Capital gain in case consideration amount not received partially

[CABIJENDERKUMAR BANSAL]

Sir my client executed a sale deed of land of ₹ 50 lacs of which 5 lacs were received in advance and balance ₹ 45 lacs were to be received at the time of sale deed. ₹ 45 lacs cheques (30 & 15) were received but after registry, cheque of ₹ 15 lacs was dishonored. Now my client has filed a suit in court for this & verdict is still awaited. Capital gain to be calculated on total ₹ 50 lacs (total consideration or ₹ 35 Lacs(consideration received). or any other treatment is suggested?

[praveen m r]

I feel you need to pay capital gains on 50 Lakhs totally. Since capital gains is computed on the basis of sale consideration and doesnt mention anything about whether received or not.

You may check for case laws if any to support your claim of 35 Lakhs.

[K.S.AIYAR & CO.]

Once consideration amount is not realised the entire transaction gets nullified and sale deed becomes invalid. Because the contract is fulfilled only when both parties complete their part of obligation. Under the circumstances, you can take a stand that there is no transfer and as such no CG.

AI Summary

Capital gains treatment depends on whether consideration was realised or the transfer is treated as nullified pending legal resolution. Where a sale records a total contractual consideration but part remains unpaid or a cheque is dishonoured and recovery is pending, two positions arise: tax on the full contractual sale consideration irrespective of receipt, or no capital gain if non-realisation leads to nullification of the transfer. The correct treatment hinges on whether the transfer is legally effective despite payment default and the outcome of recovery proceedings.