Tuesday, September 10, 2013

Sec 50 C of IT Act X DTC provision ref Entry 32 of Sch VI / VII..

Sept 16

Download: Chandra_50C.pdf

S. 50-C: Extent to which reliance can be placed by AO on stamp duty valuation explained

Xcerpts >

< 9. This Court had an occasion to consider the provisions of Section 50 C of the Income Tax Act 1961, inserted by the Finance Act 2002, w.e.f. 1.4.2003, in
Commissioner of Income Tax Vs. Smt. Raj Kumari Vimla Devi and another  [(2005) 279 ITR 360 (All)], in which it was held as follows:-
“The apex court in the case of Jawajee Nagnatham v. Revenue
Divisional Officer[1994] 4SCC 595 has held that the Basic Valuation Register prepared and maintained for the purpose of collecting stamp duty cannot form the foundation to determine the market value mentioned thereunder in instruments brought for registration. Equally it would not be a basis to determine the market value under Section 23 of the Land Acquisition Act, of the lands acquired in that area or town or the locality or the taluk, etc.

This Court in the case of  Dinesh Kumar Mittal v. ITO [1992] 193 ITR  770 ; [1991] UPTC 1209  has held that we cannot recognise any rule of law to the effect that the value determined for the purpose of stamp duty is the actual consideration passing between the parties to a sale. The actual consideration may be more or may be less. What is the actual consideration that passed between the parties is a question of fact to be determined in each case, having regard to the facts and circumstances of that case.

It may be mentioned here that to overcome this difficulty for the


purposes of bringing to tax on capital gain, Parliament has inserted
Section 50-C of the Income-tax Act, 1961, by the Finance Act, 2002, with effect from April 1, 2003, wherein it has been provided that the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of land or building or both 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. There was no such provision applicable during the relevant period, therefore, the value of assets by the stamp valuation authority cannot be treated as full market value for the purposes of imposition of tax.

In this view of the matter, we are of the considered opinion that the
rules framed under the Stamp Act cannot be pressed into service for determining the market value of the property and, therefore, there is no deemed gift in the present case. We, accordingly answer both the questions referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. There shall be no order as to costs.”>


The observations of the court summed up in inter alia paras (i) and (ii) above, require be closely and mindfully read and understood. For an insightful grasp thereof, refer the observations in cited case law, -ref. Para. 9 of the judgment, albeit those are cases decided before the subject section 50C came to be enacted. Yet, in one’s view, those are every relelevance; if so, must hold good even post section 50 C, and ought not to be glossed over but need to be kept in sharp focus.

Often, one has  come across cases  in which the relevance and applicability of the said section to house  property of a  distinct  kind, known as , - flats or apartments ,  that is, co-owned, as opposed to property  exclusively owned by individual (s), has been gone into. In such cases, going by memory, both the taxpayers, so also the tax authorities do not seem to have raised and consciously considered certain crucial and clinching attendant facets/realities of life.

To set out briefly: The transaction for purchase of a flat or apartment, particularly  while under construction  but before its completion, the first purchase, invariably, has its initiation by the parties by  entering into an  ‘agreement TO sell’. Further, that is done at a very premature stage, -in common parlance known as ‘prelaunch booking’ or soon thereafter.  It is at that point in time  that the price/consideration to be paid/received  is agreed upon  once for all, subject to / pending a host of legal and other  formalities , including the final and essential formality of  completion of the construction and sale/conveyance to the purchaser (s). Experience shows that, such completion and sale/conveyance becomes a reality not until a few years thereafter, mostly but roughly not earlier than 3 to 5 years.

Presently, section 50 C, for all practical purposes, is taken to come into play for assessing capital gains arising on transfer/sale in  the hands of  its owner/possessor, holding it as a capital asset.

Now, a couple of crucial points of poser, though mutually contradicting but inter-related, need to be raised for serious deliberation in concerned circles, -to the end of reaching a rightful and sane conclusion,  - not barring by the Revenue:

>Why, the provision can be rightly applied to a case of transfer, such as the one for which the price/consideration is agreed upon, as evidenced by proper documentation i.e. agreement to sell say, years before, but the actual registration of the sale / conveyance deed fructifies/takes place, for any genuine reason(s) beyond the control of either party, at a much later point in time?

> Why the underlying philosophy  of the rules as embodied in the provision, be not extended / made applicable to ‘business income’  as well, with such modifications, as considered and decided to be appropriate/warranted ; instead of  confining to the taxing  of  capital gains?

That is,- why by the same token of logic (or otherwise), such a “deeming” as enshrined in the provision is not to be extended also to transfer/sale of  a property by one, such as a builder,  holding and selling as stock-in-trade, hence assessable under the head of “business income?

The latter poser may have to be ideally examined,  primarily keeping in view that, if any such measure as implied/suggested were to  be resorted to, that might go a long way and help in dissuading the builder to desist from indulging in, be an effecdtive deterrent against, undue delays  in completion of construction and conveyance within the agreed time frame.

The foregoing well-meaning feedback, while being based on individual sporadic thoughts, are intended to serve the purpose of social and other activists cum law experts to explore, if mind to do so.

(left unedinted)


An overview of direct tax code - SlideShare


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