Interplay between Section 50C, 50CA, 43CA and 56(2) of Income Tax Act, 1961

The above sections are meant for taxing the persons who are in the intention of selling the assets at a price less than stamp duty value / fair market value.

The above said sections are drafted in a lucrative way to the department wherein both the transferor and transferee of the assets are taxed for the same transaction if they are under the purview of the respective sections. We shall analyze the sections in a very simple manner.

Basis Section 50C Section 50CA Section 43CA Section 56(2)(x)
Applicability Transfer of land or building or both (Capital asset) Transfer of unquoted shares (Capital asset)

Note : No other movable properties other than unquoted shares are covered in this section

Transfer of land or building or both (Used in business or profession) Transfer of both movable and immovable property

Movable property means

i) shares and securities;

(ii) jewellary;

(iii) archaeological collections;

(iv) drawings;

(v) paintings;

(vi) sculptures;

(vii) any work of art; or

(viii) bullion;

Immovable property :

Land or building or both

Transferor Any person Any person Any person Any person
Transferee Any person Any person Any person * Any person (w.e.f AY 2017-2018)

*Before AY 2017-18 – Only Individual and HUF. (as per 56(2)(vii)

Scope If consideration fixed is less than the consideration fixed by stamp valuation authority of State government. If consideration fixed is less than the fair market value of share If consideration fixed is less than the consideration fixed by stamp valuation authority of State government. Immovable property :

If the difference between consideration and stamp duty value exceeds higher of the following :

a.Rs.50,000/-

b. 5% of consideration fixed.

Movable property :

If the difference between consideration and fair market value exceeds Rs. 50,000/-

Common note : If no consideration, then the stamp duty value or fair market value exceeds Rs. 50,000/-

Action The stamp duty value shall be treated as sale consideration for the purpose of computing capital gain The fair market value shall be treated as sale consideration for the purpose of computing capital gain. The stamp duty value shall be treated as sale consideration for the purpose of computing profits/ gains. The difference exceeding the consideration is taxable as other sources income
Relaxation in scope If the difference does not exceed 5% (earlier 10%) of consideration fixed, then the provision will not apply. No such relaxations given. But in section 56(2) there is relaxation up to Rs.50, 000/- . The section may have to be aligned accordingly. If the difference does not exceed 5% (earlier 10%) of consideration fixed, then the provision will not apply. If the difference does not exceed 5% (earlier 10%) of consideration fixed or Rs. 50,000/-, then the provision will not apply.
Taxable in the hands of Transferor Transferor Transferor Transferee.
Exemptions Applicable to transfer which is defined as per 2(47)

Not applicable to the transactions which are not regarded as transfer as per section 47. (Implied).

Note :

1. Gift / will to third parties are also exempt. It need not be to relatives alone.

2. Gift of immovable property to non relatives may be exempt in the hands of transferor but it may trigger tax in the hands of transferee as per section 56(2)

Applicable to transfer which is defined as per 2(47)

Not applicable to the transactions which are not regarded as transfer as per section 47. (Implied).

Note :

1. Gift / will to third parties are also exempt. It need not be to relatives alone.

2. There is a proviso that this section shall not be applicable to certain class of persons subject to conditions – But not yet prescribed.

3. Gift of unquoted shares to non relatives may be exempt in the hands of transferor but it may trigger tax in the hands of transferee as per section 56(2).

Applicable to transfer which is defined as per 2(47)

No such exemptions given explicitly.

Note :

1. There may be a conflict that the provisions of section 47 in capital gains can be applicable even for this section.

Not applicable to the following transactions :

Property (both movable or immovable) received from

(I) Relatives

(II) on the occasion of the marriage

(III) under a will or inheritance; o

(IV) in contemplation of death of the payer or donor

(V) from any local authority as defined in the Explanation to clause (20) of section 10; or

(VI) institutions referred to in section 10 (23C)

(VII) from or by any trust or institution registered under section 12A or section 12AA.

(VIII) by way of transaction not regarded as transfer under Section 47 (i), (iv), (v), (vi), (via), (viaa), (vib), (vic), (vica), (vicb), (vid), (vii);

(IX) from an individual by a trust created or established solely for the benefit of relative of the individual;

Note :

1. Gift from relatives alone also exempt.

2. Will/ inheritance by third parties are also exempt. Will need not be from relatives alone.

Definition of relative No mention about relatives No mention about relatives. No mention about relatives. Relative means

In case of Individual :

(i) spouse of the individual;

(ii) brother or sister of the individual;

(iii) brother or sister of the spouse of the individual;

(iv) brother or sister of either of the parents of the individual;

(v) any lineal ascendant or descendant of the individual;

(vi) any lineal ascendant or descendant of the spouse of the individual;

(vii) spouse of the person referred to in clauses (ii) to (vi);

In case of HUF :

(ii) in case of a Hindu undivided family, any member thereof;

Note: Relative/ related party with respect to Firms, Companies, AOP, BOI, Trusts and other persons are not defined anywhere in the Act. Various interpretation of term relative with respect to persons other than Individual and HUF from various other Acts may lead to disputes again.

Date to be considered for fixing consideration for immovable property. Date of sale agreement (If registration date and agreement date are not same)

Date of sale agreement – only if consideration is received only in account payee cheque, account payee draft or ECS. If not received in above modes – date of registration.

Not applicable Date of sale agreement (If registration date and agreement date are not same)

Date of sale agreement – only if consideration is received only in account payee cheque, account payee draft or ECS. If not received in above modes – date of registration.

Date of sale agreement (If registration date and agreement date are not same)

Date of sale agreement – only if consideration is received only in account payee cheque, account payee draft or ECS. If not received in above modes – date of registration.

Illustration: Mr. A sold his personal property at Mumbai to his friend Mr. B for a consideration of Rs.50, 00,000/- . Stamp duty value as per Maharashtra stamp valuation authorities for the property is Rs. 60, 00,000/-. Mr. A also gifted shares in ABC private limited to his friend Mr. D. The fair market value of the shares are Rs.1, 50,000/-. The tax implications in the hands of Mr. A, Mr. B and Mr. D are as follows :
Tax implications Property at Mumbai

In the hands of Mr. A

Consideration – Rs.50,00,000/-

Stamp duty value – Rs.60,00,000/-

Difference – Rs.10,00,000/- (20% of consideration) to be taxed as per 50C in the hands of Mr. A

Shares at ABC Pvt Ltd

In the hands of Mr. A

Consideration – Rs. Nil

Fair market value – Rs.1,50,000/-

Difference – Rs.1,50,000/- to be taxed as per 50CA in the hands of Mr. A

N.A 1. Property at Mumbai

In the hands of Mr. B

Consideration – Rs.50,00,000/-

Stamp duty value – Rs.60,00,000/-

Difference – Rs.10,00,000/-

Difference should exceed higher of the following :

a. 50,000/-

b. 5% of consideration = Rs.2,50,000/-

As the difference of Rs.2, 50,000/-, the difference between consideration and stamp duty value – Rs.10, 00,000/- to be taxed in the hands of Mr. B.

Note: In case of immovable property the difference between consideration and stamp duty value

Rs.10, 00,000/- has to be taxed if the difference is more than Rs.50,000/- or 5%.

The excess of 5% or Rs.50, 000/- alone (i.e.) Rs.7, 50,000/- (Rs.10, 00,000/- (less) 5% of consideration) should not be considered.

2. Shares at ABC Pvt Ltd

In the hands of Mr. D

Consideration – Nil

Fair market value – Rs.1,50,000/-

Difference – Rs.1,50,000/-

As the difference is exceeding 50,000/-, the entire fair market value of Rs.1,50,000/- to be taxed in the hands of Mr. D

Inference:

1. The income on transaction on sale of property / shares in unlisted companies is taxed in the hands of the transferor under 50C or 50CA and the same amount on same transaction is once again taxed in the hands of transferee under section 56(2).

2. Similarly if the immovable property is business asset it is taxed under section 43CA in the hands of transferor and the same provisions of 56(2) is applied in the hands of transferee.

3. Other inferences are given in the table itself which are highlighted in bold.

4. The consideration for assets has to be fixed in accordance with the stamp duty value / fair market value. If not then such undervalued transaction will lead to tax both in the hands of transferor and transferee as explained above.

5. Though double taxation on the same income is against the Constitutional rights, the constitution does not prevent double taxation if the legislature clearly provides it as held in the case of “Jain Brothers and Others vs. Union of India and Others (1970) 77 ITR 107 (SC) as follows :

“It is not disputed that there can be double taxation if the legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted; they cannot be so interpreted as to tax the subject twice over to the same tax….. If any double taxation is involved, the Legislature itself has, in express words, sanctioned it. It is not open to any one thereafter to invoke the general principles that the subject cannot be taxed twice over.”

The views expressed above are my personal views and any other different interpretations can be shared @ jvignesh210@gmail.com.

Author Bio

Qualification: CA in Practice
Company: N SIVA PRASAD ASSOCIATES
Location: Chennai, Tamil Nadu, IN
Member Since: 18 Feb 2019 | Total Posts: 3
Vignesh is a chartered accountant practising in the field of Audit and taxation. View Full Profile

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