PPP-Sec-50C

Report
Provisions of Sec. 50C
Sec. 50C Background
• History – Govt’s worry about black
money in real estate transactions.
• Sec. 52(2) & K.P. Varghese’s case (SC)
• Deeming provision of sec. 50C brought in
by the Finance Act, 2002.
• Constitutional Validity upheld by the
Bombay High Court in 334 ITR 145 & by
Madras High Court in 306 ITR 61
Provisions in brief of sec. 50C
• Sub Sec. (1) : Provides that if transfer of
land or building or both is at lesser than
valuation under stamp duty ready
reckoner, then stamp duty value to be
adopted as full value of consideration for
capital gains calculations.
• Sub Secs (2) & (3) : Provides for
mechanism to address grievances relating
to excess valuation under stamp duty.
Sec. 50C
• Highlights of provision –
 Applicable to all assessees
Transfer of capital asset being land or building
or both
If consideration in document is less than
market value for stamp duty
Market Value Assessed or Assessable
Applicable for both LTCG & STCG
Land or Building or Both
• Applicability to Rights in land or building
Provisions of sec. 50D
Applicability to Development Agreements :
Held Applicable
Mumbai Tribunal in Chiranjeevlal Khanna
Mumbai Tribunal in Arif Akhtar Hussain(140 TTJ
413)
Land or Building or Both
Sale of TDR/Additional FSI : Held not
applicable
Bombay High Court in Chedda Housing
Development vs. Banijan Sheikh Farid 2007 (3)
MLJ 402 in held that TDR is an immovable
property.
Yet Mumbai Tribunal in ITO vs. Prem Rattan Gupta
ITA No.5803/M/2009 A.Y. 2006-07 dated 28-32012 held that 50C not applicable to sale of
TDR/FSI – Bom H.C. considered
Land or Building or Both
Leasehold/Tenancy Rights :
In Atul G. Puranik vs. ITO 132 ITD 499 - Plot lease
of 65 years – Held Not Applicable.
In DCIT vs. Tejinder Singh ITA No. 1459/Kol./2011–
House lease for 99 years – Held Not Applicable.
In Shavo Norgren (P) Ltd. vs. DCIT 58 SOT 23 –
MIDC lease of 95 years : Held Applicable
In Kishori Sharad Giatonde vs. ITO ITA No. 1561/
M/09 dated 27-11-2009 - Tenancy Rights – Held
Not Applicable.
Land or Building or Both
Booking Rights
In ITO vs. Yasin Moosa Godil 72 DTR 167
transferred booking rights in flat by a
tripartite agreement. Held that S. 50C not
applicable.
Sathekhat on Sathekhat
If possession Given
If possession not given – Poser?
Valuation on the date of Agreement
(Sathekhat) or Sale Deed (Kharedikhat)
• If possession Given on Agreement : No question
arises, value on agreement date.
• If possession not given on Agreement –
 No provision like 43CA or 56(2)(vii) in case of
agreement supported by other than cash
payments
 Transfer takes place on possession/Sale Deed –
valuation on sale deed date (214 Taxman 305 –
Cal).
 Challenge valuation u/s 50C(2) as encumberred
by agreement value
S. 50C & S. 45(3)
• Two deeming fictions
S. 45(3) Deems value entered in firm’s books
as full value of consideration
S. 50C deems stamp duty valuation
What if both differ – None is non obstante –
Rule of interpretation
 ITAT (Luck) in Carlton Hotel P. Ltd. vs. ACIT (122
TTJ 515) – A.Y. 2004-05 - held -
S. 50C & S. 45(3)- Contd.
o S. 50C not applicable because book entry not
liable to stamp duty
o However, w.e.f. 01.10.2009 even ‘assessable’
is covered.
S. 50C & S. 50
• Applicability of S.50C to S.T. C.G. on Depreciable
asset u/s 50 r.w.s. 43(6)(c) –defi. of WDV
 Special Bench in ITO vs. United Marine Academy
130 ITD 113held that S. 50C is applicable to
transfer of depreciable capital asset covered by S.
50
 At which stage? S. 48 comes in play only where
sale price exceeds WDV.
S.50C & S.50B
• Slump sale taxable u/s 50B – Lump sum price - Include land, building or both - Price for each
asset not ascertainable
• The Special Bench in Dy. CIT vs. Summit
Securities Ltd. (2012) 135 ITD 99 held that it is
not applicable.
S. 50C & S. 54, 54B, 54F, etc.
• Example :
 Net sale consideration 1 0,00,000
 Indexed cost of acquisition 5,00,000
 Stamp Duty value 20,00,000 Capital Gains
(normal) 5,00,000
 Capital Gains (u/s 50C) 15,00,000
 Now, if cost of new asset is ` 6,00,000 then
whether entire cap gain of 15,00,000 or only
5,00,000 or 6,00,000
S. 50C & S. 54, 54B, 54F, etc.- contd
Assessee cannot be expected to do impossible
In 49 SOT 160 (Jp) – If entire normal C.G. reinv.
in 54EC – Entire C.G u/s 50C exempt
In 133 TTJ (Jp) 482– If entire actual sale
consideration reinvested in 54F - Entire C.G.
u/s 50C exempt
In 356 ITR 90 (Karn) HC applied 50C for 54F
calculations – since no objection u/s 50C(2)
was raised agst stamp valuation.
S. 50C & S. 69, etc
•
•
•
•
Issue of 69, etc. arises in the hands of buyer
Buyer, if Ind or HUF, now covered u/s 56(2)(vii)
Other assessees not covered by S. 56(2)(vii)
In 256 CTR 371 (Del) & 323 ITR 510 (P & H) for S. 69, etc. 50C held not applicable.
• Thus, now double taxation in both buyer &
seller – Possible - 204 ITR 146 (Bom.)
Spared?
• In 56 SOT 12 (Mum.) - only direct transfer of
land or building or both is hit. Sale of land/
building by transfer of shares of company &
not subjected to stamp duty not covered by
50C.
• Tax Planning or evasion? GAAR?
• What if flat/shop from housing company or
housing co-op scty is transferred, where
transfer document is subjected to stamp duty?
Disputing Stamp Duty Valuation
• In practice sale can be at lesser than stamp
value for genuine multiple reasons –
Distress sale – Difficulties under both
remedies
Valuation under stamp laws are not location
specific but area specific - Disadvantageous
locations like surrounded by slum or bad
social elements or adjacent to say Sewage
plant are not
Disputing Stamp Duty Valuation –
contd.
• Remedies two but alternate – Under Stamp Law
& u/s 50C(2) of I.T. Act.
 Under Stamp Law : If Market Value is challenged
under Stamp Duty Law, then any variation in
market value in any appeal, revision or reference
under Stamp Duty Law will be given effect to in
Income Tax by passing order u/s 154 (sec.
155(15)) within the period of 4 yrs from end of
the yr in which order of appeal, revision or
reference is passed - Distress sale has difficulty.
Disputing Stamp Duty Valuation –
contd.
 Remedy u/s 50C(2) of I.T. Act
 If assessee claims that o Stamp duty valuation exceeds FMV &
o If no dispute on valuation under Stamp Act is
raised
then A.O. ‘may’ refer valuation to the DVO
 In 34 SOT 57 (Mum) it is held that ‘may’ to be
read as ‘shall’ i.e. On assessee claiming FMV
lower than stamp valuation A.O. must refer to
DVO.
Disputing Stamp Duty Valuation –
contd.
No procedure laid for claiming lesser FMV
o Claim in Return
o Obtain valuation report from registered valuer
o Apply different methods of valuation, as
circumstances demand
o Take care in drafting of the document –
mention factors affecting FMV in the
document in recitals or in the portion dealing
with adequacy of sale price.
Disputing Stamp Duty Valuation –
S.50C(2) & 3)
• On reference to DVO –
If DVO arrives at lesser FMV than stamp
valuation, then lesser value must be adopted
by A.O, as DVO’s report is binding on him.
However, if DVO arrives at more FMV than
stamp duty valuation, then valuation by DVO
to be ignored by A.O. & stamp duty valuation
to be adopted by A.O. as per s. 50C(3)
Disputing Stamp Duty Valuation in
Appeals
• Road does not end on adverse valuation by DVO.
 Challenge it before CIT(A) – In 142 ITD 428 it is
held that CIT(A) can go below the valuation given
by DVO.
 In Abbas T. Reshamwala vs. ITO, ITA No. 892/
M/2012, dated 20-2-2013 it is held that, DVO
valuation is not binding on ITAT & ITAT can arrive
at different value.
 In 326 ITR 229 – Time barring period for asstt
extended in writ, pending DVO report – 154 is
also possible.
Penalty u/s 271(1)(c) for 50C Valuation
• In 260 CTR 75 (Cal HC) –
FACTS : 1. In ROI s. 50C not considered 2.FMV
not challenged u/s 50C(2) 3. Asstt. completed
at stamp duty valuation 4. Asstt. not disputed
High Court deleted penalty on the ground that
no evidence of assessee receiving any sum
above document price.
Penalty u/s 271(1)(c) for 50C Valuation
• In Shri Chimanlal Manilal Patel vs.ACIT ITA
No. 508/Ahd/2010 dated 22-6-2012
In original ROI Sec. 50C not followed
In ROI u/s 148, Sec. 50C value adopted
Penalty u/s 271(1)(c) held not leviable
because Assessee agreeing to addition on the
basis of deeming provisions cannot be
construed as furnishing of inaccurate
particulars of income.
Provisions u/s 50C
Thank you

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