Check with seller Amenities cost can reduce capital gains on flat sale: ITAT Kolkata

MUMBAI: In a litigation over capital gains arising on a flat sale, Income-Tax Appellate Tribunal (ITAT)’s Mumbai bench has held that the taxpayer can add the price paid for amenities to a builder’s group company to arrive at the total cost of acquisition of the property.

The sale consideration minus the cost of acquisition (adjusted by applying the cost inflation index) determines capital gains. Higher the cost of acquisition, lower the taxable capital gains component. If the sale consideration is lower than the cost of acquisition, it results in a capital loss.

On sale of a flat held for more than two years, the capital gains that arises is treated as long term and is subject to a tax at 20%. Thus, it is important for sellers to know what can be included as the cost of acquisition—typically it constitutes the purchase price, stamp duty, registration cost and broker fees.

In the case of Rashmi Dhanani, which ITAT heard, the taxpayer had shown a long-term capital loss on sale of her flat. In the total cost of acquisition reflected in her tax computation, she had included Rs 9.4 lakh, which was paid to an affiliated company of the builder, under a separate amenities’ agreement.

The amenities for which the additional charges were paid included special water proofing in the toilets and the kitchen and special wood for doors and windows.

In this case, ITAT had remanded the matter to the I-T officer to ascertain whether other flat owners had entered into similar amenities agreements.

ITAT observed 33 of the 128 flat owners had entered into a similar agreement. Further, the taxpayer’s financial statement consistently included this sum of Rs 9.4 lakh in the total property cost. Based on the above facts, ITAT decided in the taxpayer’s favour.

Tax experts say determining what can be added to arrive at the total cost of acquisition is a fact-based exercise. Puneet Gupta, director, People Advisory Services, EY India, says, “A distinction should be made between capital costs that become an integral part of the house versus the cost of movable items such as furniture and fittings, which will be treated as personal effects. The taxpayer must be able to substantiate the expenditure with documentary evidence.”

An I-T official said builders are increasingly offering various amenities to buyers, typically at an additional cost. These vary from special bathroom fittings, marble floorings, modular kitchens, and so on. Taxpayers need to obtain a proper breakup to avoid litigation at a later stage, when they sell this flat

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