09 February 2015
One of my client has purchased 3 acres of agricultural land for Rs. 15,00,000/- and the same amount was written in the deed as consideration. But the market value of which is 51,00,000/- and he has paid the stamp duty on 51 lacs. now he has received a notice from income tax department asking him to show sources for 51 lacs which is the market value. Under section 50C of the Income tax Act, the market value will be considered only for sale transactions but for the purchase transaction the actual cost will be considered and hence my client has to show sources for 15 lacs and not for 51 lacs. Am i Right.. and if Yes or No please suggest me some case law.
20 July 2024
You are correct that Section 50C of the Income Tax Act applies to the seller in a real estate transaction, not the buyer. Section 50C mandates that if the sale consideration declared by the seller is less than the stamp duty value of the property, then the stamp duty value shall be deemed to be the full value of consideration for computing capital gains tax.
In your client's case, where he has purchased agricultural land for Rs. 15,00,000/- but the stamp duty value (market value) was assessed at Rs. 51,00,000/-, Section 50C does not directly apply because your client is the buyer, not the seller.
Your client should respond to the notice from the Income Tax department by explaining the actual purchase consideration of Rs. 15,00,000/- and providing evidence to support this, such as the purchase deed, payment receipts, and bank statements showing the transfer of Rs. 15,00,000/-. The stamp duty paid on Rs. 51,00,000/- is irrelevant for determining the sources of funds for your client's purchase.
As for case law to support this position, you can refer to the following:
1. **CIT vs. Satinder Pal Singh (2009)**: In this case, the Delhi High Court held that Section 50C applies to the seller, not the purchaser. The Court clarified that while Section 50C deems the stamp duty value as the sale consideration for the seller, it does not alter the actual cost incurred by the purchaser.
2. **CIT vs. Smt. Sushila M. Jhaveri (2003)**: The Bombay High Court held that the market value determined by stamp duty authorities for the purpose of payment of stamp duty cannot be adopted as the consideration received by the seller under Section 50C for computing capital gains.
These cases affirm that Section 50C applies to the seller to prevent understatement of sale consideration, but it does not affect the actual cost incurred by the purchaser. Therefore, your client should emphasize the actual purchase consideration of Rs. 15,00,000/- and provide supporting documents to substantiate this to the Income Tax department.
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