As
per Section 50C of the Income-tax Act, 1961 when a capital asset, being land or
building or both, is transferred for a consideration which is less than the
value assessed or assessable by any authority of a State Government for the
purpose of payment of stamp duty in respect of such transfer, then such stamp
duty value is taken as full value of consideration under section 50C of the
Act.
Background
Earlier there used to be a
provision in Section 52 of the Income-tax Act, 1961 which enabled the Assessing
Officer to refer the property under transfer to the Valuation Officer for
determining market value. However, in K. P. Varghese v. ITO (1981) 131 ITR 597 (SC), it
was held that Section 52(2) cannot be applied to genuine transaction unless
there are evidences to show that consideration declared in the sale deed is
understated. In other words unless the revenue was able to show that something
over and above the sale consideration had passed hands between the transferee
and the transferor, Section 52(2) could not be invoked. It became almost a herculean task
for the Assessing Officer to collect evidence to show the exchange of
additional money for consideration was other than apparent sale consideration.
Accordingly, to
nullify the judgment given in K.P. Varghese v. ITO (supra), section 50C was introduced
by the Finance Act, 2002 with effect from 01.04.2003 by way of special
provision deeming the value assessed by the Stamp Duty Authority for the
purpose of payment of the stamp duty, as per sale consideration for the purpose
of section 48.
Text of Section 50C
[1] [50C. Special provision for full value of consideration in
certain cases
(1) 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 adopted or assessed [2][or assessable] by
any authority of a State Government (hereafter in this section referred to as
the “stamp valuation authority”) for the purpose of payment of stamp duty in
respect of such transfer, the value so adopted or assessed [2][or assessable]
shall, for the purposes of section 48, be deemed to be the full value of the
consideration received or accruing as a result of such transfer:
[3][Provided that where the date of the agreement fixing the amount of consideration
and the date of registration for the transfer of the capital asset are not the
same, the value adopted or assessed or assessable by the stamp valuation authority
on the date of agreement may be taken for the purposes of computing full value
of consideration for such transfer:
Provided
further that the first proviso shall apply
only in a case where the amount of consideration, or a part thereof, has been
received by way of an account payee cheque or account payee bank draft or by
use of electronic clearing system through a bank account [4][or through such other electronic mode as may be
prescribed], on or before the date of the
agreement for transfer.]
[5][Provided also that where the value
adopted or assessed or assessable by the stamp valuation authority does not
exceed one hundred and five 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 section 48, be deemed to be
the full value of the consideration.]
(2) Without prejudice to the provisions of section 50C(1),
where—
(a) the assessee claims before any Assessing Officer that
the value adopted or assessed [2][or assessable by the stamp valuation authority under
section 50C(1) exceeds the fair market value of the property as on the date of transfer;
(b) the value so adopted or assessed or assessable by the
stamp valuation authority under section 50C(1) has not been disputed in any
appeal or revision or no reference has been made before any other authority,
court or the High Court, the Assessing Officer may refer the valuation of the
capital asset to a Valuation Officer and where any such reference is made, the
provisions of section 16(A)(2), (3), (4), (5) and (6), clause (i) of
sub-section (1) and sub-sections (6) and (7) of section 23A, section 24(5),
section 34AA, section 35 and section 37 of the Wealth- tax Act, 1957 (27 of
1957), shall, with necessary modifications, apply in relation to such reference
as they apply in relation to a reference made by the Assessing Officer under
section 16A(1) of that Act.
[6][Explanation 1 : For
the purposes of this section, “Valuation Officer” shall have the same meaning
as in section 2(r) of the Wealth-tax Act, 1957 (27 of 1957).
Explanation 2 : For the purpose of this section, the
expression “assessable” means the price which the stamp valuation authority
would have, notwithstanding anything to the contrary contained in any other law
for the time being in force, adopted or assessed, if it were referred to such
authority for the purposes of the payment of stamp duty.]
(3) Subject to the provisions contained in section 50(2),
where the value ascertained under section 50(2) exceeds the value adopted or
assessed [2][or assessable by the stamp valuation authority referred to
in section 50(1), the value so adopted or assessed or assessable by such
authority shall be taken as the full value of the consideration received or
accruing as a result of the transfer.”
-------------------------------
1. Inserted by the Finance Act, 2002, with
effect from 01.04.2003.
2. Inserted by the Finance (No. 2) Act, 2009,
with effect from 01.10.2019.
3. Inserted by the Finance Act, 2016, with
effect from 01.04.2017.
4. Inserted by the Finance (No. 2) Act, 2019,
with effect from 01.04.2020.
5. Inserted
by the Finance Act, 2018, with effect from 01.04.2019.
6. Explanation renumbered as Explanation 1,
ibid.
With effect from assessment year 2017-18
Section 50C has been amended so as to provide that where the
date of the agreement fixing the amount of consideration for the transfer of
immovable property and the date of registration are not the same, the stamp
duty value on the date of the agreement may be taken for the purposes of computing
the full value of consideration.
KEY NOTE
This provision shall apply only in a case where the amount
of consideration referred to therein, or a part thereof, has been paid by way of
an account payee cheque or account payee bank draft or use of electronic clearing
system through a bank account, on or before the date of the agreement for the
transfer of such immovable property.
Upto assessment year 2016-17
As per section 50C, in case of transfer of a capital asset
being land or building or both, the value adopted or assessed by the stamp
valuation authority for the purpose of payment of stamp duty shall be taken as
the full value of consideration for the purposes of computation of capital
gains. The Income Tax Simplification Committee (Easwar Committee) had in its
first report, pointed out that this provision does not provide any relief where
the seller has entered into an agreement to sell the property much before the
actual date of transfer of the immovable property and the sale consideration is
fixed in such agreement, whereas similar provision exists in section 43CA of
the Act i.e. when an immovable property is sold as a stock-in-trade.
Section 50C is constitutionally valid
Provisions of section 50C of the Act introduced by Finance
Act, 2002 with effect from 01.04.2003 are within the legislative competence of
the Parliament as the provisions are introduced with the view to prevent
evasion of tax by undervaluing the sale consideration on transfer of specified
asset being land and building. Therefore, the classification made by section
50C of the Act was held to be reasonable and not discriminatory.—[Bhatia
Nagar Premises Co-op. Society Ltd. v. UOI & Ors. (2010) 44 DTR 19 (Bom)]
It was held that section 50C is constitutionally valid.—[K.R.
Palanisamy (2009) 180 Taxman 253 (Mad)]
No adjustment if variation between stamp duty value &
sale consideration does not exceed 105% [Third proviso to section 50C]
WITH EFFECT FROM ASSESSMENT YEAR 2019-20
It has been pointed out that this variation can occur in
respect of similar properties in the same area because of a variety of factors,
including shape of the plot or location. In order to minimize hardship in case
of genuine transactions in the real estate sector, with effect from assessment
year 2019-20, it is provided that no adjustments shall be made in a case where
the variation between stamp duty value and the sale consideration is not more
than 5% of the sale consideration.
In other words, where stamp duty value does not exceed 105%
of the consideration, the consideration so received shall be deemed to be the
full value of the consideration.
UPTO ASSESSMENT YEAR 2018-19
Section 50C provided that if the sale consideration of an
immovable property is less than the value adopted by State Government (stamp
valuation authority) then such value adopted by stamp valuation authority will
be deemed to be full value of consideration.
FOR EXAMPLE
Say Mr. “X” sold a flat to Mr. “Y” for a consideration of
Rs. 80 Lacs. However, at the time of registration, value adopted by stamp valuation
authority is Rs. 82 Lacs. Then in such a case full value of consideration (i.e.
sale price) will be deemed to be Rs. 80 lacs only since stamp duty value does not
exceed 105% of consideration ( i.e. 105% of Rs. 80 Lacs = Rs. 84 Lacs).
The Assessing Officer is not entled to make an addition to
the sale consideration declared by the assessee if the difference between the
valuation adopted by the Stamp Valuation Authority and that declared by the
assessee is less than 10%. Judgment of J&K High Court in the case of Honest
Group of Hotels (P) Ltd. v. CIT (2002) 177 CTR 232 (J&K) followed.—[John
Fowler (India) Pvt. Ltd v. DCIT (2007) (ITAT Mumbai)]
Nature of transaction
Transfer of land or building or both at less than stamp duty
authority value.
Consideration for transfer
Amount is less than the value adopted or assessed by the
State Government Authority (referred to as the “Stamp Valuation Authority” for the
purpose of payment of stamp duty).
Basic
Ingredients of Provisions of section 50C
(i) THERE SHOULD BE A
TRANSFER OF CAPITAL ASSET, BEING LAND OR BUILDING OR BOTH
Since Section 50C is a legal fiction its area and scope are
confined to what is stated in the provision. Therefore, this provision can be
invoked only when there is a transfer of land or building or both. Its
operation cannot be extended to the other assessees or to other properties or
to other circumstances than what is stated therein.
Where a
property is treated as stock-in-trade or business asset it would not be a
capital asset and, therefore, provisions of Section 50C cannot be invoked - (CIT v. Thiruvengadam Investments (P) Ltd.
(2010) 320 ITR 345 (Mad)
(ii) THERE SHOULD BE A TRANSFER
OF SUCH CAPITAL ASSET BY WAY OF REGISTRATION WITH THE STAMP DUTY AUTHORITIES (SVA)
It has also been held that Section 50C can be invoked if development
rights are transferred along with the transfer of the land. What is to be seen
is that there is a registered transfer deed. The additional rights given would
not make any difference. So long as condition laid down under Section 50C. i.e.
instrument of transfer is registered in respect of the immovable property,
other events or additional transfer or rights or liabilities would be in
consequential - (Arif Akhatar Hussain v.
ITO (2011) 45 SOY 257/9 Taxmann. com. 90 (ITAT Mumbai)
It was held that as the agreement not registered
provisions of section 50C of the Act would not apply. Sale consideration as
admitted in return of income to be accepted. – (ITO v. Kumudini Venugopal (Mrs.) (2010) 5 ITR 145 (ITAT Chennai).
For
the purpose of invoking Section 50C it is necessary that transfer of property
is registered with the SVA, meaning thereby that Section 50C cannot be invoked
in respect of unregistered documents - (Navneet
Kumar Thakkar v. ITO (2008) 110 ITD 525 (SMC) (ITAT Jodhpur)
(iii) Stamp duty is sought to be imposed by the Stamp
Valuation Authorities at certain value of the capital asset which is different
than the sale consideration shown in the documents of transfer sought to be
registered;
(iv) Where valuation done by the Stamp
Valuation Authorities for levying Stamp duty is less than the sale
consideration shown by the assessee in the sale deed Section 50C cannot be invoked;
(v) It is provided
that no adjustments shall be made in a case where the variation between stamp
duty value and the sale consideration is not more than 5% of the sale
consideration. In other words, where stamp duty value does not exceed 105% of
the consideration, the consideration so received shall be deemed to be the full
value of the consideration.
(vi) Where valuation done by the
Stamp Valuation Authorities for levying stamp duty is more than the sale
consideration shown by the transferor in the sale deed then such higher
valuation will be considered as full value of consideration and, accordingly,
such full value of consideration being valuation done by the Stamp Valuation
Authorities will be substituted for apparent consideration;
(vii) The
capital gains under Section 48 shall be computed accordingly on the basis of
such higher full value of consideration and not on the basis of apparent
consideration shown in the sale deed;
(viii) If the assessee, being transferor, claims
before the Assessing Officer that fair market value of the property under
transfer is less than the valuation done by the Stamp Valuation Authorities
then the Assessing Officer may refer the property to the Valuation Officer for
determining its fair market value as on the date of the transfer. Such
reference would be made in accordance with Section 55A;
(ix) Where valuation done by the Valuation Officer
is more than the valuation done by the Stamp Valuation Authorities (SVA) then
valuation done by the SVA would be taken as full value of consideration and capital
gains will be calculated accordingly;
(x) If
valuation done by the Valuation Officer is less than the valuation done by the
SVA then valuation done by the Valuation Officer would be adopted as full value
of consideration as against the apparent consideration shown by the assessee or
the valuation done by the SVA and capital gains be calculated accordingly;
(xi) If
valuation done by the Valuation Officer is less than the valuation done by the
SVA as well as sale consideration shown by the assessee in the sale deed then
apparent consideration shown in the sale deed would alone be accepted as full
value of consideration and capital gains be calculated accordingly, i.e. as
shown by the assessee;
Value to be adopted for Capital Gains
Value adopted by the Stamp Valuation Authority.
Meaning of Stamp Duty Value (Circle
Rate)
Each State Government has a pre-decided
minimum valuation on which Stamp Duty is to be paid. This pre-decided minimum
valuation is called Circle Rate. In common parlance, it is also referred to as
the Stamp Duty Value i.e. the rate on which the Stump Duty is to be paid. The
Circle Rate differs from locality to locality depending on infrastructure and
other related factors. Although in majority of the cases the property is sold
above the circle rate, in some cases it may be sold below the Circle Rate as
well. Tax treatment of a property transaction below the circle rate in the
hands of the seller as well as in the hands of the buyer.
What is
‘full value of
consideration’
It was held that full value of consideration is the
full sale price actually paid. The expression ‘full value’ means the whole
price without any reduction whatsoever and it cannot be referred to the
adequacy or inadequacy of the price bargained. It also does not have the reference
to the market value of the capital asset which is the subject-matter of the
transfer. – [CIT v. George Anderson &
Co. Ltd. (1967) 66 ITR 622 (SC)]
Year of Taxability
Year of transfer computation of capital gain.
Computation of capital gain
Value determined by stamp duty authority less Cost of
acquisition (COA) or Indexation of Cost of Acquisition (ICOA).
If the Stamp duty value is
subsequently revised in any appeal or revision - Provision of Section 154 shall
apply [Section 155(15)]
The
Assessing Officer shall amend the order of assessment taking the value so
revised as full value of consideration for the computing Capital Gains. Period
of 4 years shall be reckoned from the end of the previous year in which the
order of appeal or revision is passed.
Applicability of section 50C to section 45(2), 45(3), 45(4),
45(5)
|
Section
|
Nature of Transfer
|
Value to be adopted
|
|
45(2)
|
Conversion of capital asset to
stock-in-trade.
|
Fair market value of the asset on the
date of conversion.
|
|
45(3)
|
Transfer of a capital asset by a
person to a firm or an AOP in which he is a partner/member.
|
Amount recorded in the books of account
of the firm or an AOP.
|
|
45(4)
|
Transfer of a capital asset by a firm
or an AOP to its partner/member.
|
Fair market value of the asset on the
date of transfer.
|
|
45(5)
|
Compulsory acquisition of a capital
asset under any law.
|
Consideration as is determined or
approved by the Central Government or the RBI or as may be enhanced by any
Court, Tribunal or other authority.
|
Legal fiction under
section 50C cannot mean that deemed sale amount of property is actually
received
Deemed consideration” under section 50C for
computation of capital gain under section 48 is quite different from actual
consideration or actual availability of money for the purpose of making
investments or for meeting the expenses. Deemed consideration within the
meaning of section 50C cannot and does not mean that the amount of deemed
consideration has actually been paid by the transferee or actually received by
the assessee. (Related Assessment Years : 2005- 06 to 2007- 08)
[Subash Chand v. ACIT - Date
of Judgement : 28.11.2011 (ITAT
Chandigarh)
Onus to prove that fair market value of the
property is lower than such valuation by the SVA is on the assessee
Under Section
50C when stamp duty valuation of a property is higher than apparent sale
consideration shown in the instrument of transfer then onus to prove that fair
market value of the property is lower than such valuation by the SVA is on the
assessee who can reasonably discharge this onus by submitting necessary
material before the Assessing Officer, such as valuation by an approved valuer.
Thereafter onus shifts to the Assessing Officer to show that material submitted
by the assessee about fair market value of the property is false or not
reliable.
[Ravi Kant v. ITO (2007) 110 TTJ 297 (ITAT Delhi)]
Coverage of section 50C is very wide
Section 50C affects all the transactions of land and buildings in the
country except Jammu and Kashmir. Although the section speaks of transfer of
land or building or both, on the reasoning that the term “whole” includes
“part.” It also covers part of building. Thus, transactions of flats,
shops, factories etc. are covered by the provisions of section 50C.
Applicability of Section 50C/
43CA viz-a-viz Section 56(2)(vii)(b) as amended amended by Finance Finance Act,
2013
|
Section
50C/ 43CA Applicable on
|
Seller/
transferor
|
|
Section
56(2)(vii) Applicable on
|
Buyer/
transferee
|
(A) Section 50C is
applicable
In the following cases, section 50C is applicable in the
case of distribution of capital asset on dissolution to the partners under
section 45(4).
Section 50C is
applicable to transfer of leasehold rights of a land for 99 years since it is a
capital asset
Recently,
the Bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of
Shri Hari Om Gupta1 (the taxpayer) held that the leasehold right of a land for
99 years is a capital asset to which the provisions of Section 50C of the Act
are applicable. Therefore, the capital gain on the transfer of such leasehold
right is to be computed in accordance with the provisions of Section 50C of the
Act.
The
assessee has acquired the leasehold rights for a period of 99 years and
subsequently, transferred such rights for the remaining period of lease. The
Assessing Officer made addition on account of long-term capital gains on such
transfer by invoking the provisions of 50C of the Act.
The
Commissioner of Income-tax (Appeals) held that Section 50C of the Act is
related only to transfer of capital assets and not to the transfer of leasehold
right in capital assets. In the present case, the assessee was not owner of the
land but was only the holder of leasehold rights for 99 years and therefore,
the property transferred is not a capital asset.
The
Tribunal held that leasehold right is a capital asset and therefore provisions
of Section 50C of the Act are applicable to the transfer of leasehold right for
99 years.
Accordingly,
the long-term capital gain on the transfer of leasehold rights for 99 years is
taxable by invoking provisions of 50C of the Act. (Related Assessment Year -
2007-08)
[ITO v. Shri
Hari Om Gupta - Date of Judgement : 03.11.2015 (ITAT Lucknow)]
Section 50C applies to depreciable
assets
The assessee sold an office building
for Rs. 49.43 lakhs. As the WDV of the said building was also Rs. 49.43 lakhs,
no STCG was offered to tax. The Assessing Officer held that as the stamp duty
valuation of the building was Rs. 76.49 lakhs, the consideration had to be
taken at that figure under section 50C. The Assessing Officer also held that
the entire block of assets had not ceased to exist. On appeal, the CIT (A)
reversed the Assessing Officer’s or on the ground that the deeming
provisions of section 50 & section 50C operate in distinct fields and
section 50C could not apply to depreciable assets. It was also held that
the block of assets had ceased to exist. On appeal by the department, the
matterwas referred to the Special Bench. HELD by the Special Bench, allowing
the appeal.
[ITO v. United Marine Academy (2011) 130 ITD 113 : 10
Taxman.Com 320(ITAT Mumbai (SB)]
Section 50C
applicable to transfer of development rights in property.
The assessee was co-owner of inherited property. He entered into an
agreement with the developer for development of the property for a
consideration of Rs. 63 lakhs and offered his share of the consideration to
capital gains. The Stamp Valuing Authority valued the property at Rs. 4.73
crores though the DVO valued it at Rs. 1.81 crores. The Assessing Officer
invoked section 50C and adopted the DVO’s valuation as the consideration. This
was confirmed by the CIT (A). Before the Tribunal, the assessee argued that
there was a distinction between “rights in land
& building” and the “land and building” and that section 50C did not apply to “rights” in
land & building such as development rights. It was pointed out that
the fact that only development rights were transferred was borne out by the
fact that the assessee was shown as owner of the property in the municipal
records. It was also pointed out that the stamp duty law made a distinction between transfer
of development rights and transfer of the property by imposing different rates
of duty. HELD dismissing the appeal:
The argument that transfer
of development rights does not amount to transfer of land or building and
therefore section 50C is not applicable is not acceptable
because under section 2(47)(v) the giving of
possession in part performance of a contract as per section 53A of the Transfer
of property Act is deemed to be a “transfer”. When the assessee received
the sale consideration and handed over possession of the property vide the
development agreement, the condition prescribed in section 53A of the Transfer
of Property Act was satisfied and under section 2 (47)(v) the transaction of
transfer was completed. The fact that the assessee’s name stands in the
municipal records does not change the nature of the transaction. (Related Assessment Years: 2006-07) - [Arif Akhatar Hussain and Jaffar Akhatar Hussain v. ITO -
Date of Judgement : 22.12.2010
(ITAT Mumbai)]
Section 50C also applicable to
documents not registered
With effect from 01.10.2009, Finance
Act, 2009 (No. 2) inserted the words “or assessable” in section 50C whereby
transfers of properties without or before registration can also be subjected to
provisions of section 50C. Hence after introduction of the words “or
assessable” such transfers where the value is assessable by the valuation
authority are also brought into the ambit of section 50C.
(B) Section 50C is
not applicable
In the
following cases, section 50C is not applicable:—
Section 50C speaks about transfer
of land or building or both and the adoption of deemed valuation being
valuation of stamp purposes as the full value of consideration. It does not
speak of plant and this contention was put on record vide reply of the assessee
dated 23/11/2015, which is placed at pages 120 to 122 of the paper book as well
as by reply dated 23.12.2015, which is placed at pages 123 to 125 of the paper
book whereby it has been put on record that it was a depreciable business
assets duly disclosed in the return of income. The cold storage was sold as a
whole and constituted plant under section 43(3) of the Act. The term “plant”
has been interpreted as including cold storage building also and this line of
reasoning is established by the Hon’ble jurisdictional High Court in the case
of CIT v. Kanodia Cold Storage (supra). We are, therefore, of the considered
view that provisions
of section 50C of the Act is not applicable to the cold storage building so to
substitute actual sale consideration by deemed sale consideration and the order
of the Assessing Officer passed under section 147/143(3) of the Act cannot be a
subject matter of section 263. (Related Assessment Year : 2009-10)
[Laxmi Ice & Cold Storage v. ITO - Date of Judgement : 21.02.2018
(ITAT Lucknow)]
Provisions of section 50C of the Act are not
applicable in the case of the assessee as the capital asset involved here was
not land or building but it is a right to purchase a building (shop). (Related
Assessment Year : 2009-10) - [Anil Jain
v. DCIT - Date of Judgement : 16.01.2018 (ITAT Delhi)
The ITAT
bench comprising Pramod Kumar (AM) and S. S. Godara (JM) recently confirmed
that the sale consideration on agricultural land after its conversion to
non-agricultural Land constitutes business income and therefore, section 50C of
the Income Tax Act, 1961 cannot be applicable to such cases.
(Related Assessment Year : 2010-11) - [ITO v. Smt. Sejal D Shah
- Date of Judgement : 10.01.2018 (ITAT Ahmedabad)]
Only rights in property sold through
power of attorney--Assessee entered into a purchase agreement for purchase of a
land and later transferred all the rights acquired under the power of attorney
for certain consideration, Assessing Officer applied section 50C and enhanced
short-term capital gains of assessee which was not justified since section 50C
was not applicable in this scenario as there was no stamp valuation. --Assessee
had entered into a purchase agreement for purchase of a land. The assessee
executed further agreement in favour of A and transferred all the rights acquired
under the power of attorney for consideration of certain amount. Assessee had
not transferred any immovable property but had transferred the right of
purchase of immovable property. The assessee neither received the possession of
property nor had any control been acquired on the property. Assessing Officer
found that the power of attorney was registered in the office of Sub-Registrar.
As per registered power of attorney, the value of sold property was determined
at much higher amount under section 54. Thus, on the basis of section 50C, Assessing
Officer enhanced the short-term capital gain. Assessee submitted that the
provisions of section 50C were not applicable in such situation, because where
the Registering Authority had not determined the value of the sold property,
the actual sale amount (as per the sale agreement) could not be substituted by
some other amount. Held: Assessee entered into a purchase agreement for
purchase of a land and later transferred all the rights acquired under the
power of attorney for certain consideration, Assessing Officer applied section
50C and enhanced short-term capital gains of assessee which was not justified
since section 50C was not applicable in this scenario as there was no stamp
valuation. - [CIT v. Satya Dev Sharma (2017)
251 Taxman 31 : TaxPub(DT)
4559 (Raj)]
The moot
point in this case is whether Section 5OC can be invoked when the purchaser is
a government undertaking i.e, Andhra Pradesh Industrial Infrastructure
Corporation Limited (APIIC). In the real estate business it is prevalent that
the substantial part of the consideration is unaccounted. In order to tax this
unaccounted portion of consideration deeming provision was introduced as
Section 5OC wherein when the consideration is less than stamp duty value, such
stamp duty value is to be treated as full value consideration for the purpose
of capital gain. - [ITO v. Southern Steel Ltd. - Date of
Judgement :10.11.2017 (ITAT Hyderabad)]
Provision of section
50C(1) of the Act are not applicable to section 54F for the purpose of
determining the meaning of full value of consideration.
Dismissing the appeal of the Revenue, the Tribunal held that
; If the assessee has invested the entire sale consideration in new house
property, the capital gains are exempt under section 54F. The Assessing Officer
cannot apply section 50C and treat the stamp duty valuation as the
consideration and assess the difference between the stamp duty valuation and
the actual valuation to capital gains. (Related Assessment year 2011-12) - [ITO
v. Raj Kumar Parashar - Date of Judgement : 28.09.2017 (ITAT Jaipur)]
The only
grievance of the revenue in this appeal is that the provisions of section 50C
of the Act mandates that where a transfer of capital asset being land or
building or both is for consideration less then its value as adopted/assessed
by the State Government for the purpose of stamp duty then the stamp duty value
would be adopted as being the full value of consideration for computing capital
gains arising out of transfer of the asset. It is the case of the revenue that
section 50C of the Act would apply also to transfer of leasehold interest in
land and is not limited to only to transfer of land and building or both. - [ACIT
v. Everest Industries Ltd. - Date of Judgement : 11.09.2017 (ITAT Mumbai)]
Section 50C does not apply to purchaser
of property
A plain reading of section 50C of the
Act shows that the income under the head “capital gains” is applicable to the
sale of immovable property, and not to “purchase” thereof. Therefore, the
provisions of section 50C(1) of the Act are not applicable to the case of a
purchaser. - (Related Assessment year 2009-10) - [Nitco Logistics (P)
Ltd. v. JCIT - Date of Judgement 05.09.2014 (ITAT Amritsar)]
Where investment in new asset was more than net
consideration received as well as full value of consideration computed as per
section 50C, assessee would not be chargeable to capital gains. (Related
Assessment year 2008-09) - [Raj Babbar v. ITO (2013) 56 SOT 1 : 29 taxmann.com 11 (ITAT Mumbai)]
Transferred booking rights in the
flat—50C is a deeming provision which does not apply to “rights in land &
building”
Assessee had transferred booking rights
in the flat by a tripartite agreement between assessee, developer and new
buyer. The Tribunal held that Section 50C was not applicable to booking rights
in land or building. The assessee booked a flat in a building which was under construction
for which he had paid Rs. 16.12 lakhs. The builder had not handed over possession
of the flat to the assessee nor had he executed any registered sale deed in
favour of the assessee. The assessee entered into an agreement pursuant to
which he transferred his rights, title and interest in the said flat in consideration
of the amount paid by him to the builder. The Assessing Officer took the view that
as the flat was valued at Rs. 57.57 lakhs for stamp duty purposes, capital gains
had to be computed on that basis under section 50C. This was reversed by the
CIT (A). On appeal by the department, HELD dismissing the appeal:
“Section 50C applies “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
adopted or assessed by any authority of a State Government for the purpose of
payment of stamp duty …” Section 50C is a deeming provision and extends to only
to land or building or both. A deeming provision can be applied only in respect
of the situation specifically given and cannot go beyond the explicit mandate
of the section. If the capital asset under transfer cannot be described as
“land or building or both”, section 50C will cease to apply. As the
assessee had transferred booking rights and received back the booking advance,
the booking advance cannot be equated with the capital asset and therefore
section 50C cannot be invoked.” (Tejinder Singh followed). (Related Assessment
Year: 2006- 07) - [ITO v. Yasin Moosa Godil (2012) 72 DTR 167 (ITAT
Ahmedabad)]
Transfer of leasehold rights in a
buildiing does not attract provisions of Section 50C
Assessee had transferred lease-hold
rights for 99 years in a house property. It was held that “Lease-hold right in
land & building” cannot be equated with the “land and building” and
accordingly Section 50C was not applicable. There is a distinction between a
receipt for transfer of ownership rights in property and a receipt for transfer
of tenancy rights in respect of a property because though both are assessable
as capital gains, in the case of tenancy rights, the “cost of acquisition” is
deemed to be Nil under section 55(2)(a) unless if it is purchased for a cost.
The fact that the assessee assigned his rights, together with the owner,
pursuant to the tripartite agreement did not mean that the assessees had
ownership rights in the property. Section 50 C applies
“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 adopted or assessed or assessable by any authority of a State Government
…… for the purpose of payment of stamp
duty in respect of such transfer”.
The sine qua non for application of section 50 C is that the
transfer must be of a “capital asset, being land or building or both”. A
“leasehold right in land or building” cannot be equated with the “land or
building”. Accordingly, section 50C has no application to the assignment
of leasehold/tenancy rights. (Related Assessment year : 2008-09) - [DCIT v.
Tejinder Singh (2012) 50 SOT 391 (ITAT Kolkata)]
Section 50C does not
apply to transfer of FSI & TDR
The assessee owned a plot of land admeasuring 2244.18
sq. mts of which 2110 sq. mts was acquired by the Municipality for development
purposes. The assessee was entitled to receive TDR/ FSI in lieu of the land
acquired. The assessee sold the development rights to the said property for Rs.
20 lakhs and computed capital gains on that basis. However, for purposes of
stamp duty, the property was valued at Rs. 1.19 crores. The Assessing Officer
held that the value of the property as adopted by the stamp duty authorities
had to be taken as the consideration under section 50C for purposes of capital
gains. This was reversed by the CIT(A). On appeal by the department to the
Tribunal, HELD:
Section 50C applies only to the transfer of “land or
building” and not to the transfer of all “immovable property“. Accordingly,
though FSI and TDR is “immovable property” as held in Chedda Housing
Development vs. Babijan Shekh Farid 2007 (3) MLJ 402 (Bom), it is not “land or
building” and so cannot be the subject matter of s. 50C. The property acquired
for development (in lieu of which the FSI/TDR was granted) also cannot be considered
even though the property continues to stand in the assessee’s name in the
property records. The property should be valued by the DVO net of the land
transferred to the Developer by the assessee after considering the acquisition
made by the Govt & the Municipal Corporation and also excluding the value
of TDR or additional FSI included in the consideration shown in the Development
Agreement
The Ld. D.R. relied on the decision of the Hon’ble High Court of Bombay
in the case of Chedda Housing Development v. Babijan Shekh Farid (2007) (3) ML
402 (Bom) in which their Lordships have interpreted the definition of
‘immovable property’ under General Clauses Act, 1897. In our humble opinion,
the term ‘immovable property’ has a very wide meaning then the words ‘land and
building’. Sec.50C refers to land and building and not to immovable property as
whole. Hence, the reliance placed by the Ld. D.R. on the decision of the
Hon’ble jurisdictional High Court in case of Chedda Housing Corporation (supra)
is not helpful to the revenue. (Related Assessment year: 2006-07) - [ITO v. Prem Rattan Gupta 31 CCH 384 – Date of Judgement
: 28.03.2012 (ITAT Mumbai)]
Full value of consideration -
Stamp duty valuation - Does not apply to transfer of “leasehold rights” as it
is not “land or building”.
Section
50C is a deeming provision which extends only to a capital asset which is “land
or building or both”. A deeming provision cannot be extended beyond the purpose
for which it is enacted. If a capital asset cannot be described as “land or
building or both”, section 50C cannot apply. A lease right in a plot of land is
neither “land or building or both”. The distinction between a capital asset
being “land or building or both” and any “right in land or building or both” is
well recognized. “Land or building’ is distinct from “any right in land or
building”. Consequently, section 50C does not apply to leasehold rights. (Related Assessment Year 2006-07)
- [Atul
G. Puranik v. ITO (2011) 141 TTJ 69 : 132 ITD 499 : 58 DTR 208 (ITAT Mumbai)]
If
apparent sale consideration by the assessee is accepted by the Stamp Valuation
Officer then provisions of Section 50C will not be applicable.
[Punjab
Poly Jute Corpn. v. ACIT (2009) 120 ITD 233 (ITAT Amritsar)]
Section 50C does not apply to “rights” in land &
building like tenancy rights
It was held that section 50C of the Act is applicable only
in respect of transfer of capital assets being land or building or both
registered by sale deed and it is not applicable for transfer of tenancy
rights, though the same is capital asset but not being capital asset i.e. land
or building or both. A tenancy right is not “land or building” (It is
“rights” in building). Consequently, section 50C has no application and the
capital gains have to be computed on the basis of the actual consideration and
not the stamp duty value.—(Related Assessment year 2005-06) —[Kishori Sharad
Giatonde v. ITO ITA No. 1561/M/09, dated 27.11.2009]
Transfer of assets under a family arrangement does not
attract the provisions of Section 2(47) - As the provisions of Section 45 are
not attracted, Section 50C is also not applicable.—[Shirish S. Maniar v. ITO
(167 Taxmann 81 (ITAT Mumbai)]
Section
50C applies only to capital asset and does not apply to assets held as
stock-in-trade
Where
flats were sold as business assets and were held in the books as stock-in-trade
then Section 50C could not be invoked for computing business income by
substituting valuation done by the SVA as real sale consideration as against
actual sale price received by the assessee
[Inderlok Hotels (P) Ltd. v. ITO (2009) 32 SOT
419 (ITAT Mumbai)]
Reference to Valuation Officer
|
Section
55A
|
For
assessment of capital gains
|
|
Section
142A
|
For
ascertaining cost of acquisition of property
|
|
Section
50C
|
In case the assessee claims before
the Assessing Officer that the fair market value of the property is genuinely
lower than the Circle Rate, the Assessing Officer may refer the case to the
Valuation Officer to conduct a valuation
of the property.
|
In case a valuation is conducted by the Valuation Officer
and
v Value ascertained by the Valuation Officer is lower than the
Circle Rate: The value so ascertained by the
Valuation Officer would be deemed to be the Sale Price.
v Value ascertained by the Valuation Officer is more than the
Circle Rate (i.e. value adopted by the Stamp Valuation Authority): The Circle Rate would be deemed to be the Sale Price. In
other words, the Capital Gain shall be considered as follows:—
Ø Capital Gains = Value adopted by Stamp Valuation Authority Less
Cost or Indexed Cost of Acquisition
Thus, from the above it is clear that if a Reference is made
to the Valuation Officer, the sale price to be considered for the purpose of
Capital Gains cannot be increased but can only be decreased.
DVO’s Valuation Report obtained for
section 50C purposes, can be challenged in appeal
During the
course of scrutiny assessment proceedings, the Assessing Officer noticed that
the assessee has sold a bungalow for Rs 1,15,00,000 but the stamp duty
valuation of the said bungalow, as evident from the sale deed, was Rs
1,40,00,000. The assessee, however, contended that the fair market price of the
property was much less than the stamp duty valuation, and, accordingly, a
reference was made to the Departmental Valuation Officer under section 50C(2).
The valuation as per DVO was Rs 1,27,12,402. The assessee made elaborate
submissions on incorrectness of this valuation, and submitted that the
objections taken by him before the DVO were not properly dealt with. The
Assessing Officer was of the view that the valuation done by the DVO binds him
and it is his duty to pass an order in conformity with the DVO’s report. He
referred to, and relied upon, various judicial precedents in support of this
proposition. Aggrieved, assessee carried the matter in appeal before the CIT(A)
but without any success. Learned CIT(A) observed that “Section 50C of the Act
is a deeming provision” and “a deeming provision is to be strictly applied
without enlarging its scope”. Learned CIT(A) was of the view that “considering
the provisions of Section 50C, the value taken by the Assessing Officer is
correct” and no interference is thus called for. The assessee is not satisfied
and is in further appeal before us. He is once again challenging the
correctness of the DVO’s report, is pointing out, what he perceives as, glaring
errors in the methodology adopted by the DVO and is submitting that the CIT(A)
fell in error in not adjudicating upon the same on merits.
In view of our analysis of the legal provisions
earlier in this order, the assessee is indeed correct, even though somewhat serendipitously
that the CIT(A) ought to have examined the matter on merits. Of course, before
doing so, the CIT(A) was under a statutory obligation to serve notice of
hearing to the DVO and thus afford him an opportunity of hearing. Clearly,
learned CIT(A) took too narrow and somewhat superficial a view of his powers
under the scheme of the law, and the assessee did not point out the specific
legal provisions to him either. Be that as it may, the fact remains that
correctness of the DVO’s report is to be examined on merits and there is no
adjudication, on that aspect, by the CIT(A). In view of these discussions, as
also bearing in mind entirety of the case, we deem it fit and proper to remit
the matter to the file of the CIT(A) for adjudication on merits in accordance
with the scheme of the law, after giving a due and reasonable opportunity of
hearing to the assessee as also to the DVO, and by way of a speaking order. We
further direct the CIT(A) to dispose of the remanded proceedings within three
months of receiving this order, and, in case the DVO does not avail the
opportunity of hearing, on the basis of material on record and submissions of
the assessee. Ordered, accordingly. (Related Assessment Year : 2013-14) - [Lovy Ranka v. DCIT - Date of Judgement : 01.04.2019 (ITAT Ahmedabad)]
Full value of consideration – Stamp valuation- When
the assessee is protesting the valuation by Stamp authority and requesting the
refer to Department valuation Officer, the Assessing Officer is bound to make
the reference to Department Valuation Officer , accordingly the deletion of
addition was held to be justified
Dismissing
the appeal of the revenue the Tribunal held that, When the assessee
is protesting the valuation by Stamp authority and requesting the refer to
Department volition Officer, the Assessing Officer is bound to make the
reference to Department Valuation Officer. Deletion of addition was held
to be justified .( Related Assessment Year 2011-12) - [ITO v. Estate of Maharaja Karni Singh Bikaner ( 2018) 193 TTJ 451 :
166 DTR 29/ (ITAT Jodhpur)]
The
assessing officer made the assessment order under section 147/143(3). The only
issue involved in this appeal is regarding computation of long term capital
gain on sale of property located at Ghaziabad. The assessee has declared the
long term capital gain on the sale of the said property claiming real sale
receipt value of the property. (Related Assessment Year : 2009-10) - [Sudha
Garg v. ITO - Date of Judgement : 14.08.2018 (ITAT Delhi)
Impugned
addition under section 50C(2) of the Act mandates reference to DVO in case an
assessee contests the jantri price in question to be higher than fair market
value of the relevant capital asset. - [Amarshiv Construction (P) Ltd. v. DCIT -
Date of Judgement : 29.12.2017 (ITAT Ahmedabad)
In case assessee objects value of asset adopted by Assessing
Officer for computing capital gain, Assessing Officer ought to refer valuation
of asset to valuation officer
Where specific objection was made by assessee as to
Assessing Officer adopting market value of property under section 50C(2),
Assessing Officer ought to have referred valuation of capital asset to
valuation officer. (Related Assessment year 2009-10) - [S. Muthuraja v. CIT
(2013) 218 Taxman 73: 37 Taxman.com 352 (Mag.) (Mad)]
Stamp valuation—Reference to DVO—Reference to valuation is
mandatory when assessee objects for valuation
Tribunal held that where assessee objected to valuation
adopted by stamp valuation authority and also filed copy of valuation report by
an approved valuer, Assessing Officer was required to make a reference to
valuation officer in terms of section 50C(2) to ascertain correct fair market
value of property. In favour of assessee. (Related Assessment Year 2005-06) - [A.T.
E. Enterprises (P) Ltd. v. DCIT (2013) 55 SOT 175 : (2012) 28 Taxmann.Com 289
(ITAT Mumbai)]
Valuation of the stamp authority cannot
be adopted for the purpose of collecting capital gain tax in the hands of the
assessee if there is a long gap between the date of execution of the MOU and
the execution of a formal development agreement.
The assessee can be taxed only on the gain which is oozing
out from the sale consideration, thus, no adverse inference can be drawn while
invoking the provision of section 50C of the Act. No evidence has been produced
by the Revenue at any stage that the assessee actually received the value which
was adopted by the stamp valuation authority. (Related Assessment year :
2005-06) - [PCIT v. The Executor of Estate of Late Smt. Manjula A. Shah - Date
of Judgement : 11.12.2018 (Bom )]
During the course of assessment
proceedings it was noticed by Assessing Officer that assessee had shown
long-term capital gain on sale of land. In respect of the two plots bearing
numbers 181/1 & 161/1, Vejalpur there was a common sale deed executed along
with other co-owners. Assessee;s share in the sale price was at Rs.
10,47,19,391 and the capital gain was shown at Rs. 10,32,32,367. Assessing
Officer had observed "considering the area of property, etc., the same was
referred to the Departmental Valuation Unit, i.e., DVO." A valuation
report was obtained dated 26.12.2008 according to which the valuation was made
at Rs. 66,13,74,000. As against that the total consideration in respect of both
the plots as shown by assessee was at Rs. 61,52,16,350. A copy of the Valuation
Report was forwarded to assessee along with the show-cause notice suggesting to
re-compute the long-term capital gain accordingly. However, Assessing Officer
was not convinced with reply of query and it was held that the Valuation
Officer (VO) had given the Valuation report on the basis of the information
collected and he had no alternative but to proceed as per the Valuation report
to determine the capital gain. The matter was carried before the First
Appellate Authority. He held that Assessing Officer’s action of referring the
matter to DVO for substituting the sale consideration was not legally
sustainable. He also opined that since the sale consideration as disclosed by
assessee being higher than the stamp value therefore, the Assessing Officer was
not lawfully permitted to substitute the consideration for the purpose of
computation of capital gain. In the result, the addition was deleted. Held:
Since the language in section 55A does not refer "value of consideration”
but only used the wordings |fair market value| then its applicability for the
purpose of reference to a Valuation Officer has to be exercised within that
limited area, so the scope is also confined to determine the fair market value
of a capital asset only. The outcome of this discussion thus, leads to a
conclusion that even if the Assessing Officer has called for a report to
determine the fair market value of a capital asset but considering the language
of section 48 the same cannot be substitute to the "full value of the
consideration".
Since the language in section 55A do not
refer "value of consideration” but only used the wordings “fair market
value” then its applicability for the purpose of reference to a Valuation
Officer has to be exercised within that limited area, so the scope is also
confined to determine the fair market value of a capital asset only. The
outcome of this discussion thus, leads to a conclusion. Thus, the valuation made by the DVO and the
consequential addition as made by the Assessing Officer was reversed and the view taken by the CIT(A) was
upheld. - [ITO v. Chandrakant R. Patel (2011)
140 TTJ 430 : 131 ITD 1 : 56 DTR 449 (ITAT Ahmedabad)]
Full value of consideration - Stamp
valuation - Reference to valuation.
Assessing Officer can refer for valuation of capital assets to valuation
officer under section 50C if he finds that consideration received is less than
value adopted by stamp valuation authority for purpose of stamp duty. (Related
Assessment Year 2006-07) - [ITO v. Chandrakant R. Patel (2011) 140 TTJ 430 : 131 ITD 1 : 56 DTR
449 (ITAT Ahmedabad)]
Full value of consideration - Stamp
valuation officer – District valuation officer (DVO).
The DVO determined fair market value at Rs. 46.48 lakhs, which is lower
than the value for the purpose of stamp duty at Rs. 1.18 Crores. As per the
provisions of section 50C(2) the capital gains is required to be computed by
considering the fair market value of the property which was at Rs. 46,48,781 as
the full value of the consideration received or accruing to the assessee as a
result of the transfer of capital asset. Assessing Officer cannot disregard the
value determined by the DVO under section 50(C)(2) read with 16A of the
Wealth-tax Act and proceed to compute long term capital gain in accordance with
the value determined by stamp valuation authority. (Related
Assessment Year 2005-06). - [Bharti Jayesh Sangani
v. ITO (2011) 138 TTJ 661 : 128 ITD 345 : 55 DTR 212 (ITAT Mumbai)]
Valuation done by the Stamp Valuation Officer has
to be taken as full value of consideration
Where
valuation done by the Valuation Officer is higher than valuation adopted by the
Stamp Valuation Authorities then valuation done by the Stamp Valuation Officer
has to be taken as full value of consideration. - [Jitendra Mohan Saxena v. ITO (2008) 305 ITR 62 (ITAT Lucknow)]
Stamp duty value on the date of agreement & not date of
sale deed has to be taken
Consideration for sale of the immovable property is required
to be worked out based on the basis of the stamp duty prevailing on the date of
registration of the agreement to sale and not by applying such valuation as on
the date of execution of sale deed.—[Lahiri Promoters v. ACIT (ITA No 12/
Vizag/2009, dated 22.06.2010]
Circle-rate prevailing on the date of execution of sale deed
is relevant & not the date of registration date.—[ITO v. Modipon Limited
(2015) 57 Taxmann.com 360 (ITAT Delhi)]
KEY NOTE
The amendment made by the Finance Act, 2016 with effect from
assessment year 2017-18 confirms that the law laid down by the above authorities
is the correct one.
Full value of consideration - Stamp valuation – Entire consideration was
invested in bonds -The assessee cannot avoid the impact of Section 50C by
claiming that his Section 54EC investment is large enough to cover the deemed
consideration based on stamp duty valuation- Such interpretation renders
Section 50C redundant
The asseeee declared capital gains of Rs 21 19 344 and claimed
exemption under section 54EC of the Act. The stamp authorises valued the share
of the appellant at Rs. 76, 17 702. Assessing Officer determined the capital
gains at Rs 49, 47, 344 . The Assessee contended that entire sale
consideration of Rs 25 lakhs was invested in specified bonds and
deeming provision of Section 50C is not applicable .CIT (A) allowed the appeal
. Tribunal affirmed the view of the Assessing Officer . On appeal the High
Court held that, the assessee cannot avoid the impact of Section 50C by
claiming that his Section 54EC investment is large enough to cover the deemed
consideration based on stamp duty valuation. Such interpretation renders Section
50C redundant. Order of Tribunal is affirmed . (Related Assessment year 2008 -09) - [Jagdish C. Dhabalia v.
ITO ( 2019) 308 CTR 295 : 176 DTR 417 (Bom)]
After considering the
rival contentions, we do not find any merit in this appeal of the Revenue. The
assessee has disclosed all the relevant facts of sale of the property to the
Revenue Department. The assessee declared the sale consideration of Rs.
1,27,50,000 as per sale deed and also offered the short term capital gain for
taxation. The Assessing Officer however, applied the deeming provisions of
Section 50C of the Income Tax Act, for the purpose of making the addition.
Thus, the Assessing Officer did not bring any positive evidence on record to
show that assessee has concealed particulars of income or furnished any
inaccurate particulars. The valuation of the Stamp Valuation Authority is not a
conclusive evidence of receipt of the money by assessee over and above what is
recorded in the sale deed. The Assessing Officer has not brought any concrete
evidence of concealment of income in the order. Assessing
Officer at the stage of assessment, simply applied the deeming provisions ofSection
50C of the Income Tax Act without bringing any evidence on
record for concealment of income or furnishing inaccurate particulars by the
assessee. In the absence of any positive evidence with respect to concealment
of income, there were no justification for the Assessing Officer to levy
penalty in the matter. The Hon'ble Kolkata High Court in the case of CIT v.
Madan Theatres Ltd. 260 CTR 75.), on
identical facts, dismissed the departmental appeal in which it was held as
under :
"Where assessee had offered actual
amount received on sale of property for taxation, revenue authorities were not
justified in passing penalty order under section 271(1)(c) by adopting higher
sale consideration under section 50C on basis of stamp duty valuation of said property.
In the result, appeal of the Department is dismissed. (Related Assessment year 2010-11) - [ITO v. Shri Ajay Sharma – Date of Judgment :
23.11.2017 (ITAT Delhi)]
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