As a general public we have tendency to save taxes by adopting various tricks and transactions. A lot of black money is generated through transfer of various types of immovable properties. The seller and the purchaser generally mutually agree on a transaction to enter into agreement at a price lower than the Fair Market Value of property to save stamp duty etc. These types of transaction have been generated huge black or accounted money in the market.
This is the main rational behind introduction of Section 50C in the Income Tax Act, 1961 to curb such practices. The provisions of Section 50C have been applied if the following conditions are satisfied;
Example on Section 50C:
Suppose Mr. A (Cost of acquisition Rs. 15 Lacs), has sold his flat to Mr. B for Rs. 50 Lacs, Stamp Duty value is Rs. 70 Lacs.
Answer: Mr. A: Income under Capital gain will be charged on =Rs. 70-Rs. 15 Lacs=Rs. 55 Lacs (Sec 50C)
Mr. B: Income under Income from other sources = Rs 20 Lacs
Now we have understood that the provisions of Section 50C are applicable only on transfer of Capital Assets not assets kept as Stock in trade in case of builders and developers are real state entities.
The developers during the construction of their buildings transfer flats, shops or other properties below the Market Value or Stamp Duty Value to the perspective buyers. The difference between the sale consideration and the Stamp Duty value or market value will be taken in form of cash. This will again generate black money and less tax will be paid to the government on this type of transactions.
Hence, The Central Government, introduced Section 43CA with effect from the assessment year 2014-15.
Since provisions of Section 50C are not applicable for calculating income under Section 28 of the Income Tax Act, 1961.
Section 43CA provides that where the consideration for transfer of asset ( other than capital asset) , being land or building or both, is less than the stamp duty value , the value so adopted ( or assessed or assessable) shall be deemed to be full value of the consideration for the purpose of computing income under “ Profits and gains of business or profession.”
Further, please note 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 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.
This way transfer of Stock in trade has been also covered and any transfer of the same on a consideration below the stamp duty valuation will be covered under this provision.
When date of agreement and date of registration is not the same:
When date of Agreement and the date of registration is not the same, then the Stamp Duty on the date of Agreement will be considered. This case will be applicable only when some consideration has been received on or before the date of agreement.
Dispute by Assessee:
If assessee has disputed the valuation made by Stamp Duty Authorities and claim that the Market value of the property is less than the Stamp Duty Assessed. In this case the Assessee Officer may refer the case to Valuation Officer according to provisions of Section 55A of the Income Tax Act, 1961.
Example on Section 43CA:
Lets us consider M/s. XYZ Private Limited has transferred a Shop to one of its Director at Rs. 4.00 Cr., but Stamp Duty Valuation of the shop is Rs. 7.00 Cr., now in this case the difference between Stamp Duty Value and Sale Consideration is Rs. 3.00 Cr., and same will be chargeable in the hand of M/s. XYZ Private Limited as “Income from Business or Profession” during the year in which it is transferred.
Income in hand of Director is NIL, since it is stock in trade.
Note: Provisions of Section 43CA are not applicable on depreciable assets. It is applicable to both transferor and the transferee.
(Author can be reached at firstname.lastname@example.org)
(Republished with Amendments by Team Taxguru)