INCOME TAX QUESTIONS & ANSWERS SERIES XXX
Sections Involved: 43CA, 50C & 56(2)(x) of Income Tax Act, 1961. Sale /Transfer of land or building on consideration less than Stamp Duty Value.
QUESTION: Mr. Hari, a property dealer, sold a building in the course of his business to his friend,Mr. Rajesh,who is a dealer in automobile spare parts, for Rs. 90.00 Lakhs on 01/01/2022, when Stamp Duty Value was Rs. 150.00 Lakhs. The agreement however entered on 01/09/2021. Mr. Hari has received the payment of Rs. 15.00 Lakhs by a crossed cheque from Mr. Rajesh on the date of Agreement.
Discuss the tax implications in the hands of Mr. Hari and Mr. Rajesh assuming that Mr. Hari has purchased the building for Rs. 75.00 Lakhs on 12th July,2020. Also share your views in case Mr. Hari was a Share Broker instead of a State Broker.
Let’s consider first applicable provisions of the Income Tax Act,1961
Section 43CA of the Act, inter alia, provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (i.e. "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall for the purpose of computing profits and gains from transfer of such assets, be deemed to be the full value of consideration.
The said section also provide 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 (110%) 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.
Note: The provisions of Section 43CA will be applicable in case of Seller of the property.
Section 56(2)(x) of the Act, inter alia, provides that where any person receives, in any previous year, from any person or persons on or after 1st April, 2017, any immovable property, for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees(Rs. 50,000/-), the stamp duty value of such property as exceeds such consideration shall be charged to tax under the head ―income from other sources".
It also provide that where the assessee receives any immovable property for a consideration and the stamp duty value of such property exceeds ten per cent of the consideration or fifty thousand rupees, whichever is higher, the stamp duty value of such property as exceeds such consideration shall be charged to tax under the head ―Income from other sources.
Note: The provisions of Section 56(2)(x) are applicable to buyers of immovable property.
Section 50C(1) provides that where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value of adopted or assessed or assessable by any authority of State Govt. for the purpose of payment of Stamp duty in respect of such transfer, the value of adopted or assessed or assessable shall be deemed to be full value of the consideration received or accruing as a result of such transfer. Therefore, if the value adopted or assessed or assessable for stamp duty purposes is more than the consideration returned by the assessee then the value adopted or assessed or assessable for stamp duty purposes will be deemed as full value of consideration.
Note: The provisions of Section 43CA will be applicable in case of Seller of the property.
PLEASE NOTE THAT the most essential condition of Sections 43CA,50C & 56(2)(x) is that the Sale Consideration in whole or part should be received on or before date of registration of agreement only through ECS/RTGS/NEFT/EFT/IMPS/UPI/BHIM or other approved means of money transfer. In this case the Stamp Duty Value at the date of agreement will be allowed to be considered as Sale Consideration instead of Stamp Duty Value at the date of transfer of property under consideration.
ANSWER:
CASE 1. Mr. Hari is a property dealer
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In Hands of Mr. Hari(A Property Dealer) |
In the hands of Mr. Rajesh (Buyer) |
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Provisions of Section 43CA are applicable since building represents its Stock-in-trade and he has transferred the same for a consideration less than the Stamp Duty Value; and the Stamp Duty Value exceeds 110% of consideration.
Now in this case Sale Consideration will be Stamp Duty Value i.e. Rs. 150.00 Lakhs. Please Note That- u/s 43CA the option to adopt the SDV on the date of agreement can be exercised only if whole or part of the consideration has been received on or before the date of agreement by way of account payee cheque or draft or ECS or RTGS/NEFT etc. In this case Rs. 15.00 Lakhs has been received on the date of agreement by a Crossed Cheque and not by Account Payee Cheque, then this option cannot be exercised. Solution: Therefore Rs. 75.00Lakhs = Sale Consideration (SDV) Rs. 150.00 - Purchase Price Rs. 75.00 Lakhs will be taxable in the hands of Mr. Hari as income from " Business and Profession. |
Since Mr. Rajesh is dealing in automobile spare parts and building purchased by him is a Capital Asset for him. The provisions of Section 56(2)(x) will be applicable here. Mr. Rajesh has received immovable property without adequate consideration and the difference between the consideration and the SDV exceeds Rs. 9.00 Lakhs, being higher than Rs. 50,000 /- or 10% of the consideration. Therefore Rs. 60.00 Lakhs= Rs. 150.00 Lakhs(Stamp Duty Value) - Rs. 90.00 Lakhs (Sale Consideration). Would be taxable under provisions of Section 56(2)(x) in the head "Income from other sources). Please Note That- since the payment on the date of agreement is made by crossed cheque not by Account Payee Cheque /Draft/ECS/RTGS/ETF/NEFT etc. |
CASE 2. Mr. Hari is a Share Trader
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In Hands of Mr. Hari(A Share Trader) |
In the hands of Mr. Rajesh (Buyer) |
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In this case the building now considered as a "Capital Assets" in the hands of Mr. Hari and same was transferred on a value,which is less than the Stamp Duty Value and Stamp Duty Value exceeds 110% of the Sale Consideration. In this case provisions of Section 50C are applicable. Thus Rs. 75.00 lakhs = Rs. 150.00 Lakhs - Rs. 75.00 lakhs on the date of registration would be chargeable as Short Term Capital Gain. Please Note That- u/s 50C the option to adopt Stamp Duty Value at the date of agreement (i.e. Rs. 140.00 Lakhs) can be exercised only if the whole or part of the Sale Consideration has been received on of before the date of agreement through Account Payee Cheque/ECS/NEFT/RTGS/IMPS/ETF/UPI etc. other modes as may be prescribed. In this case Rs. 15.00 Lakhs has been paid through Crossed Cheque and not through above mentioned means and hence provisions of Section 50C cannot be claimed in this case. Solution Therefore Rs. 75.00 Lakhs = Sale Consideration (SDV) Rs. 150.00 - Purchase Price Rs. 75.00 Lakhs will be taxable in the hands of Mr. Hari as income from " Business and Profession. |
There would be no difference in the taxability in the hands of Mr. Rajesh whether Mr. Hari is a State Dealer or Share Traders. In this case also provisions of Section 56(2)(x) are applicable to Mr. Rajesh. Mr. Rajesh has received immovable property without adequate consideration and the difference between the consideration and the SDV exceeds Rs. 9.00 Lakhs, being higher than Rs. 50,000 /- or 10% of consideration. Therefore Rs. 60.00 Lakhs= Rs. 150.00 Lakhs(Stamp Duty Value) - Rs. 90.00 Lakhs (Sale Consideration). Would be taxable under provisions of Section 56(2)(x) in head " Income from other sources). Please Note That- since the payment on the date of agreement is made by crossed cheque, not by Account Payee Cheque /Draft/ECS/RTGS/ETF/NEFT etc. |
CONCLUSION
Section 43CA is applicable on any type of property, whether it is a business assets or capital asset. The provisions of Section 50C and 56(2)(x) are applicable of immovable properties. The difference between Stamp Duty Value and Cost of Acquisition of property will be charged as Short Term/ Long Term Capital gains based on the period of holding. These provisions are applicable in case Stamp Duty Value exceeds 110% of the Sale Consideration.
DISCLAIMER: the article produced here is only for knowledge and information of readers. The views expressed here are the personal views of the author and same should not be considered as professional advice. In case of necessity do consult with your tax consultant for more clarification and understanding on above matter.
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