Payment For Amenities Can Be Included In Total Cost Of Acquisition Of A Flat
Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Author of Cyber Scams in India, Digital Arrest, The Money Trap and The Human Hack
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By Sunil Garodia
First publised on 2020-12-14 10:19:53
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Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Author of Cyber Scams in India, Digital Arrest, The Money Trap and The Human Hack
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In a landmark order that is likely to benefit many flat owners who have to pay capital gains tax if they sell their flats, the Income-Tax Appellate Tribunal (ITAT)'s Mumbai bench ruled in the favour of a taxpayer by allowing her to claim the cost of documented amenities (as distinct from furniture and fittings) in the total cost of acquisition before adjusting for indexation and arriving at the capital gain she made when she sold her flat.
The dispute arose as the assessing officer disallowed the payment made for amenities added to her flat in the total cost of acquisition, thereby increasing the capital gain she made and consequently, the tax payable by her rose by a handsome amount. The taxpayer appealed to the ITAT which directed the I-T officer to ascertain whether other flat owners had also availed of the said amenities and paid for them.
The assessing officers do not keep up with the times and almost always complete income tax assessments going by the rule book and past precedent. But even if the law does not change, there are certain areas where commercial practices and documentary evidence can guide the officers to conclude the genuineness of the claims.
In the instant case, it was found that 33 other flat owners in the society had availed of the amenities offer by paying various amounts to a sister concern of the promoters which provided them with the said amenities. The appellant taxpayer had documentary evidence of having paid Rs 9.4 lakh for special water proofing in toilets and the kitchen and special wood for the windows. These amenities increase the cost of acquisition as they add value to the property. Obviously, they fetch a better sale price too.
Further, the appellant taxpayer had been showing the said payment as an addition to her cost of acquisition in her financial statements and I-T returns from the year she purchased the property. The ITAT decided in her favour after taking into account all documentary evidence.
Real estate is now being sold in India with many add-ons, like passenger cars. Builders have a base unit where they give normal things. But a buyer can always pay more to get his or her flat custom built. That adds value to the property and increases the cost of acquisition. The taxman has to consider this when calculating capital gains provided the taxpayer has all documentary evidence like agreements, bills and proof of payment and has included the same in his or her financial statements from the date of purchase.
