The Hindu Business Line : Stamp duty value for immovable assets

What is relevant for attracting section 50-C is that the property that is under transfer from the assessee to another person should have been assessed for stamp valuation purpose at a higher value than that received or accruing to the assessee.

H. P. Ranina

When land and building are sold, a special provision is attracted for determining capital gains. Section 50-C has been introduced in the Income-tax Act, 1961, with effect from April 1, 2003, to provide that where consideration received or accruing is less than the value assessed by the stamp duty authorities of the State Government, such value will be treated as the full consideration received or accruing to the seller.

The object of this provision is to take care of understatement of consideration in immovable property transactions, which very often involve payment of unaccounted money.

Since it is virtually impossible to prove that the seller has received a part of the unaccounted consideration not reflected in the document, section 50-C has introduced an artificial provision to treat the value assessed by the stamp duty authorities as the sales price for calculating the capital gains exigible to tax in the hands of the seller.

Prior to the introduction of section 50-C, section 52 of the Act permitted the tax authorities to treat the fair market value as the deemed sale price.

While interpreting this provision, the Supreme Court in K.P. Varghese v. I.T.O. (131 I.T.R. 597) held that the burden lies on the Revenue to show that there is an understatement of the consideration.

It was further held that to throw the burden of showing that there is no understatement of the consideration on the assessee would be to cast an almost impossible burden upon him to establish a negative, namely, that he did not receive any consideration beyond that declared by him.

A similar view has been taken in the case of C.I.T. v. Shivakami Co. P. Ltd. (159 I.T.R. 71).

The sum and substance of these judgments is that the sale consideration declared by the assessee has to be accepted by the Revenue as true unless it is proved to be wrongly declared.

The burden of proof is upon the Revenue to establish that the assessee had understated such sale consideration.

Provisions of new section

It was with a view to overcome this legal position that the Legislature inserted section 50-C with effect from April 1, 2003.

After the addition of this new section, the value adopted or assessed by any authority of State Government for the purpose of payment of stamp duty in respect of such transfer has to be considered as full value of consideration received as a result of transfer and capital gain has to be computed accordingly.

The rigour of section 50-C(1) has been toned down by sub-section (2), which provides that where the assessee claims before any Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer.

Sub-section (3) further provides that where the value ascertained under sub-section (2) exceeds the value, adopted or assessed by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed by such authority will be taken as the full value of the consideration received or accruing as a result of the transfer.

Interesting instance

An interesting question that was considered in Navneet Kumar Thakkar v. I.T.O. (298 I.T.R. (A.T.) 42) was whether section 50-C is applicable where the stamp duty authorities have not been required to assess the value for the purpose of payment of stamp duty in respect of a particular transfer. The facts in this case were that the assessee transferred a property for a consideration of Rs 36,000 and computed long-term capital gains at Rs 1,614.

The Assessing Officer observed that the fair market value of the capital asset was much higher than that shown by the assessee in the agreement dated November 30, 2002.

On a reference under section 55-A of the Income-tax Act, 1961, the Assistant Valuation Officer estimated the value of the plot at Rs 1,43,122.

The differential amount of Rs 1,07,122 was added. The Commissioner (Appeals) held that the value adopted by the Valuation Officer was reasonable and sustained the addition.

On further appeal, the Income-tax Appellate Tribunal held that a deeming provision has been enshrined in section 50-C by virtue of which a legal fiction has been created for assuming the value adopted or assessed by any authority of the State Government as the full value of sale consideration received in respect of such transfer.

A legal fiction has been created only in respect of the cases where the consideration received by the assessee is less than the value adopted or assessed by the stamp valuation authority of the State Government for the purpose of payment of stamp duty “in respect of such transfer”.

It is trite law that the legal fiction cannot be extended beyond the purpose for which it is enacted. Section 50-C embodies the legal fiction by which the value assessed by the stamp duty authorities is considered as the full value of consideration for the property transferred.

This would not apply where the transferred property has not become the subject-matter of registration and the question of valuation of the property for stamp duty purposes has not arisen.

Apex court ruling

The Supreme Court, in the case of C.I.T. v. Amarchand N. Shroff (48 I.T.R. 59), held that legal fictions are only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond that legitimate field. A similar view has been reiterated by the Supreme Court in the case of C.I.T. v. Mother India Refrigeration Industries P Ltd. (155 I.T.R. 711).

Thus, what is relevant for attracting section 50-C is that the property that is under transfer from the assessee to another person should have been assessed for stamp valuation purpose at a higher value than that received or accruing to the assessee. The value adopted or assessed by the stamp valuation authorities has to be of the very same property, which is the subject-matter of transfer.

Unless the property transferred has been registered by a sale deed and for that purpose the value has been assessed and stamp duty has been paid by the parties, section 50-C cannot come into operation. In such a situation, the position existing prior to section 50-C would apply and the onus would be upon the Revenue to establish that sale consideration declared by the assessee was under-stated with some clinching evidence.

The aforesaid decision will certainly be challenged in appeal by the tax department before the High Court. But the matter will not rest there.

There is every possibility that this issue will be finally adjudicated by the Supreme Court as a substantial question of law on the interpretation of section 50-C is involved. It seems that the reasoning of the Tribunal in the aforesaid case is based on sound legal grounds but the final stamp of authority of the apex Court is necessary to settle the controversy on this vexatious issue.

The author, a Mumbai-based advocate specialising in tax laws, can be contacted at ranina@bom2.vsnl.net.in

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