Skip to main content

No retrospective effect of new capital gains tax rules

The Madras high court, in a recent order, has held that the restrictive provisions introduced in the Income Tax (I-T) Act, which call for reinvestment in only 'one' residential house in India for claiming capital gains tax exemption, apply from fiscal April 1, 2014.

The explanatory memorandum to the Finance Bill, 2014, had clarified that the benefit of capital gains tax exemption under section 54 and 54F was intended only in respect of reinvestment in one residential house in India. Thus, on enactment of the Bill, the relevant sections of the I-T Act were amended.

Earlier, the words used in the I-T Act were reinvestment in 'a residential house'. This is now substituted with 'one residential house in India'. Prior to the amendment, there was ambiguity on whether the term 'a residential house' meant a single unit or could include more than one new house.

Tax authorities often disputed the matter when a taxpayer had sold a house or any other long-term capital asset (say land) and reinvested in more than one house. However, courts in several instances passed orders in favour of the taxpayer. Court orders were favourable especially in those instances where the reinvestment was in adjoining flats and joint use by the family could be proven through a common kitchen, or a passage connecting the two flats. 

As this issue was litigious, the apprehension was that tax authorities could contend that the amendment made was clarificatory in nature. Thus, it would apply even to pending assessment cases. 

"However, the Madras high court's decision, which is the first such decision post the amendment to tax laws, makes it clear that the amendment curtailing reinvestment for the purpose of capital gains tax exemption in only one residential house in India, applies only from April 1, 2014. Thus, this decision will help taxpayers whose cases are currently pending at various levels of litigation," says Surabhi Marwah, tax partner at EY. 

In V R Karpagam's case, which was heard by the Madras high court, the taxpayer — under a land development agreement with a builder — was to receive 43.75% of the built-up area after development. This translated into five flats and the taxpayer claimed exemption under section 54F of the I-T Act on the value of the five flats. According to her, there were no taxable capital gains post claiming this exemption for the fiscal year 2006-07. 

The Madras high court observed, "Prior to the amendment, it is clear that 'a residential house' would include multiple flats or residential units, as in the present case where the taxpayer has got five residential flats." Hence, the high court ruled in favour of the taxpayer.

Article referred: http://timesofindia.indiatimes.com/business/india-business/No-retrospective-effect-of-new-capital-gains-tax-rules/articleshow/41565536.cms

Comments

Post a Comment

Most viewed this month

Court approached in the early stages of arbitration will prevail in all other subsequent proceedings

In National Highway Authority of India v. Hindustan Steelworks Construction Limited, the Hon'ble Delhi High Court opined that once the parties have approached a certain court for relief under Act at earlier stages of disputes then it is same court that, parties must return to for all other subsequent proceedings. Language of Section 42 of Act is categorical and brooks no exception. In fact, the language used has the effect of jurisdiction of all courts since it states that once an application has been made in Part I of the Act then ―that Court alone shall have jurisdiction over arbitral proceedings and all subsequent applications arising out of that agreement and arbitral proceedings shall be made in that Court and in no other Court. Court holds that NHAI in present case cannot take advantage of Section 14 of the Limitation Act, 1963 for explaining inordinate delay in filing present petition under Section 34 of this Act in this Court.
Post a Comment
Read more

No Rebate For Stamp Duty Paid In Another State - Bombay HC

A three judge bench of the Hon'ble Bombay High Court (Bombay HC) in a recent judgment in the matter of Chief Controlling Revenue Authority, Maharashtra State, Pune and Superintendent of Stamp (Headquarters), Mumbai v Reliance Industries Limited, Mumbai and Reliance Petroleum Limited, Gujarat1 has held that orders in case of a scheme of arrangement under Section 391 to 394 of the Companies Act, 1956 (Act) involving different High Courts in multiple states, are separate instruments in themselves. Accordingly, stamp duty would be payable on all the orders (and consequently, all the states) without the benefit of remission, rebate or set-off.
Post a Comment
Read more

The recovery of vehicles by the financier not an offence - SC

Special Leave Petition (Crl.) No. 8907  of 2009 Anup Sarmah (Petitioner) Vs Bhola Nath Sharma & Ors.(Respondents) The petitioner submitted that  respondents-financer had forcibly taken away the vehicle financed by them and  illegally deprived the petitioner from its lawful possession  and  thus,  committed  a crime. The complaint filed by the petitioner had been  entertained  by  the Judicial Magistrate (Ist Class), Gauhati (Assam) in Complaint Case  No.  608 of 2009, even directing the interim custody of the vehicle (Maruti  Zen)  be given to the petitioner vide order dated  17.3.2009.  The respondent on approaching the Guwahati High  Court against this order, the hon'ble court squashed the criminal  proceedings  pending   before  the  learned Magistrate. After hearing both sides, the Hon'ble Supreme Court decided on 30th...
7 comments
Read more