The Hindu Business Line : Capital gain in case of transfer of immovable property — Tax experts, lawyers lash out at I-T clause

THE much debated section 50C of the Income-tax Act, decried as bad in law by both tax lawyers and practitioners, is again in the limelight, prior to another Union Budget. Chambers of commerce and industry and senior tax lawyers and practitioners have lashed out at the provision, and have uniformly sought its withdrawal from the statute books.

Introduced by the Finance Act 2002, for calculating capital gain in case of transfer (read as sale) of an immoveable property (land or building or both), the clause says that if the consideration declared to be received on such transfer is less than the value adopted or assessed by any authority of a State Government for the purpose of stamp duty payment, the value so adopted or assessed shall be deemed to be the full value of the consideration, and capital gain shall be computed accordingly under section 48.

Tax experts believe this has not only led to a spate of litigations, but has also caused hardship to honest taxpayers who declare the full value of consideration in the transfer instrument, and then end up paying capital gains tax on a "deemed amount of capital gain (read as income), which he or she did not earn."

Citing the clause as ultra vires of the Constitution, and against the spirit of established law, Dr Debi Pal, former Union Finance Minister and eminent tax lawyer, said in the celebrated case of K.P. Verghese vs CIT, the Supreme Court has held that it was improper to deem a higher sale consideration without specific material to prove that the transferor got any money in addition to what was shown in the sale agreement or conveyance deed.

According to the Bharat Chamber of Commerce, it is difficult to also understand, how, while fixing the stamp duty post-valuation, no discrimination is made between prime property and secondary property or a residual property by the local authorities. Suggesting that 50C provision should be dropped, the chamber is of the view that fixing the value of stamp duty by this method on a notional basis was "illogical, irrational and unscientific."

The Section 50C amendment was made as a prelude to the deletion of Chapter 20C of the Act regarding pre-emptive purchase of a property by the government in case of understatement of consideration by more than 15 per cent of market value.