Benefit of 5percent variation between stamp duty value and consideration
This case deals with the benefit of 5percent variation between stamp duty value and consideration.
Third proviso to section 50C of the Income Tax Act, 1961 was added by Finance Act, 2018 allowing a 5% variation between stamp duty and consideration to the taxpayer. The limit of 5% has been increased to 10% with effect from 01.04.2021. The question is whether this benefit is curative and can be applied retrospectively? In this case, ITAT rejected Revenue’s argument for sustaining addition on the ground that Section 56(2)(vii)(b) does not mandate that such difference of 5 or 10 percent must be ignored.
If you are tax professional who engages with Real estate professionals or advises on topics like Fair Market Value or stamp duty valuation, you may like to track such cases. Follow the issue and Real estate industry using Telescope dashboard.
- During the year under consideration i.e. Assessment Year 2016-17, the Assessee had purchased a flat in Bengaluru for a sum of Rs.2.33 Crs. The Assessing Officer noticed that the value determined by the stamp valuation authority for the said flat was Rs.3.34 Crs. However, the stamp duty valuation at the time when ‘Agreement to sell’ was entered into was Rs.3.11 Crs.
- Hence, the Assessing Officer proposed to assess the difference between the stamp value at the time of entering agreement to sell and actual consideration shown purchase agreement as income of the Assessee under Section 56(2)(vii)(b) of the Act. Subsequently, upon receipt of the DVO valuation, who had valued the property at Rs.2.68 Crs, the Assessing Officer made an the addition of Rs.35.86 lakhs (Rs.2.68 Crs- Rs.2.33 Crs).
- The Assessee further challenged the addition made by the Assessing Officer before the Commissioner of Income Tax(Appeals) pointing out discrepancies in the report of the DVO. On being convinced, the Commissioner of Income Tax (Appeals) sustained the addition to the extent of Rs.15.92 lakhs.
- Further, the Assessee also raised the contention before the Commissioner of Income Tax (Appeals) that no addition should be made u/s 56(2)(vii)(b) of the Act, if the difference between fair market value of the property and actual consideration is less than 10% of the actual consideration in view of Section 50C. However, the same was rejected.
- The provisions of section 50C of the Act are applicable in the hands of the seller and provisions of section 56(2)(vii)(b) are applicable in the hands of buyer in respect of very same transaction of transfer of land or building. Hence, there could not be two different “fair market value” in respect of the very same property, i.e. one in the hands of the seller and another in the hands of the buyer. Accordingly, the principles applied to determine the fair market value of the property in the hands of the seller should equally be applied in the hands of buyer also.
- The Parliament has introduced third proviso in Section 50C(1) of the Act, as per which the difference in stamp duty valuation and actual consideration should be ignored, if it is less than 5%/10%. Even though the said provision has come into effect from 01.04.2019/ 01.04.2021, the Kolkata Bench of Tribunal held it to be curative in nature in the case of Chandra Prakash Jhunjhunwala and accordingly held that the proviso shall apply since the date of insertion of Section 50C of the Act.
- Therefore, following the same in the present facts of the case, the addition of Rs.15.92 lakhs sustained by Commissioner of Income Tax(Appeals) was to be deleted as it worked out to less than 10% of the actual consideration of Rs. 2.33 Crs paid by the Assessee and Section 50C was curative in nature, hence, applicable to the year under consideration.
- Accordingly, the Assessing Officer was directed to ignore the difference between fair market value determined by Commissioner of Income Tax(Appeals) and the actual consideration as the same was less than 10% of the actual consideration.