The Hindu Business Line : Can a buyer pay with three cheques?

According to the Will, if the house is to be sold, 50 per cent of the consideration is be given to the eldest son, while the remaining 50 per cent is to be shared equally between the other two sons.

As we have decided to sell the house, can the buyer of the property be asked to issue three separate cheques in the ratio mentioned above to each of the three sons?

How will the capital gains be computed? Will it be in the same ratio? — Shantaram K.R.

The capital gains will accrue to each of the three sons in the ratio of 50 per cent, 25 per cent and 25 per cent.

This will be in accordance with the Will left by your father in this regard. The buyer can be requested to issue three separate cheques in respect of the sale consideration in the same proportion.

My father passed away in February 2007 leaving behind a house.

This property was subsequently registered in the name of my mother who is 65 years old.

My mother has no other source of income. We are now proposing to sell this property for Rs 10.50 lakh. Will any capital gains arise in her hands? Is she eligible for any tax exemption?

Should the sale proceeds be divided among my mother, her three sons and one daughter and should the tax be paid by each of us individually? — K.V. Suresha

From the facts given by you it appears that the house left behind by your father is a self acquired one and further that he died without leaving a Will i.e. intestate.

Given the situation, the property will be passed to his first class legal heirs being his three sons, wife and one daughter.

This would mean that the property would devolve to the extent of one fifth on each of the said persons.

The capital gains will therefore arise to the extent of one fifth in the hands of each of the said five legal heirs.

You may consider claiming exemption in the hands of each of these persons to the extent it is taxable beyond the maximum amount not chargeable to tax by investing in house and thus being eligible for exemption under Section 54 or by investing in the bonds of Rural Electrification Corporation or National Housing Authority of India for exemption under Section 54EC subject to satisfying the other conditions in those Sections.

The fact that the property is registered only in the name of the mother will not make a difference in this regard.

I entered into an agreement for acquiring a flat from a builder in September 2004.

Under this agreement, I was required to pay 95 per cent of the cost in December 2004, which I have already done.

I was supposed to get possession of the flat by October 2007, but the flat is yet to be handed over to me.

In the meantime, I am planning to sell the same in January 2008 before taking possession of the flat.

Under these circumstances, will the gain would be assessed as long term or short term?

Especially when more than three years would have expired from the date of payment of 95 per cent of the consideration, at the time of sale. — Anish Kapoor

When an agreement is entered into with the builder, what you have got as an asset is the right to get possession of a flat.

In the circumstances, given that the flat has not been completed and possession not handed over, which would be the case even when you sell, what can be said to have been transferred is only the right to get possession of the flat.

This right arose to you as a result of the agreement entered into by you in September 2004. Since it is this right which is being transferred and since the right has been held by you for a period exceeding 36 months, the gain as a result of the same will be a long-term capital gain in your hands.

Will the profit from dealing in futures and derivatives in the share market be treated as speculative income or as normal business income?

Can an income from normal trading transactions be set off against such loss from dealing in futures and derivatives? — P. Krishna Prasad

Section 43(5) of the Act provides that transactions in share, securities, goods or commodities which are settled periodically or ultimately otherwise than by actual delivery will be treated as speculative in nature.

The loss or income arising there from will therefore be treated as speculative loss or income.

This section, however, provides that trading in derivatives referred to in section 2 (aa) of the SCRA 1956, carried on in a recognised stock exchange will not be treated as a speculative transaction.

This benefit will be available only if the transaction is carried on through a registered broker or sub-broker or by banks or mutual funds and where the transaction is carried out electronically on screen based systems and which is supported by a time stamp contract note which indicates the client identity and the number allotted under the SEBI Act or the SCR Act or the Depositories Act and also gives the permanent account number of the client.

It can therefore be seen that the dealing in derivatives satisfies all the conditions stated above, the loss or profit will not be treated as speculative in nature but will be treated as a regular business loss.

If the transaction is not treated as speculative, such loss being a regular business loss can be set off against income from normal trading transactions being business income.

If, however, the loss is speculative in nature, the same cannot be done but can only be carried forward and set off against speculative income within a period of 4 assessment years immediately succeeding the assessment year in which the loss is first computed.

(Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002)