Tax Tips

SC  Vasudeva

Capital gains tax after seller’s death

Q. My father passed away in 2022. He had sold an immoveable property before his death. However, I did not inform about the demise of my father to the department. An assessment has been framed in the name of my father and a demand has been raised in his name on the amount of capital gain computed on the basis of stamp duty value of the property. Please advise what should be done in this case. — Parth Chopra, Chandigarh

A. There are number of decisions of courts that have held that no assessment can be framed in the name of a deceased person and any such assessment order without bringing the legal heirs on records is invalid in the eyes of law. However, there is no specified statutory provision under the Act, which requires a legal heir to intimate the tax department about the death of an assessee. You can take up this legal issue before the appellate authorities. There is every chance of you succeeding on the basis of the aforesaid legal principle.

Declaration of rental income of gifted property in ITR

Q. My son, who is an NRI, acquired a residential property and funds for the acquisition of said property were provided by me. My son has declared the said property and rental income in his IT return. Please guide about the following:

1. Since funds for the acquisition of said property were provided by me. Whether this property and rental income should be reflected in my IT return.

2. If yes then, would anything in writing be required from my son in my favour. — Mohan Kumar, Patiala

A. The amount paid by you for the acquisition of property in the name of your son would be treated as a gift to him. The gift so made is not taxable in view of the provisions of Section 56 of the Act. It would be advisable to make out a letter of gift by you for the total amount spent on the acquisition of the property as well as an acceptance letter from your son in respect of such a gift. The letters should contain complete address, PAN as well as Passport Number and date of its issue so as to provide complete details with regard to your status as well as of your son. These papers should be kept ready so that these can be produced before the tax authorities as and when sought by such authorities. The procedure as suggested would obviate the necessity of showing the rental income as your income.

Deposit in capital gains scheme

Q. I sold a residential house in December 2023 and invested the entire consideration in acquisition of another residential house within the prescribed time. However, I did not deposit the amount of capital gain arising on such sale under the capital gains scheme and the amount of entire consideration was deposited in my bank account and was later utilised for purchasing the new residential house. I did not own any other house property. The Assessing Officer has disallowed my claim on the contention that I did not comply with the requirements of Section 54 of the Income-tax Act 1961 with regard to the deposit of capital gain under capital gain scheme. Please advise. — Savita Malhi, Chandigarh

A. The Assessing Officer should have allowed the benefit under Section 54 of the Income-Tax Act 1961 (The Act) as the requirement of deposit of the amount of capital gain under capital gain scheme is a technical requirement and does not take away the substantive requirement of the provisions of the aforesaid section. In a recent case reported in 109 ITR(T)373 (Del), the learned Commissioner of Income Tax had modified the assessment under Section 264 of the Act on the contention that the Assessing Officer had allowed the benefit under Section 54 of the Act to the assessee though the assessee had not deposited the amount of capital gain under the capital gain scheme.

The Tribunal allowed the appeal of the assessee as he had acquired the new residential house within the prescribed time by utilising the entire sale consideration though the amount of capital gain had not been deposited under capital gain scheme. The above decision should help you in getting the desired relief in appeal before the CIT(A).

Property valuation report not approved

Q. I have sold two residential properties situated in Ludhiana. These properties had been purchased from a builder who had not provided cupboards and other necessary fittings for making the properties habitable. I incurred substantial expense in providing these facilities in the properties. However, I did not have the necessary supporting evidence for such improvement carried out. I was advised to obtain a valuation report from an approved valuer for such expenditure, which I did and filed the same with the assessing authority. The Assessing Officer has not allowed the indexed cost of such improvements while computing the long-term capital gain (LTCG) on the contention that the supporting evidence in the shape of valuation report is not acceptable. The amount of the sale consideration of both the said properties has been invested in the acquisition of a new residential house. The new property has been registered in the name of my parents, though the entire consideration for purchase of the property has been paid out of the sale proceeds of the two properties mentioned in the earlier part of the query. The exemption allowable under Section 54 has not been allowed by the Assessing Officer on the contention that the property is not registered in my name. I seek your advice in this regard. — Malvinder Singh, Mohali

A. I hope you are taking steps for filing appeal with CIT(A). During the course of arguments before the CIT(A), please make a reference to the decision of the Delhi Tribunal reported in 109 ITR(T) 439 wherein similar issues have been decided in favour of the assessee. In this case also a valuation report for the cost of acquisition of the property as well as for improvements had been submitted to the Assessing Officer. The Tribunal relied on a decision reported in 135(ITD)102 with regard to the reinvestment of sale proceeds in purchase of property by an assessee from his own bank account though the same was registered in the name of his parents. The Tribunal also agreed with the contention of the assessee that the valuation reports by an approved valuer could not be ignored in view of the fact that the Assessing Officer did not bring anything on record to prove that such valuation reports were defective.