Budget 2013-14 -Double taxation on transfer of immovable property for inadequate consideration?

Devang K. Shah

Finance (No. 2)  Act , 2009 introduced taxation of certain transactions involving transfer of any property, including immovable property as income from other sources in the hands of the recipient, being Individuals / HUFs. The rationale behind it was to tax anything which is received in kind having ‘money’s worth’, which was outside the purview of the then existing provisions.

Today, where any immovable property is received by an Individuals / HUFs ‘without consideration’, its stamp duty value is taxable in the hands of the buyer as income from other sources, barring few exceptions.   

As one of the measure to widen the tax base and curb tax avoidance practice, the Union Budget 2013-14 enlarges the ambit of existing provision to levy tax on immovable property received for ‘inadequate consideration’ by Individuals / HUFs.

It is now proposed that where any immovable property is received for a consideration which is less than its stamp duty value by Rupees Fifty thousand, then the difference between the stamp duty value and such consideration will be taxable as income from other sources.

It is noteworthy that apart from the above, such difference is also taxable in the hands of the Seller under Section 50C of the Act as capital gains. In this context, one may notice that there appears to be double taxation under the proposed framework.

To Illustrate: Mr. X has sold his immovable property to Mr. Y for `. 50 lakhs. Stamp duty authorities assessed the value of property at `.60 lakhs. Accordingly, Mr. Y would be chargeable to tax on `.10  lakhs under Section 56(2)(vii)(b)(ii) of the Act. Further, Mr. X is liable to capital gains tax on `. 60 lakhs under Section 50C of the Act, which includes the difference of `. 10  lakhs on which Mr. Y is now made subject to tax.

It is interesting to note that similar provision was introduced by Finance (No.2) Act, 2009 w.e.f. 1 October 2009 but the same was deleted by the Finance Act, 2010, w.r.e.f. 1 October 2009. Further, it appears that such anomaly / double taxation is not prevalent either (1) when Individuals / HUFs receive immovable property ‘without consideration’ (gift); or (2) in respect of any property (other than immovable property), as either the capital gain on transfer as ‘gift’ is exempt or capital gain is computed on the full value of consideration, not necessarily meaning fair market value.

While in past, the Courts have held that unless otherwise expressly provided, income cannot be taxed twice and that the question of double taxation does not arise if the assessees are different, the moot point is whether it is equitable, fair and rational to enact such provisions. One will appreciate that the Government Treasury may not be worse-off, if the proposed provision leading to double taxation is discarded, as the seller was anyways made liable to pay tax on the stamp duty value. Whereas, in the absence of such provision for Individuals / HUFs receiving immovable property ‘without consideration’ (gift) or in respect of any property (other than immovable property), there may arise loss to revenue, as either the capital gain is exempt or is computed not on the fair market value.

Under these circumstances, one may be hopeful that the FM appreciates this ‘so-called’ anomaly and reacts in a positive manner by refraining to enact the same, as done in the past!

** Devang K. Shah – Proprietor, M/s. D. K. Shah & Associates, Chartered Accountants, Mumbai -Email: [email protected]