Stakes in transactions in immovable properties are quite high involving huge amount of income tax. It is not only perceived but an open secret in India that sale transactions of immovable properties are undervalued leading to leakage of tax revenue causing losses to the Government and unaccounted money is not good for the health of the society in general. Therefore, the restlessness on the part of Government is to plug such leakage and attempts by tax payers to avoid hardships to genuine. The provisions of Sec 50C,sec 43CA and sec 56(2)(x) of the Income Tax Act, 1961 specifically dealing with transactions in immovable properties have been inserted in the Act.
Under the provisions contained in Section 50C and section 43CA, in case of transfer of a capital asset/stock in trade being land or building or both, the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty shall be taken as the full value of consideration for the purposes of computation of capital gains. These provisions have further amended to provide relief to the seller who has entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement. The government has amended the provisions of section 50C/43CA so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration. It is further proposed to provide that this provision shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property.
As per the provisions of these sections,if any immovable property is sold below the stamp duty value (or circle rate) then such case will fall under Section 50C, Section 43CA, Section 56(2)(x) and double taxation shall apply on the difference in the stamp duty value and transfer price in the hands of seller and buyer.In the existing framework of the Income Tax Act, for the same income or rather the deeming income, both the seller and the buyer of land and/or building, are being taxed twice and as such the pressing of service of such deeming fiction of taxation both in the hands of the seller and/or buyer of land and/or building is resulting in “Double Taxation”.
TAXABILITY IN THE HAND OF SELLER IF THE IMMOVABLE PROPERTY IS CONSIDERED AS A CAPITAL ASSET
As per Section 50C, if a capital asset, being land or building or both, is transferred for a consideration below the stamp duty value, then such stamp duty value shall be the deemed value of the consideration for the purpose of calculating capital gain under Section 48. The original consideration paid for the transfer shall not be considered for the purpose of capital gain in the hands of the seller.
However, if the date of an agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset is different then, the stamp duty value as on date of agreement may be taken for the purpose of computing full value of consideration. Provided that amount of consideration or a part thereof has been received by way of an account payee cheque or account payee draft or use of electronic clearing system through a bank accountor through such other electronic mode as may be prescribed, on or before the date of the agreement for transfer.
Finance Act 2020 (applicable from A.Y. 2021-22) has amended the applicability of Section 50C only in those cases where the stamp duty value exceeds one hundred and ten percent (earlier 105%) of the consideration so received or accrued for the transfer of capital asset, being land or building or both.
IF THE IMMOVABLE PROPERTY IS CONSIDERED AN ASSET OTHER THAN CAPITAL ASSET SUCH AS STOCK IN TRADE
As per section 43CA, if an asset (other than a capital asset), being land or building or both, is sold below the stamp duty value then such stamp duty value shall be deemed value of the consideration and used for the purpose of computing profit and gains from transfer of such assets.
Finance Act 2020 (applicable from A.Y. 2021-22) has amended the applicability of Section 43CA only in those cases where the stamp duty value exceeds one hundred and ten percent (earlier 105%) of the consideration so received or accrued for the transfer of an asset (other than a capital asset), being land or building or both.
Also, if the date of an agreement fixing the amount of consideration and the date of registration for the transfer of an asset is different than the stamp duty value as on date of agreement may be taken for the purpose of computing full value of consideration.
Provided that the amount of consideration or a part thereof has been received by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed on or before the date of agreement for transfer of the asset.
It is to be noted that if , an amount is received by non-cash mode after the date of agreement and before the date of registration then, SDV on date of transfer as it is SDV on date of agreement not considered as A/C not received on or before that date by specified mode.
Amendment by FA.- 2021
If following conditions are satisfied then allowed tolerance band 20% allowed instead of 10%:-
a. the transfer of residential unit takes place during the 12th Nov, 2020 to 30th June, 2021,
b. such transfer is by way of first time allotment of the residential unit to any person; and
c. the consideration received or accruing as a result of such transfer upto 2 crore rupees.
Meaning of Residential unit – An independent housing unit with separate facilities for living, cooking and sanitary requirement, distinctly separated from other residential units within the building, which is directly accessible from an outer door or through an interior door in a shared hallway and not by walking through the living space of another household
SDV – DATE OF AGREEMENT OR REGISTRATION ?
|
SECTION |
SDV DATE |
| 50C/43CA/56(2)(x) | Date of Registration or Agreement |
SDV on date of agreement can be considered, if full or part consideration received / paid upto date of agreement in
|
SECTION 50C |
SECTION 43CA | SECTION 56(2)(X) |
| A/c Payee cheque
A/c Payee DD Any mode of electronic clearing system or any other mode as may be prescribed |
A/c Payee cheque
A/c Payee DD Any mode of ECS or any other mode as may be prescribed |
A/c Payee cheque
A/c Payee DD Any mode of electronic clearing system or any other mode as may be prescribed |
–
|
SECTION 50C V. 43CA OF THE ACT |
||
| Particulars | Section 50C(1) | Section 43CA(1) |
| Charging Point | Transfer at less than the value adopted or assessed or assessable by any authority of a State Government (hereinafter referred to as SVA) | Transfer at less than the value adopted or assessed or assessable by any authority of a State Government (hereinafter referred to as SVA) |
| Asset Covered | Land or Building or Both | Land or Building or Both |
| Nature of Asset | Held as Capital Asset | Held as Stock-In-Trade |
| Deemed Full Value of Consideration (‘FVC’) | Stamp Duty Value | Stamp Duty Value |
| Income Taxable under the Head | Capital Gains | Profits and Gains from Business or Profession |
| SDV to be adopted when Date of Agreement &date of registration are different. | SDV on the date of agreement may be taken for the purposes of computing full value of consideration. (First Proviso) | SDV on the date of agreement may be for the purpose of payment of stamp duty in respect of such transfer. (Third Proviso) |
| Applicability of the provisos referred to in pt. above | shall apply only in a case where the amount of consideration, or a part thereof, has been received:
(i)Account Payee cheque, or (ii) Account Payee Bank draft, or (iii)Use of Electronic Clearing System through a bank account, or (iv)Other Electronic mode as may be prescribed*# on or before the date of the agreement for transfer (Second Proviso) |
shall apply only in a case where the amount of consideration, or a part thereof, has been received: (i)Account Payee cheque, or
(ii) Account Payee Bank draft, or (iii)Use of Electronic Clearing System through a bank account, or (iv)Other Electronic mode as may be prescribed*# on or before the date of the agreement. (Fourth Proviso) |
| Tolerance Limit – Acceptable Difference between Consideration accruing/received and SDV | Where the SDV does not exceed 110% of the consideration received or accruing, the consideration so received or accruing shall be deemed to be the FVC. (Third Proviso) | Where the value for the purpose of payment of stamp duty does not exceed 110% of the consideration received or accruing, the consideration so received or accruing shall be deemed to be the FVC. (First Proviso) |
| Enhanced Tolerance Limit on transfer of residential unit | No such provision | Yes, as per new amendment discussed above. |
| Reference to Valuation Officer (‘VO’). | Can be Made. | Can be Made. |
Q. NV Builders transfer a residential house to Mr. A on 14/04/21 for ₹1.9 Cr. SDV on the date of transfer is ₹ 2.15Cr. NV transfer a unit to A as a first-time allotment. Discuss tax treatment in hands of NV and Mr. A.
Ans. In above example conditions mentioned in amendment are satisfied so allowed difference (SDV and consideration) 20% applicable instead of 10%.
In hands of NV: As per section 43CA since SDV is not more than 120% of consideration so consideration of ₹ 1.9 Cr treated as FVOC for PGBP.
In hands of A: Difference between SDV and consideration is more than ₹ 50,000 but SDV is not more than 120% of consideration so sec 56(2)(x) NOT applicable in this case.
Q. Suppose in above question date of transfer is 10/12/21 instead of 14/04/21.
Ans. In hands of NV: As per section 43CA since SDV is more than 110% of consideration so SDV of ₹ 2.15 Cr treated as FVOC for PGBP.
In hands of A: Difference between SDV and consideration is more than ₹ 50,000& SDV is more than 110% of consideration so difference between SDV and consideration of ₹ 25 Lakhs taxable u/s 56(2)(x). For the purpose of section 49(4) ₹2.15 Cr is treated as COA of A.
Q. X Purchases a newly constructed residential unit of 4,500 sq.ft (under first allotment) from DEF Builders Ltd. The following information is available
|
Case 1 |
Case 2 | Case 3 | |
| Date of agreement
Agreed Consideration Advance paid on October 14, 2020 through NEFT Stamp duty value onOctober 14, 2020 |
October 18,2020
Rs. 2 Crore Rs. 20 Lakhs Rs. 2.4 Crore |
October 18,2020
Rs. 2 Crore Rs. 20 Lakhs Rs. 2.7 Crore |
October 18,2020
Rs. 2 Crore Rs. 20 Lakhs Rs. 2.3 Crore |
| Date of conveyance deed and its registration in favour of X
Stamp duty value on the date of registration |
March 7, 2021
Rs. 2.5 Crore |
June 30, 2021
Rs. 2.4 Crore |
July 25, 2021
Rs. 2.6 Crore |
X and DEF Builders Ltd. want to know tax implications of aforesaid transaction under sections 43CA and 56)2)(x).
Ans. In the above cases, a part of consideration is paid through NEFT on the date of agreement, Consequently, stamp duty value on the date of agreement shall be taken for the purpose of safe harbour limit. Moreover, safe harbour limit for the purpose of sections 43CA and 56(2)(x) has been increased from 10% to 20% if a few conditions are satisfied. These conditions are discussed in the table (infra) along with the data given in the case study
|
Whether conditions for applying the safe harbour limit of 20% are satisfied- |
|||
| Situation 1 | Situation 2 | Situation 3 | |
| Condition 1 Residential Unit is transferred during November 12, 2020 and June 30, 2021
Condition 2 Residential unit is transferred by way of first allotment Condition 3 Consideration does not exceed Rs. 2 Crore |
Yes
Yes Yes |
Yes
Yes Yes |
N0
Yes Yes |
| What is safe harbour limit under Sec. 43CA &
56(2)(x) Sale consideration Sale consideration as increased by safe harbor limits |
20%
Rs. 2 Crore Rs. 2.4 Crore |
20%
Rs. 2 Crore Rs. 2.4 Crore |
10%
Rs. 2 Crore Rs. 2.2 Crore |
| Stamp duty value on the date of agreement (as a part of consideration is paid through | Rs. 2.4 Crore | ||
| NEFT on the before the date of agreement Whether stamp duty value exceeds 120%/110% of sale consideration |
No |
Rs. 2.4 Crore
No |
Rs. 2.4 Crore
No |
| Full value of consideration in the hands of DEF Ltd. under section 43CA
Amount taxable in the hands of X under Section 56(2)(x) |
Rs. 2 Crore
NIL |
Rs. 2.7Crore
Rs. 70lakh |
Rs. 2.3 Crore
Rs. 30 lakh |
REFERENCE TO THE VALUATION OFFICER (AVAILABLE TO THE SELLER IN BOTH OPTION MENTIONED ABOVE)
Where assessee claims before any Assessing Officer that the stamp duty value exceeds the fair market value of the property as on the date of transfer and such stamp duty value has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the Assessing Officer may refer the valuation of the asset to a Valuation Officer.
- If the value assessed by Valuation officer is lower than the stamp duty value, the assessed value shall be considered as the deemed sale price.
- If the value assessed by Valuation officer is higher than the stamp duty value, the stamp duty value remains deemed sale price.
So, if the reference is made to the Valuation officer then it may be possible that the stamp duty value may decrease but it cannot be increased on the basis of the valuation officer
TAXABILITY IN THE HANDS OF BUYER
As per Section 56(2)(x), if any person receives an immovable property for a consideration which is less than stamp duty value of the property and such excess is more than:-
- the amount of fifty thousand rupees and
- the amount equal to ten percent (earlier 5%) of the consideration
Then stamp duty value of such property as exceeds such consideration shall be taxable as income in the hands of buyer and chargeable under the head Income from Other Sources.
Section 56(2)(x) shall not apply to any property received:-
- from any relative; or
- on the occasion of the marriage of the individual; or
- under a will or by way of inheritance
Where the date of an agreement fixing the value of the consideration for the transfer of the asset and the date of registration of the transfer of the asset are not same, the stamp duty valuemaybe taken as on the date of the agreement for transfer and not as on the date of registration for such transfer. However, this exception shall apply only in those cases where amount of consideration or a part thereof for the transfer has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, on or before the date of the agreement for transfer of such immovable property:
Note: Similar option of referencing to valuation officer (as available under Section 50CA) is also available to the assessee.
ADOPTION OF STAMP DUTY VALUE WHERE INITIAL AMOUNT PAID IN CASH BUT SUBSEQUENT AMOUNTS ARE RECEIVED BY CHEQUE
Sub-section (4) of section 43CA states that the provisions of sub-section (3) shall apply only when the consideration or part thereof has been received by any mode other than cash on or before the date of agreement for transfer of asset. Let us consider a case where the assessee may have entered into an agreement for transfer of asset say on 11.11.2019 and on that date received a sum of Rs 1,00,000 in cash towards part of consideration under the said agreement and one week later received further sum of Rs. 9,00,000 by cheque under the same agreement. Can the benefit of sub-section (3) be denied on the ground that the conditions prescribed by sub-section (4) are not satisfied? It appears that the Court in such case may take a liberal view and hold that
if it is otherwise evident that the assessee is entitled to benefit of sub-section (3) the same may not be denied only on the ground that the initial amount was received by cash. Possibly the assessee may have to explain the reason for receiving the amount by cash. The intention of prescribing that the consideration should be received by mode other than cash appears to be to ensure that the assessee is getting the benefit only in genuine cases and therefore if the assessing authority is convinced that the assessee’s case is bonafide it may hold that the benefit should not be denied only for the reason that initial amount was received by cash.
Q. Whether section 50C is applicable in case of transfer of ‘rural agricultural land’?
Ans. (I)Section 50C is applicable when there is ‘transfer’ of land or building held in the nature of ‘capital asset’.
(ii) As per section 2(14) of the Act, ‘rural agricultural land’ is not treated as ‘capital asset’. Therefore, in case of ‘transfer’ of ‘rural agricultural land’, there is no applicability of section 50C.
(iii) However, in case of ‘transfer’ of urban agricultural land, section 50C would be applicable.
Q. Is the Tolerance Limit of 10% retrospective?
Ans. The amendment made in the scheme of section 50C(1) of the Act by inserting third proviso thereto and by enhancing tolerance band for variations between stated sale consideration vis-à-vis stamp duty valuation from 5 per cent to 10 per cent are effective from date on which section 50C, itself was introduced, i.e 01-04-2003 – Maria Fernandes Cheryl v. ITO, International Taxation [(2021) 123 taxmann.com 252 (Mumbai – Trib.)]
The view regarding the retrospective applicability of the third proviso was also held by the Hon’ble Kolkata ITAT in the case of Chandra Prakash Jhunjhunwala v. DCIT [2020] 113 taxmann.com 246 (Kolkata – Trib.), wherein the tolerance limit of 5% (i.e., prior to the amendment) was held to be applicable from 01-04-2003.
Q. Whether the proviso specifying the date of agreement to be taken for stamp duty valuation can be applied retrospectively?
Ans. First and second proviso to section 50C(1) were inserted by the Finance Act, 2016 applicable with effect from 1st April, 2017 specifying that the SDV of the property may be considered as on the date of sale agreement entered between the parties instead of the date of actual ‘transfer’ of the property.
In our opinion such insertion of proviso are curative in nature and hence be deemed to have come into effect from the date of introduction of section 50C.
The above view was held by the Hon’ble Madras High Court in the case of CIT V. Vummudi Amarendran [2020] 120 taxmann.com 171 (Madras)
ADOPTION OF STAMP DUTY VALUE WHERE TOKEN MONEY IS RECEIVED IN CASH BUT SUBSEQUENT PAYMENTS ARE RECEIVED BY CHEQUE/ BANK DRAFT/ ECS
Second Proviso to Sec 50C(1) and Sub-section (4) of section 43CA state that the option to adopt stamp duty value on date of agreement shall apply only when the consideration or part thereof has been received by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed on or before the date of agreement for transfer of asset. Let us consider a case where the assessee may have entered into an agreement for transfer of immovable property on 11.11.2019 and on that date received a sum of Rs 15,000/- in cash towards part of consideration under the said agreement as token money and one week later received further sum of Rs. 9,85,000 by cheque under the same agreement. Can the benefit of sub-section (3) be denied on the ground that the conditions prescribed by sub-section (4) are not satisfied? It appears that the Court in such case may take a liberal view and hold that if it is otherwise evident that the assessee is entitled to benefit of sub-section (3) the same may not be denied only on the ground that the initial amount was received by cash. Possibly the assessee may have to explain the reason for receiving the amount by cash. The intention of prescribing that the consideration should be received by account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed appears to ensure that the assessee is getting the benefit only in genuine cases and therefore if the assessing authority isconvinced that the assessee‘s case is bonafide it may hold that the benefit should not be denied only for the reason that token money was received by cash.
|
Original consideration |
SDV on date of Agreement 01/04/20 | SDV on date of Registration 10/06/20 | Full Value of Consideration | Taxable Income in case of buyer u/s 56(2)(x) | Reason |
| 70,00,000
(Rs. 5 Lakh received by A/c payee cheque on 01/04/20) |
80,00,000 | 90,00,000 | 80,00,000 | 10,00,000 | SDV > 110% of consideration and amount received by A/c Payee cheque on date of Registration |
| 70,00,000 | 75,00,000 | 75,00,000 | 70,00,000 | Nil | SDV < 110% of consideration |
| 70,00,000
(Rs. 5 Lakh received by A/c payee cheque on 01/04/20) |
75,00,000 | 70,00,000 | 90,00,000 | Nil | Amount received by A/c Payee cheque on date of Registration and SDV on date of registration<110% of consideration |
| 70,00,000 (Rs. 5 Lakh received in cash on 01/04/20) | 75,00,000 | 90,00,000 | 90,00,000 | 20,00,000 | Amount received in cash on date of registration. Hence SDV on date of transfer applicable. |
MAXIMUM CASH AMOUNT THAT CAN BE RECEIVED FOR TRANSFER OF IMMOVABLE PROPERTY:
Sec 269SS restricts payment of specified sum of Rs. 20,000 or more by any mode other than account payee cheque/ account payee bank draft/ or ECS. As per explanation specified sum‘ means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place. The payment should be for transfer of immoveable property. It is irrelevant that whether the amount is paid as advance for purchase of property or at the time of transfer of property. Therefore, for any transfer of immovable property, cash of only Rs. 19,999 can be received. Any amount received by seller in excess of Rs. 19,999 will lead to penalty u/s 271D. However, if the transaction is between two agriculturists who are having income below the basic exemption limit, the seller can receive up to Rs. 1,99,999 in cash i.e sec 269SS is not applicable in their case, but the provisions sec 269ST of the Act shall be applicable
WHERE THERE IS DECREASE IN STAMP DUTY VALUE ON DATE OF REGISTRATION AS COMPARED TO STAMP DUTY VALUE ON THE DATE OF AGREEMENT
In case stamp duty value as on date of registration has decreased from the stamp duty value as on date of agreement, it would be beneficial to the assessee to adopt the stamp duty value as on date of registration. The word used in this section 43CA, 50C and 56(2)(x) is ‘may’.
Where the date of agreement fixing the value of consideration for transfer of the asset and the date of registration of such transfer of asset are not the same, the value referred to in sub-section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement.
Further the Ahmedabad Bench of ITAT in case of Dharamshi bhai Somani v. ACIT has made the following observations which are to the effect that the amendment is optional to the assessee – The amendment in Section 50C was brought in to provide relief to the assessee in a situation in which the stamp duty valuation of a property has risen between the date of execution of agreement to sell and execution of sale deed, as is the norm rather than exception, but the real estate market is now traversing through a difficult phase and there can be situations in which there is a fall in the stamp duty valuation rates with the passage of time. Such a situation has actually arisen in many places in the country, such as in Gurgaon, New Delhi and even in Dehradun and some other places. It is therefore possible that, at first sight, first proviso to Section 50C may seem to work to the disadvantage of the assessee in certain situation in the event of the word `may‘ being construed as mandatory in application, but then one cannot be oblivious to the fact that this proviso states that ―the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer (emphasis supplied)‖ making it clearly optional to the assessee and that in any event, what has been brought by the lawmakers as a measure of relief to the taxpayers cannot be construed as resulting in a higher tax burden on the tax payers
Therefore, it is not mandatory for assessee to adopt stamp duty value as on date of agreement even if payment is by specified mode. The law has given option to the assessee and has not made it mandatory to take value as on date of agreement. It may be concluded that the assessee can take lower of the stamp duty values as assessable value, provided it is not lower than the actual consideration.
APPLICABILITY OF STAMP DUTY VALUE ON THE DATE OF AGREEMENT, WHEN EARNEST MONEY IS RECEIVED BY BOOK ADJUSTMENTS
The provisions of sec 50C and sec 43CA clearly provide that if an assessee intends to adopt stamp duty value as on date of agreement, amount of consideration should be received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, on or before the date of the agreement. The payment by book adjustment or journal entry is not as per the specified modes. Therefore, where the consideration on or before date of agreement is received by book adjustment, the benefit of adoption of stamp duty value on date of agreement cannot be availed.
In case where the seller of the property receives another property in consideration and payment is not received by account payee cheque/ account payee bank draft/ ECS, the benefit of adoption of stamp duty value on date of agreement u/s 50C, 43CA and 56(2)(x) of the Act shall not be available.
Q. WHETHER SECTION 50C IS APPLICABLE IN CASE OF ‘TRANSFER’ OF PROPERTY BY WAY OF GIFT, WILL, MERGER OR ANY OTHER SUCH MODE?
Ans. This section is applicable when there is transfer (covered u/s.47 of the Act) of immovable property in which consideration is received or accrues to the transferor. ‘Transfer’ of asset by way of gift or will or an irrevocable trust, on partition of HUF, is not regarded as ‘transfer’ u/s.47 and hence, section 50C will not apply.
(Republished with amendments)
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