Analysis of Section 43CA of Income Tax Act, 1961

Special Provisions For Full Value Of Consideration For Transfer Of Assets Other Than Capital Assets In Certain Cases [Section 43CA] 

Section 43CA inserted by the Finance Act, 2013, with effect from 01.04.2014 (i.e. with effect from A.Y. 2014-15) which provides that where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than 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 payment of stamp duty in respect of such transfer (also known as circle rate), then in that case circle rate shall be taken as full value of consideration for the purpose of  computing profits and gains from transfer of such asset.

The said section also provides that where the date of agreement fixing the value of consideration for transfer and the date of registration are not the same, the stamp duty value on the date of the agreement shall be taken (if the amount of consideration or a part thereof has been received by any mode other than cash on or before the date of agreement).

Background

Section 50 was inserted by the Finance Act, 2002, with effect from 01.04.2003 under Chapter-IV of the Act, which deals with computation of capital gains arising from the sale of capital asset. This provision was enacted to check the proliferation of black money in property transactions by deeming the value assessed or assessable by the Stamp Valuation Authority as the full value of consideration received/accrued on sale of a capital asset, being land or building or both. The provision applied to land or building or both held as a capital asset by the assessee and not to cases, where such assets held as stock-in-trade. To extend the ambit of deeming fiction to such cases, where such assets are held as stock-in-trade, the Finance Act, 2013, with effect from 01.04.2014 (from assessment year 2014-15) has inserted section 43CA to cover sale of immovable property held as stock-in-trade.

According to section 43CA, if the consideration received by an assessee on transfer of immovable property is less than the stamp duty value, then, the value so adopted or assessed or assessable shall be deemed to be the full value of consideration for the purposes of computing income under the head “Profits & Gains of Business or Profession”.

Text of section 43CA

^[1] [SPECIAL PROVISION FOR FULL VALUE OF CONSIDERATION FOR TRANSFER OF ASSETS OTHER THAN CAPITAL ASSETS IN CERTAIN CASES

43CA. (1) Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than 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 payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer :

^[2][PROVIDED that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed one hundred and  ^[3][ten] per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration.]

(2) The provisions of section 50C(2) and (3) shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under section 43CA(1).

(3) 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 section 43CA(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.

(4) The provisions of section 43CA(3) shall apply only in a case where the amount of consideration or a part thereof has been received  ^[4][by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account] ^[5][or through such other electronic mode as may be prescribed] on or before the date of agreement for transfer of the asset]

KEY NOTE:

1. Inserted by Finance Act, 2013, with effect from 01.04.2014.
2. Inserted by Finance Act, 2018, with effect from 01.04.2019.
3. Substituted for the words “five” by Finance Act, 2020, with effect from 01.04.2021.
4. Substituted for the existing words “by any mode other than cash” by the Finance Act, 2018, with effect from 01.04.2019.
5. Inserted by the Finance (No. 2) Act, 2019, with effect from 01.04.2020.
   

Other electronic modes [Rule 6ABBA]

6ABBA. The following shall be the other electronic modes for the purposes of clause (d) of first proviso to section 13A, clause (f) of sub-section (8) of section 35AD, sub-section (3), sub-section (3A), proviso to sub-section (3A) and sub-section (4) of section 40A, second proviso to clause (1) of Section 43, sub-section (4) of section 43CA, proviso to sub-section (1) of section 44AD, second proviso to sub-section (1) of section 50C, second proviso to sub-clause (b) of clause (x) of sub-section (2) of section 56, clause (b) of first proviso of clause (i) of Explanation to section 80JJAA, section 269SS, section 269ST and section 269T, namely:-

(a)		Credit Card;
(b)		Debit Card;
(c)		Net Banking;
(d)		IMPS (Immediate Payment Service);
(e)		UPI (Unified Payment Interface);
(f)		RTGS (Real Time Gross Settlement);
(g)		NEFT (National Electronic Funds Transfer); and
(h)		BHIM (Bharat Interface for Money) Aadhar Pay;

 Sale value of consideration [Proviso to Section 43CA(1)]

Assessment year	Deemed to be full value of consideration
Upto Assessment year 2018-19	Where sale value of a land or building or both, is less than stamp duty value, then stamp duty value will be deemed to be full value of consideration.
For Assessment year 2019-20 & 2020-21	Where stamp duty value does not exceed 105% of the consideration, the consideration so received shall be deemed to be the full value of the consideration
From Assessment year 2021-22	Where stamp duty value does not exceed 110% of the consideration, the consideration so received shall be deemed to be the full value of the consideration
	20% from 12th November 2020 to 30th June 2021 for only primary sale of residential units of value up to Rs. 2 crores.

 KEY NOTE

Extended safe harbour rules of 20% are applicable only for a limited set of transactions which satisfy the following conditions:

(a)  Residential units of value upto Rs. 2 crores.

(b)  Primary sale by real estate developer to home buyers (i.e, stock-in-trade)

(c)  Sale from 12.11.2020 to 30.06.2021

Illustration where extension of safe harbour rules not apply

The following are some of the illustrative scenarios where the said extension of safe harbour rules will not apply.

• Sale of Capital Assets (not stock-in-trade) i.e, sale by one home buyer to another.
• Sale of land or commercial units (i.e, Offices/shops etc.)
• Sale of residential units above Rs. 2 crores

KEY NOTE

Stamp duty will be paid at the circle rate and there is no change in the provisions of the Registration Act, 1908.

Applicability of Section 43CA

(a) Section 43CA is applicable to assessee who held land or building or both as stock-in-trade

The section is applicable to assessee who held land or building or both as stock in trade and not capital assets (used in business or profession). Immovable properties being land or building can be residential flats, commercial flats, industrial building or plots, agricultural lands whether in rural area or urban area.

AGRICULTURAL LAND – HELD AS STOCK-IN-TRADE

If the agricultural land is held as stock-in-trade, then the sale of such land would result into business income and the provisions of section 43CA would be applicable.

(b)  Section 43CA comes into force when the transferred value is less than the stamp duty value

The section 43CA comes into force when the transferred value is less than the stamp duty value of the immovable property and the receipt is taxable under the head “Profits & Gains of Business or Profession”.

(c)  Stamp duty value will be substituted

In computing the business profit arising from the transfer of such asset, the value assessed or assessable by the Stamp Valuation Authority (SVA) will be substituted in place of the actual consideration received. 

Stamp Duty value to be considered (stamp duty value to be deemed consideration in certain cases) [Section 43CA(1)]

The Finance Act, 2013, with effect from 01.04.2014 has inserted section 43CA to provide that where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the stamp duty value, the value so adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value of the consideration received or accruing as a result of such transfer for the purposes of computing income under the head “Profits and Gains of Business or Profession” from such transfer.

(d)  Assessee has the option to refer the valuation of the property

Assessee has the option to claim before the Assessing Officer that the value adopted or assessed or assessable by the Stamp Valuation Officer exceeds the Fair Market Value (FMV) as on date of the transfer and ask him to refer the valuation of the property to the Valuation Officer like as per the provisions of section 50C.

Preference to Valuation Officer (Provisions of Section 50c(2) and (3) made applicable to section 43CA) [Section 43CA(2)]

Section 43CA(2) provides that the provisions of section 50C(2) and (3) shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under section 43CA(1).

Where valuation can be referred to the Valuation Officer [Section 50C(2)]

If the following conditions are satisfied, the Assessing Officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with section 55A of the Income-tax Act:—

(i)  Where the assessee claims before the Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer; and

(ii)  The value so adopted or assessed or assessable by stamp valuation authority has not been disputed, in any appeal or revision or no reference has been made before any authority or Court or High Court is made applicable under section 43CA also.

Consequences where the value is determined by the valuation officer

If the fair market value determined by the Valuation Officer is less than the value adopted (assessed or assessable) for stamp duty purposes, the Assessing Officer may take such fair market value to be the full value of consideration. However, as per section 50C(3), if the fair market value determined by the Valuation Officer is more than the value adopted or assessed or assessable for stamp duty purposes, the Assessing Officer shall not adopt such fair market value and will take the full value of consideration to be the value adopted or assessed or assessable for stamp duty purposes.

(e)  Value as on the date of agreement shall be considered

Where the promoter or developer has entered into an agreement for sale with the buyer of the property, but the sale is accounted for at the time of registration of deed at a subsequent date, the promoter-assessee has the option to take the value assessable by Stamp Valuation Authority (SVA) on the date  of agreement provided the consideration or a part of it has been received by him on or before the date of agreement in cheque. In other words, in case the date of agreement fixing consideration and date of registration are different, then for the purposes of determination of value under the section, the value as on the date of agreement shall be considered, provided the consideration or part of consideration is received prior to date of agreement by any mode other than cash.

In other words, in case the date of agreement fixing consideration and date of registration are different, then for the purposes of determination of value under the section, the value as on the date of agreement shall be considered, provided the consideration or part of consideration is received prior to date of agreement by any mode other than cash. 

Stamp Duty value on the date of agreement to be deemed consideration [Section 43CA(3)]

Section 43CA(3) has provided that where the date of an agreement fixing the value of consideration for the transfer of the asset and the date of registration of the transfer of an asset are not same, then the stamp duty value may be taken as on the date of agreement of transfer and not as on the date of registration of the transfer.

However, this exception shall apply only in those cases where amount of consideration or a part thereof for the transfer has been received ^[1][by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account] ^[2][or through such other electronic mode as may be prescribed] on or before the date of agreement. [Section 43CA(4)] 

Taxable in the hands of

Transferor

PROVISIONS ILLUSTRATED -1

Suppose if value of the property is Rs.1,00,000 and stamp duty value of such property is Rs.1,08,000 (i.e. Within the limit of Rs.1,10,000), then for the purpose of section 43CA, full value of consideration can be taken as Rs.1,00,000. If stamp duty value of such property is Rs.1,12,000, then for the purpose of Full Value of Consideration, stamp duty value of Rs. 1,12,000 has to be taken because it is not within the prescribed limit of 10%.

S. No.	Value of Property	Stamp Duty Value	110% of (ii)	Full Value of Consideration to be taken
(i)	(ii)	(iii)	(iv)	(v)
1	1,00,000	1,08,000	1,10,000	1,00,000
2	1,00,000	1,17,000	1,10,000	1,17,000
3	1,00,000	97,000	1,10,000	1,00,000
4	90,000	97,000	99,000	90,000
5	80,000	92,000	88,000	92,000

PROVISION ILLUSTRATED – 2

S. No.	Particulars	Safe harbour (10%)	Safe harbour (20%)
(i)	Actual Sale Consideration	10,00,000	10,00,000
(ii)	Stamp Duty Valuation (circle rate)	12,00,000	12,00,000
(iii)	Difference Between circle rate and actual sale consideration	2,00,000	2,00,000
(iv)	Acceptable safe harbour	@10% – 1,00,000	@20% – 2,00,000
(v)	Full value of consideration under section 43CA	12,00,000	10,00,000

Section 43CA was not applicable if transfer was only rights in under construction flats instead of property per se

Since assessee had transferred pursuant to registration of the agreement was only the rights in the flat/ office (which was under construction) and not the property per se hence, there was no transfer of any land or building or both by the assessee in favour of the flat buyers pursuant to registration of the agreement in the year under appeal, therefore, the provisions of section 43CA could not be made applicable to the same.

Assessee developed a commercial project called ‘Orchid Plaza’ at Borivali adopting Project Completion Method for the same. Assessing Officer noticed that in respect of certain units, there were huge discrepancies between agreement value and stamp duty value. He asked assessee to explain the differences.  Assessee stated that the entire project was completed in Assessment Year 2015-16 and the sales of all the 14 properties were duly offered to tax in Assessment Year 2015-16 following project completion method. Assessee alternatively also pleaded that any difference in value between agreement value and stamp duty value need to be considered in the year of completion of project and not otherwise. Assessing Officer applied the provisions of section 43CA in all the 14 properties registered inspite of the fact that out of 14 properties, 7 were allotted prior to Assessment Year 2014-15.  Assessing Officer observed that as all the transactions were executed in the year under appeal, the difference between agreement value and the stamp duty value was to be treated as suppressed sales by assessee and the same was to be brought to tax in Assessment Year 2014-15. It was held  provisions of section 43CA are applicable only when there is transfer of land or building or both. In the instant case, neither of those had happened pursuant to registration of agreement with the stamp duty valuation authorities. In respect of allotment of offices made prior to 31.3.2013, it was found from the documents enclosed in the paper book that assessee and the prospective buyer of flats had specifically agreed that till such time the agreement of sale was executed and registered , no right was being created in favour of the flat buyer and that the allotment letter was just a confirmation of booking subject to the execution of the agreement which was to be drafted at a later point of time. Accordingly, the flat buyer was bound to accept unconditionally and confirm that any kind of increase or decrease in the area of the said office or shift in the position of the said office, if arises, due to amendment in the plan etc. and in case of variation of the area, the value of the office should be proportionately adjusted. All these documentary evidences clearly go to prove that assessee had not completed the construction of the office during the relevant year. It could also be inferred that pursuant to registration of agreement with the stamp duty valuation authorities, a right was created in favour of the flat buyer. Hence what the assessee had transferred pursuant to registration of the agreement was only the rights in the flat/ office (which was under construction) and not the property per se. Hence, there was no transfer of any land or building or both by the assessee in favour of the flat buyers pursuant to registration of the agreement in the year under appeal, therefore, the provisions of section 43CA could not be made applicable to the same. (Related Assessment Year : 2014-15) – [Shree Laxmi Estate (P) Ltd. v. ITO – Date of Judgement : 05.07.2019 (ITAT Mumbai)]