act.
2. The income should be taxed under Income from other sources.
3. As the building is sold below the stamp value, so stamp value is used for calculating income.
4. Sale value is taken as stamp value on date of agreement (viz 1.9.2017) because
a. Before selling building the two parties entered into agreement to sell and
b. Buyer made a cash down payment.
