| Question And Answer | |
|---|---|
| Subject: | How to compute Capital gain on sale of non-banking asset sold by a Bank ? |
| Category: | Income-Tax |
| Querist: | V N KULKARNI |
| Answered by: | Advocate Aditya Ajgonkar |
| Tags: | Capital Gains, mortgaged property |
| Date: | May 15, 2021 |
URBAN COOP BANKS SOME TIMES ACQUIRE THE ASSETS (LAND/BUILDING) MORTGAGED TO THEM BY THE BORROWERS IN SATISFACTION OF THE LOAN OUTSTANDING.
AFTER FOLLOWING DUE PROCESS OF PROCEDURE UNDER THE MAHARASHTRA COOP SOCIETIES ACT,1961 UNDER RULE 107, THE MORTGAGED ASSET IS TRANSFERRED IN THE BANKS NAME AT A VALUE AS PER THE VALUATION OF APPROVED BY THE REGISTRAR OF COOP SOCIETIES ,MAHARASHTRA STATE.
IN THE PROCESS THE PROPERTY STANDS IN THE NAME OF THE BANK AND IS SHOWN AS NON-BANKING ASSET.RESERVE BANK ALSO ALLOWS SUCH NON-BANKING ASSET ON THE CONDITION THAT IT SHOULD BE DISPOSED WITH IN 7 YRS.
TO GIVE A SPECIFIC CASE= A BORROWER HAS OUTSTANDING LOAN OF RS.200 LAKHS WITH INTEREST),THE VALUE OF ASSET ACQUIRED IS RS.250 LAKHS. BUT IN THE BOOKS OF BANKS IT WILL BE SHOWN AS RS.250 LAKHS,THAT IS THE AMOUNT OUTSTANDING IN THE LOAN A/C.
NOW THE PROPERTY IN QUESTION IS SOLD IN AUCTION FOR RS.250 LAKHS,THE BANK IS SUPPOSED TO RETURN THE GAIN OF RS.50 L TO BORROWER.THE QUESTION IS WHO IS TO BEAR THE CAPITAL GAIN TAX?
In this specific case, given the scant details that have been provided, the Judgement of the Third Member of the Mumbai Bench of the ITAT in the case of Perfect Thread Mills Ltd. v. DCIT [2020] 181 ITD 1 (Mum)(Trib) is relevant. The Tribunal held that the bank receives consideration from the sale of such asset, not by means of diversion of income by overriding title but as an application of sale proceeds towards discharge of outstanding loan lability and therefore, the borrower would be liable to capital gains tax. As this question has been answered for educational purposes, you are requested to obtain proper legal advice based upon the facts and circumstances of your case by a tax professional of your choice.