Tax on Sale of Immovable Properties Vis-A-Vis Deemed Valuation U/s. 50C

Sushil M. Agarwal

WHY THIS TOPIC IS SO SPECIAL?

(A) Everyone knows that Black-Money Flows in and through the Real Estate, including the Government and the Finance Ministry. Obviously the Finance Ministry is also included in the phrase “Everyone”.

(B) The Finance Ministry has given a Special Care to the transactions taking place in the Real Estate Sector.

The Law has remained quite challenging, debatable and a quite a few amendments have come in the Entire Schema.

(C)There would be hardly few Real Estate Transactions, where one can find the Full Value of Consideration is discharged in White Money. Obviously, the proportion differs from transaction to transaction (60:40; 70:30 etc.)

Even a child knows that if a transaction in Immoveable Property has taken place, surely, black money has changed hands.

(D)Further, Immoveable property is the only sector for which even the MOST-Common Man needs Black Money and if Black Money rotates in and through the hands of MOST-Common Man it becomes very hard to break up the “Layering”.

(E) Adding to the worry, a lot of Money Laundering (Conversion of Dirty Money) Cases have been witnessed by this Sector.

Hence, in the interest of public-at-large and the nation, this sector requires Emphasis.

Special Care OFFERED BY THE MINISTRY OF FINANCE

(A) Concept of Stamp Duty Value

It should be noted that the Stamp Duty Basis Valuation is applicable only in the transactions pertaining to Immoveable Property in the Income Tax Act 1961. It is similar to the concept of Fair Market Value (FMV).

It is pertinent to note that Actual Transaction Price is the price at which Income Tax implications arise. Assessing Officer can’t rise to take FMV in all cases. Around 7 exhaustive sections only allow the Department to take price other than Actual Transaction Price to calculate Income Tax implications.

(B)  Scheme of Double Taxation

The law as regards to Transaction Value is designed so harshly that if one does not act within the framework of the Law, the Law is strict to punish on the spot and tax the same Income twice.

THE SCHEME OF TAXATION

DON’T TAKE THE BURDEN TO KNOW THE LAW

CASES:

1) If the Land is a Rural Agricultural Land  (held otherwise than as Stock in Trade)

2) If Agricultural Land is Compulsorily Acquired by Government

 POSITION PRIOR TO FINANCE ACT 2013

 POSITION AFTER THE FINANCE ACT 2013

 INSIGHT OF THE LAW

THE DEEMING FICTION OF SECTION 50C

BARE LAW:

Where the consideration received or accruing as a result of transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of stamp duty in respect of such transfer, the value so assessed or assessable shall for the purpose of section 48,be deemed to be the full value of the consideration received or accruing as a result of such transfer.

INTERPRETATION OF DEEMING FICTION:

Point A:   Applicable Only if the Asset is a Capital Asset

Point B:   Relevance of Stamp Duty Value

Point C:   Jugglery nullified by insertion of the words “assessable” with or conjunction with the word “assessed”

Point D: Genuine cases yet not to suffer

INSERTION OF SECTION 43CA BY FINANCE ACT 2013

1) A Law to overrule various Court Judgements

Examples:

–Inderlok Hotels (P.) Limited v. ITO (2009)

–CIT vs. Thiruvengadam Investments (P.) Limited (2010)

–CIT vs. Kan Construction and Colonizers (P.) Limited (2012)

2) A Law to stand parallel to Section 50C

SECTION 50C vs. SECTION 43CA

SECTION 50C has not been provided by the two proviso’s that Section 43CA contains.

THE SECTION 56(2)(vii) DEEMING FICTION

-A DEPARTMENTAL CONFUSION-

(so far as it relates to Immoveable Property)

INTRODUCTION OF NEW LAW BY FINANCE ACT 2009:

Where an individual or a Hindu Undivided Family receives, in any previous year, from any person on or after the 1^st day of October, 2009:

(a) ————

(b) any immoveable property,-

(i) without consideration, the stamp duty value of which exceeds Rs.50000,the stamp duty value of such property.

(ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs.50000,the stamp duty value of such property as exceeds such consideration.

DELETION OF THE LAW PARTIALLY BY FINANCE ACT 2010 W.R.E.F. 01.10.2009 I.E. DELETION OF CLAUSE b (ii)

RE-INSERTION OF THE PARTIALLY DELETED LAW BY FINANCE ACT 2013 WITH TWO PROVISO’S.

Clause b(ii) as deleted by Finance Act 2010 has been re-inserted with two proviso’s.

The two proviso’s read as:

Provided that where the date of the agreement fixing the amount of consideration for the transfer of immoveable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purpose of this sub-clause.

Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of agreement for the transfer of such immoveable property.

THE REASON FOR CONTINUOUS AMENDMENTS

Actually, this section is a deterring section. This section wants to prevent the movement of unaccountable money in the system. Already the Act has taxed the possible un-accounted movement in Section 50C or Section 43CA; here it is nothing but a mode of double-taxation.

This double taxation was introduced first-then thought to be very harsh and removed. Now again, the need is felt to introduce double taxation but genuine cases are carved out by means of first proviso.

There are genuine cases, where the buyer has bought the immoveable property today. Price is fixed today. But when the actual date of transfer/possession arises after 3-4-5 years the stamp duty value has changed. It would not be rational to tax the difference as Income from Other Sources.

Further, the second proviso intends to nullify certain sort of possible tax planning or tax evasion techniques which may arise in the mind of tricky professionals.

(Still the seniors in the Profession believe that the second proviso is not yet free from Lacuna)

GENERAL RULE TO SAVE THE TAXES

Enter into Section 54 series

And

Act bonafidely like a GOOD BOY.

THE DEPARTMENTAL WATCH AND ACTION SYSTEM

SOURCES TO KNOW THE POSSIBLE CULPRITS:

SOURCE 01: ANNUAL INFORMATION RETURNS

–Section 285 of the Income Tax Act 1961 has casted responsibility on some assessee’s to file Annual Information Return in respect of certain transactions.

-The most common example is the Banks who need to report the account which are savings in nature and the deposits were more than or equal to Rs. 10,00,000 in a financial year.

-Similarly, the Registrars are required to report about the transactions in immoveable property where the value exceeds Rs. 30,00,000.

SOURCE 02: TDS ON IMMOVEABLE PROPERTY:

Finance Act 2013 have made the transactions of value equal to or more than Rs. 50,00,000 liable to TDS at the rate of 1%.

ACTIONS AGAINST THE DOUBTFUL CULPRITS:

ACTION 01:

-Notice u/s 133(6) to prove if the relevant transaction has been shown in the Return in the Income.

-Notice u/s 133(6) to produce necessary documents in relation to the transaction of immoveable property.

-Notice u/s 133(6) to substantiate compliance with Section 50C.

-Notice u/s 133(6) to produce the evidences supporting the exemptions claimed in respect of Capital Gains.

ACTION 02:

-Notice on the Seller to pay advance taxes immediately.

In the month of January and February 2014, this action was implemented harshly. But, later on authorities initiated relief on the assessee’s.

The above is a light coverage on the topic. The topic is such deep and wide that even an entire book can be written on it. Even the book of eminent authors, on the subject in particular, exists in the market.

Disclaimer:

The write-up above is the pure discretionary view of the author. Bare Law should be consulted upon before any conclusion is derived from the above.