Capital Gain- MISCELLANEOUS TOPICS
Section 51 {Read Along With Section 56}: Forfeiture Of Advance Money
• General Meaning: A person initially enters into an agreement for the sale of any capital asset and receives the advance money from the proposed buyer but subsequently the proposed buyer refuses to purchase the said capital asset and the proposed seller forfeits the advance money received.
• Treatment:
❑ Advance Money Received and Forfeited by the Assessee on or after 01.04.2014:
As per Section 56, the advance money so forfeited by the assessee is treated as the income of the assessee u/h 'income from other sources'.
❑ Advance Money Received and Forfeited by the Assessee upto 31.03.2014:
Advance money so forfeited shall be reduced from the cost of acquisition of the capital asset while computing gains when the capital asset is finally transferred or sold. In the case of long-term capital gains, indexation would be calculated on the cost so reduced.
Example:
Mr. A, a recently married individual, buys a house for Rs 10 lakhs on 01.07.2012.
His wife runs away with his neighbor shortly after moving into this house. He agrees to sell his house to Mr. B and advance money of Rs 2 lacs has been received by Mr. A from Mr. B on 01.10.2012.
After coming to know about the tragedy which happened with Mr. A, Mr. B cancels this deal and the advance money is forfeited.
Mr. A ultimately sells the house to Mr. C for Rs 13 lakhs on 01.06.2013. In this case, the cost of acquisition shall be taken to be Rs 8 lakhs (Rs 10 lakhs - Rs 2 lakhs) and STCG of Ps 5 lakhs would arise to Mr. A.
❑ Advance Money Received and Forfeited by the Previous Owner is Ignored.
With a view to ascertaining the Fair Market Value ('FMV’) of a capital asset for the purposes of computing capital gains, the Assessing Officer may refer the valuation matter to a Valuation Officer appointed by the Income Tax authorities.
Reference can be made to the Valuation Officer in the following cases:
❑ Where the Assessing Officer believes that FMV of the asset exceeds the value declared by the assessee by more than Rs 25,000 or 15%, whichever is less; or
❑ Where the value declared by the assessee has been determined by a registered private valuer and the Assessing Officer is of the opinion that FMV of the asset is at variance with the value determined by the registered private valuer; or
❑ Where the Assessing Officer believes that such reference is necessary having regard to the nature of the asset and other relevant circumstances.
▪ Regular Mortgage:
The assessee mortgages his house with the bank for taking a loan, which will be repaid by him along with applicable interest.
• Reverse Mortgage:
❑ Under a reverse mortgage, an individual (generally a senior citizen) mortgages his house with a bank under the relevant scheme and the bank agrees to pay
#CapitalGainMISCELLANEOUSTOPICS
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