Sale of Under Construction Property – Taxability, Nature of Gain, Date of Indexation, Benefit U/s. 54 or 54EC
Taxability of Capital Gain on sale of under construction property, Nature of Gain, Date of Indexation, Availability of benefit under section 54 or 54EC
Background -Developer engaged in the business of Property invites buyers for purchase / bookings of property at much earlier stage than construction thereof. Accordingly, the intended buyers book the property rights and advance payment for booking is made. Further, payments are made to the developer as and when demanded and also with the progress in the construction. Possession of the property is made available to the intended buyers after 3-4 years of the booking and may be sometime even longer period. In between many times intended buyers transfer their rights to other parties. Similarly, many buyers transfer the property after they have obtained possession from the developer. The issue normally arises in the context of transfer of rights in the property under construction as well as transfer of property after taking the possession thereof as regard the point whether gain on transfer is short term or long term. In other words, question normally arises as regards date of acquisition of rights in the property. In this context it is stated that at the stage booking is made by the intending buyer with the developer many times even the specifications / description of project are not available and confirmation as regards the property rights is given by the developer after a lapse of time. In this regard one view can be that the intended buyer has acquired the rights as soon as he has given the initial advance though specification in regard to project / property are not available. The other view can be that the right would come into existence when the developer confirms the bookings and issue necessary allotment letter to the intended buyers after the project has been properly described. It is stated that the date of acquisition of the rights would depend upon facts of each case and the documents executed / provided by the developer to the intended buyers. In case of initial advance if there is no commitment or allotment by the developer, same may not amount of acquisition of rights in the property. Property rights may generally be acquired by the intended buyer only when an allotment letter specifying the project etc. has been issued.
In case the intended buyer transfer his rights in the property during the period when construction is in progress and he has not obtained possession of the property, the right of the buyer would be in the nature of capital assets and accordingly, gain arising on such transfer would be in the nature of long term or short terms gain depending upon the period of holding.
In case of transfer of property after possession has been obtained by the buyer from the developer on construction of the project, a question normally arises whether the period prior to taking of possession of the property, during which period it was only the right available to the buyer, is to be reckoned for the purpose of determining whether the capital gain is short term or long term or not. In this regard contention is normally raised that rights in the property is a capital asset of different nature than the property. Therefore, period prior to taking of possession is not to be considered. It is, however, stated that the buyer gets possession of the property in continuation of his holding of right in the property. It cannot be said that in terms of Section 2(47) of the Act assessee has transferred his rights in the property held earlier to acquire the actual property. It is not a case of sale or exchange. Buyer continues to hold the capital asset. Only its form changes on getting actual possession of the property. Therefore, it cannot be said that period of holding would be counted only from the date of getting the possession. Accordingly, the earlier period is also to be counted for the purpose of determination of nature of the capital gain, whether short term or long term.
Taxability of Capital Gain on sale of under construction property, Nature of Gain, Date of Indexation, Availability of benefit under section 54 or 54EC
Background -Developer engaged in the business of Property invites buyers for purchase / bookings of property at much earlier stage than construction thereof. Accordingly, the intended buyers book the property rights and advance payment for booking is made. Further, payments are made to the developer as and when demanded and also with the progress in the construction. Possession of the property is made available to the intended buyers after 3-4 years of the booking and may be sometime even longer period. In between many times intended buyers transfer their rights to other parties. Similarly, many buyers transfer the property after they have obtained possession from the developer. The issue normally arises in the context of transfer of rights in the property under construction as well as transfer of property after taking the possession thereof as regard the point whether gain on transfer is short term or long term. In other words, question normally arises as regards date of acquisition of rights in the property. In this context it is stated that at the stage booking is made by the intending buyer with the developer many times even the specifications / description of project are not available and confirmation as regards the property rights is given by the developer after a lapse of time. In this regard one view can be that the intended buyer has acquired the rights as soon as he has given the initial advance though specification in regard to project / property are not available. The other view can be that the right would come into existence when the developer confirms the bookings and issue necessary allotment letter to the intended buyers after the project has been properly described. It is stated that the date of acquisition of the rights would depend upon facts of each case and the documents executed / provided by the developer to the intended buyers. In case of initial advance if there is no commitment or allotment by the developer, same may not amount of acquisition of rights in the property. Property rights may generally be acquired by the intended buyer only when an allotment letter specifying the project etc. has been issued.
In case the intended buyer transfer his rights in the property during the period when construction is in progress and he has not obtained possession of the property, the right of the buyer would be in the nature of capital assets and accordingly, gain arising on such transfer would be in the nature of long term or short terms gain depending upon the period of holding.
In case of transfer of property after possession has been obtained by the buyer from the developer on construction of the project, a question normally arises whether the period prior to taking of possession of the property, during which period it was only the right available to the buyer, is to be reckoned for the purpose of determining whether the capital gain is short term or long term or not. In this regard contention is normally raised that rights in the property is a capital asset of different nature than the property. Therefore, period prior to taking of possession is not to be considered. It is, however, stated that the buyer gets possession of the property in continuation of his holding of right in the property. It cannot be said that in terms of Section 2(47) of the Act assessee has transferred his rights in the property held earlier to acquire the actual property. It is not a case of sale or exchange. Buyer continues to hold the capital asset. Only its form changes on getting actual possession of the property. Therefore, it cannot be said that period of holding would be counted only from the date of getting the possession. Accordingly, the earlier period is also to be counted for the purpose of determination of nature of the capital gain, whether short term or long term.