Taxation of land or building or both under income tax act, 1961 certain issues-
1) Normally, there are two types of transaction that prevailed in the transfer of land or building or both. One is transfer made for some consideration and other is without consideration which is generally termed as gift of assets.
2) Firstly, I would like to explain the some of important provisions of income tax with regards to transfer of land or building or both where there is a consideration.
3) Section 50C – it deals with such situation where the sales consideration declares is less than 105% of values adopted, assessed or ‘assessable’ by the stamp valuation authorities. The word ‘assessable’ is deliberately added to section 50C with an intention to cover those transaction in land or building which are not came in the before the stamp valuation authorities so that the scope of the section got wider.
Now consider different situations..
A) what happened if the stamp values is more than 105 % of Sales consideration
For seller section 50C will attract and the stamp values authorities shall be deemed to be the full values of consideration for the purposes of section 48.
For buyer section 56(2)(X) will attract provided that the gap between sales consideration and stamp value exceeds by prescribed limits..
For buyer if the actual sales consideration exceeds Rs 50 lacs then buyer is under an obligation to deduct the TDS @1% under section 194IA.
If the actual sales value is 48 lacs and the stamp duty value is Rs 60 lacs then section 50 C will attracted however in such a case The provision of TDS @1% shall not be applicable. Since 194IA doesn’t contemplate the Word ” stamp value” but it used the word actual sales consideration.
The provision of 194 IA is even applied when the land or building or both sold is stock in trade and not the capital assets.. the only exemption given us 194IA is agriculture land in rural area.
B) What happened when the sales consideration consist both of land and building means composite sales..
In such a case the case law of CIT vs CR subramanian will apply and the entire sales consideration or deemed sales consideration is bifurcated on the basis of fair value of land & Building and separate computation shall be made for each assets..
C) what will be the cost of acquisition in case 56(2)(x) attract in the hand of buyer in such a case the provision of 49(4) shall attracted and the fair value which is taken into account for the purposes of 50C shall be deemed to be the cost of acquisition.
D) what happened when the entire sales consideration is on the line of fair market values but the seller Recieved Rs 1 lacs in cash from buyer and balance in account payee cheque..
In such a case the provision of 269SS applies to the seller it deals with any consideration Received whether in advance or “otherwise” in consequences of transfer of immovable property being land or building or both by more than 20,000 will be termed as violation of section 269 SS and the assessee will be liable for 100 percent penalty for such violations.
For buyer if the purchase is for depreciable assets then the provision of section 43 which deals with actual cost for the purposes of section 32 is applicable .
Explanation to 43(1) says if the consideration of the assets I’d paid more than by 10,000 in cash then nothing shall be added to the block of the assets. Since in the given Rs 1 lacs shall be ignored for the purposes of calculation of actual cost us 43(1).
E) what happened when the entire sales consideration is paid in cash and is on the line of stamp values
For seller, the penalty of section 269 SS for receiving of cash more than 20,000 for sales of immovable property being land and building shall apply (assuming sales consideration is Rs 100 lacs).
However , section 269ST will not be attracted in such a cases despite of the fact that transaction values is more than Rs 2,00,000 .. reason section 269ST specially includes those transactions which are covered under section 269SS. hence it will not be covered.
For buyer it is still under obligation to deduct the TDS @1 % and if the assets is depreciable assets then nothing shall be added to the WDV of the block of the assets as per explanation to Section 43(1).
Let’s take an situation the buyer purchase a warehouse and paid the entire amount in Cash.. nos what the situation.. let’s analyse..
First he is not entitled to depreciation us 32 since the entire sales consideration is paid in cash.
Secondly, even he can’t claimed section 35 AD deduction because section 35 AD is also amended on the line of section 43(1).
Third he us under an obligation to deduct the TDS us 194IA @1 % assuming the sales consideration exceeds Rs 50 lacs.
And last sellers will also penalised us 269 SS.
The above four consequences are only applied when the cash transactions Is on line of stamp values.. if such sales values is very much inconsistent with stamp values then the consequences of 50 C along with 56(2)(X) will also be there..
4) now, if the assessee gifts the assets being land or building or both then what may be the Various situations let’s analyse..
A) the capital gains is exempted in the hands of sellers since section 45 does not attract means charging section not applicable in cases of gifts of capital assets..
B) for buyer if it’s Recieved from relatives as prescribed then it’s also exempted otherwise the provisions of section 56(2)(X) will be attracted.
C) what will be the cost of acquisition in case of the recipient of gifts of land or building or both I’d a prescribed relatives…
Then in such a case cost to the previous owner mention us 49(1) shall apply..
Also the assets shall be deemed to be purchased on the same date when the previous owner acquired it.. it means period of holding of previous owner shall also be considered as per section 2(42)(A)..
D) when year shall be considered for calculation of the indexation… Means the year of gift or year as per section 49(1)..
The land Mark judgement of CIT vs Manjula j Shah shall apply and the indexation of the year of the previous owner shall be apply due to the deeming fiction created by the section 49(1).
E) what happened when the seller and buyer is not related to each other..
in such a cases the Section 56(2)(X) shall apply to the buyer however for seller the gains is still exempted us 47.
F) what happened if the stamp duty values is Rs 100 lacs..
Section 50C shall not be attracted in the hands of sellers since gains are exempted and Section 50 C covered only those cases for which there is a consideration exist.. in gifts there is no consideration.
For buyer entire 100 lacs shall be taxable under section 56(2)(x).
The cost of the acquisition for buyer shall be 100 lacs as per section 49(4).
The provisions of TDS us 194IA shall not be apply since there is no consideration.
The section 269SS shall not be attracted since there is no consideration.
Again section 269ST shall not be attracted since there is no monetary consideration.
this article is for the purposes of information and shall not be treated as solicitation in any manner or of for any other purposes whatsoever.
For the benefits of reader a short glimpse of provisions is presented in my personal language as per my capabilities. It shall not to be used for any legal advice /opinion and shall not to be used to rendering any professional opinion. Readers are advised to kindly go through to original government publications and published case laws and judicial pronouncements. Errors may creep in and hence it will be highly appreciable to highlight such errors or providing suggestions for effective improvements.