First published on www.Taxguru.in on 6 February 2020
This article is a brief attempt to analyze two different provisions having similar impact on two different but connected assessees who amongst them have a relationship of buyer and seller of immovable property. The buyer gets taxed under the head “Income from Other Sources” while the seller is taxed under the head “Capital Gains”.
Section 50C
Finance Act, 2002, introduced a new provision under the head “Capital Gains” by way of Section 50C which added a new definition to the term “full value of consideration”. Section 50C was a deeming provision which laid down the conditions as to what would deem to be the full value of consideration in the event of the stamp duty value of the transfer of immovable property being higher than the actual value of the consideration. According to Section 50C, subject to certain conditions being fulfilled, as laid down in the provisos to the Section, the stamp duty value of the transfer of immovable property will be deemed to be the full value of consideration and shall be taxed in the hands of the assessee, being the seller of the property.
Section 56(2)(x)(b)(B)
Finance Act 2017 inserted a new clause in Section 56 (2) of the Income Tax Act, 1961 bringing into the ambit of taxation deemed income arising out of a transaction involving transfer of immovable property. Clause (x) sub-clause (b) (B) taxes the recipient of an immovable property, understood in common parlance as “purchaser” of the immovable property for a value being the difference between the stamp duty value of such property and consideration “paid” by the purchaser (sale price as per the document of transfer). The differential value becomes taxable as “Other Income” in the hands of the purchaser if such excess is covered under the parameters laid down in the said sub-clause (b)(B) of clause (x) of Section 56.
Though both the provisions seek to tax two separate sets of assessees, being the seller and the purchaser, yet, the transaction that will be taxed under both the provisions will be common to both the seller and the purchaser. In the case of both the assessees, the tax will be on deemed income that arises solely on the basis of the value arrived at by the Stamp Valuation Authority under the State Government. Ironically, in the case of the purchaser of such a property, such differential value shall be his “income”, which simply defies logic and rationality.
Both the sections provide for a redressal mechanism to the assessees, being reference to a Valuation Officer. However, such Officer being under the Income Tax Department, the assessees would always be at a risk of a biased view at the level of the Valuation Officer. This would necessarily lead to litigation and continued harassment for the assessees.
Section 50C
Finance Act, 2002, introduced a new provision under the head “Capital Gains” by way of Section 50C which added a new definition to the term “full value of consideration”. Section 50C was a deeming provision which laid down the conditions as to what would deem to be the full value of consideration in the event of the stamp duty value of the transfer of immovable property being higher than the actual value of the consideration. According to Section 50C, subject to certain conditions being fulfilled, as laid down in the provisos to the Section, the stamp duty value of the transfer of immovable property will be deemed to be the full value of consideration and shall be taxed in the hands of the assessee, being the seller of the property.
Section 56(2)(x)(b)(B)
Finance Act 2017 inserted a new clause in Section 56 (2) of the Income Tax Act, 1961 bringing into the ambit of taxation deemed income arising out of a transaction involving transfer of immovable property. Clause (x) sub-clause (b) (B) taxes the recipient of an immovable property, understood in common parlance as “purchaser” of the immovable property for a value being the difference between the stamp duty value of such property and consideration “paid” by the purchaser (sale price as per the document of transfer). The differential value becomes taxable as “Other Income” in the hands of the purchaser if such excess is covered under the parameters laid down in the said sub-clause (b)(B) of clause (x) of Section 56.
Though both the provisions seek to tax two separate sets of assessees, being the seller and the purchaser, yet, the transaction that will be taxed under both the provisions will be common to both the seller and the purchaser. In the case of both the assessees, the tax will be on deemed income that arises solely on the basis of the value arrived at by the Stamp Valuation Authority under the State Government. Ironically, in the case of the purchaser of such a property, such differential value shall be his “income”, which simply defies logic and rationality.
Both the sections provide for a redressal mechanism to the assessees, being reference to a Valuation Officer. However, such Officer being under the Income Tax Department, the assessees would always be at a risk of a biased view at the level of the Valuation Officer. This would necessarily lead to litigation and continued harassment for the assessees.
