Provisions of section 55 – ‘Stamp duty value’ X ‘cost of acquisition’
(Amendment – Rationalisation in Reverse Gear)
This is in reference to the write-up posted @ Cost Inflation Index | Meaning & Index from 1981-82 to 2020-21;
And, to Invite pointed attention to certain amendment of sec 55 as made by the FINANCE ACT 2020.
Rationalization of provisions of section 55 of the Income Tax Act, 1961 Act to compute cost of acquisition.
The existing provisions of section 55 of the Act provide that for computation of capital gains, an assessee shall be allowed deduction for cost of acquisition of the asset and also cost of improvement, if any. However, for computing capital gains in respect of an asset acquired before 1st April, 2001, the assessee has been allowed an option of either to take the fair market value of the asset as on 1st April, 2001 or THE ACTUAL COST of the asset as cost of acquisition. It is proposed to rationalise the provision and to insert a proviso below sub-clause (ii) of clause (b) of Explanation under clause (ac) of sub-section (2) of the said section to provide that in case of a capital asset, being land or building or both, THE FAIR MARKET VALUE OF SUCH AN ASSET ON 1ST APRIL, 2001 SHALL NOT EXCEED the stamp duty value of such asset as on 1st April, 2001 WHERE SUCH STAMP DUTY VALUE IS AVAILABLE. It is also proposed to insert an Explanation so as to provide that for the purposes of sub-clause (i) and (ii), “stamp duty value” shall mean the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property. These amendments WILL TAKE EFFECT FROM 1ST APRIL, 2021 and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years. [Clause 28 of the Finance Bill]
The contextual relevance of the ‘stamp value’ as spoken of in, and inserted by the referred amendment, to be treated as ‘fair market value’ / ‘cost of acquisition’ to purchaser , is not at all understood; and seems to be devoid of any logic or sense.
This aspect so also other related angles may be found to have been dilated, often before the said amendment, in Posts on this website itself; also, in the personal Blog -@ swamilook on the Topic of , – “FMV- FV- FP – Ready Referencer”
2. As regards ‘Stamp Duty Value ‘, that is really of relevance to the ‘transferor'(seller); and, not to the ‘transferee’ (purchaser).
Strictly speaking, the liability to pay stamp duty is of the seller, being the principal debtor. Notwithstanding that, as has been the practice all along, – albeit no knowing why so, – and as it is, as mutually agreed between the seller and the willing purchaser, that the liability happens to be passed on to, and is borne by the purchaser. No need to add that, for purchaser, his cost of acquisition is, therefore, inclusive of ‘stamp duty’ so paid and borne. Therefore, in any view, cost of acquisition to purchaser is inclusive of- not excluding- the stamp duty he is brought to bear.
Pithily stated: There is no correlation – real or virtual- between the ‘stamp duty value’ and ‘cost of acquisition’; and, as such, the amendment as proposed is both in Form and Substance, wanting/ devoid of any merit!
3. Same way as ‘the actual cost of acquisition’, ‘the actual year of acquisition’ is of every significance and importance. In that, any different thinking will be faulty / unacceptable for the simple reason that ‘cost of improvement’ , if any, incurred since the actual year of acquisition would be left to be duly factored in ?
4. The subject amendment is, in terms, intended to rationalise; and, in essence, an essentially curative amendment. Premised so, it is unclear as to why the effective date for the proposed amendment is specified to be 1st April 2021 , not the date when the change in ‘BASE YEAR’ came to be enacted and made effective.
What is now sought to be rationalised,- by way of a curative amendment (of an, admittedly irrational provision) – , relates back, and pertain, to the amendments made by the Finance Act 2017, then made applicable for transfers effected in FY ended March 31, 2018 , and onwards. Unless the curative amendment, now proposed though belatedly, is made applicable also to those three years (AY 2018-19, 2019-20 and 2020-21) , that will , – to again stress, – have the inevitable consequence of the lacunae being exploited by taxpayers, unwittingly or otherwise, on own whims; thereby , be taken undue advantage of , adverse to the Revenue. Consequently, the feared, otherwise avoidable, litigation would be rendered almost a certainty.
Agree! If not, WHY NOT?
OPEN to EDIT/ Invite to add value, if any?