Int paid during construction period is treated as cost

[Guest]

Dear Sir

Mr X has booked a flat in Jaipur ( Raj. )  with a private builder in June 2007  and  to pay the cost of flat  he has taken a housing loan . The possession of the 

said flat was taken in Dec 2009. Now Mr X sold the flat in August 2010 and has purhcases  another flat in Sept 2010  .

1. Whether he can take benefit of  long term capital gain as the period of  date of booking and date of sale is more 36 months or only date of possession will count for the purpose of Long term capital gain. Please give your opinion looking to the recent judgement of Pun and Har court and also of  Bombay HC.

2. In case it is treated as short term capital gain,   whether Mr X can treat the interest paid as cost of acquisition of the assets. Please give  the opinion on the basis of some  case laws. 

[Surender Gupta]

It will be treated as long term capital gain from the date of agreement. Provisions of section 2(47) have been analysed by the Madras High Court inMADATHIL BROTHERS Versus DEPUTY COMMISSIONER OF INCOME-TAX (2007 -TMI - 4563 - MADRAS HIGH COURT). HC has examined the issue in detail with reasons of amendment and applicability of Supreme Court Decision in the matter of C.I.T. Vs. PODAR CEMENT PVT. LTD (1997 -TMI - 5598 - SUPREME Court) in the present matter.

The capital gain arising on the  transfer of  capital assets has to be worked out from the date of the agreement under which the assessee was put in possession  of the  property.

You may also see:

Decision of the Punjab and  Haryana  High Court  reported in (C.I.T. Vs. VED  PARKASH  AND SONS  (HUF) [1993 -TMI - 20244 - PUNJAB AND HARYANA High Court]),  the  decisions of the  Rajasthan  High  Court reported  in  (C.I.T. Vs.  VISHNU  TRADING  AND INVESTMENT CO [2002 -TMI - 12246 - RAJASTHAN High Court ]) and (C.I.T. Vs. RAJASTHAN MIRROR MANUFACTURING  CO [2002 -TMI - 12098 - RAJASTHAN High Court ]) as well as the decision  of  the  Andhra Pradesh  High  Court reported in (M.SYAMALA  RAO Vs.  C.I.T [1998 -TMI - 16643 - ANDHRA PRADESH High Court]),

AI Summary

Date of agreement determines long term capital gains treatment; gain measured from agreement date, not possession date. The date of the agreement under which the assessee is put in possession is the relevant date for computing long term capital gain; Madras High Court authority (Madathil Brothers) and several High Court decisions support computing capital gain from the agreement date rather than from physical possession; the reply does not provide a separate determination on inclusion of interest paid during construction in cost of acquisition.