The Hindu Business Line : ‘My grandfather died without leaving a Will’

Now we are selling the ancestral property and we believe that when it is sold, the proceeds will be divided between Mr A and the two sons of Mr B in the ratio 50:25:25.

Who is liable for the tax on capital gain on the sale of the ancestral property? — Arun

You are correct in your understanding that on the death of your grandfather, the property would devolve on his children equally and that since one of the sons is dead, his share in the property would devolve on his children in equal shares.

In this context, your understanding that the ownership in the property would be that Mr A would get 50 per cent and 25 per cent each for the two sons of Mr B would be correct.

It is assumed that the reference made by you to the grandfather is to your father’s father, that his wife i.e. your grandfather’s wife pre-deceased him, that your grandfather had no daughters, that Mr B also had no daughters and also that Mrs B pre-deceased Mr B. Subject to these, the tax on the long-term capital gain on the sale of the ancestral property would be payable in the proportion as mentioned by you.

You have through this column on August 24, 2008, stated that in a case where the loan given to a friend is not repaid by the friend by way of cash but by way of transfer of shares to the extent of loan to such individual lenders account, there will be no tax impact on such transfer.

Is it not that capital gains tax will be attracted in the hands of the borrower on his transfer of shares to the lender in settlement of his borrowing to the lender? — B.S. Purushotham

You are right in your observation that capital gains tax will arise in the hands of the borrower if it is found that a gain arises on this transfer of shares by the borrower to the lender in settlement of the borrowing from the lender.

This would be a transfer within the meaning of Section 2(47) of the Act.

It may be observed here that the querist whose query was answered through this column was the lender and it was clarified through this column that no tax will arise in his hands on such receipt of shares in settlement of the principal amount lent by him to his friend.

The columnist thanks the reader for pointing out this aspect.

I am selling a flat and the gain on such transfer would be short-term capital gain as the said flat was registered in my name only thirteen months ago.

I have been paying EMI for this flat since February 2005 i.e. from the time of signing the agreement itself. I have claimed deduction in respect of the interest paid on the said housing loan for the period from April 2007 to March 2008.

Will I be able to add the interest paid on the housing loan from February 2005 to the cost of acquisition, so as to reduce my tax liability on the short-term capital gain?

If so, will it be possible for me to include the interest paid on the housing loan for the period from April 2007 to March 2008 to the cost of acquisition, as I have already claimed deduction of the same against my taxable income? — Vijay

The interest paid on money borrowed for acquiring a capital asset may be added to the cost of the asset in a case where such interest is otherwise not allowed as a deduction.

This proposition is supported by the decisions in the following cases:

CIT vs Maithreyi Pai (152 ITR 247, Karnataka)

CIT vs Mithilesh Kumari (92 ITR 9 Delhi)

ACIT vs K.S.Gupta (119 ITR 372 AP)

Naozar Chenoy vs CIT (234 ITR 95 AP)

In your case, since the interest on the housing loan has already been claimed as a deduction, the question of claiming deduction in respect of the same by adding it again to the cost of acquisition does not arise.

The interest, which has not been claimed as deduction may, however, be added as part of the cost of acquisition of the flat.

Mail your queries to

taxtalk@thehindu.co.in

or by post to

‘Tax Talk’, Business Line, Kasturi Buildings,

859, Anna Salai, Chennai-600002

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