Statutory Provision - Section 50C

“50C Special Provision for full value of consideration in certain cases:

(1)Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government (hereafter in this section referred to as the “stamp valuation authority”) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

(2)Without prejudice to the provisions of sub-section (1), Where –
(a)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;

(b)the value so adopted or assessed by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court., the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-section (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Office under sub-section (1) of section 16A of the Act.

Explanation - For the purposes of this section, “Valuation Officer” shall have the same meaning as in clause (r) of section 2 of the Wealth tax Act, 1957 (27 of 1957).

(3)Subject to the provisions contained in sub-section (2), 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 shall be taken as he full value of the consideration received or a accruing as a result of the transfer”.

The objective of Section 50C is to:

(i)to check proliferation of black money in real estate transactions.

(ii)to enforce disclosure of consideration reflecting the fair market value of the immovable property which is subject of transfer.

The first is to avoid evasion of income tax due to the central government and the second is to avoid evasion of stamp duty for the state government.

When the assessee claims that the stamp duty value is more than the true sale value, what is the remedy?

1. The Income Tax Officer may refer it to the valuation cell.

2. He can make the reference only if the stamp duty value has not been disputed by the seller (assessee) for revision before any authority or any court of law.

If the valuation cell values more than the stamp duty value: then, the stamp duty value shall be taken as the full value for the purpose of computing the capital gains.

Is the assessing officer bound by the report of the valuation cell?

The assessing officer has no option except to adopt such a valuation. But such value will be subject to the right of appeal.

What is the duty of the valuation officer before he decides on the value?

• 1.Principle of natural justice is to be followed while giving a reasonable opportunity of hearing.
• 2.He has to consider all the evidences.
• 3.He is free to make his own enquires and rely upon them after making them available to the tax payer.
• 4.He has to apply the basic principles of valuation which determine the market value of the subject property.
• 5.He has to consider all the negative factors which affect the marketability of the subject property.
• 6.He has to look into various Acts and Laws prevailing in the locality which affect the marketability.
• 7.He has to look into the main factor “Demand & Supply” before deciding on the final value.

The factors affecting the market value of a plot are:

• Size, shape, width of the road, usage
• Encumbrances
• Vaastu sentiments
• Negative sentiments
• Less width more depth (value must be determined by adopting belting method)
• Leasehold rights
• Trust properties, educational institutions
• Lands in low lying levels
• Poor soil conditions
• Demand

The role that can be played by a Registered valuer in Section 50C:

1. Registered valuer has certainly a role to play as an expert in valuation.

2. A registered valuer can help the assessee in finding out the true market value by adopting the basic principles of valuation considering the negative factors affecting marketability.

3. A report of the registered valuer has to be necessarily considered by the valuation cell.

4. A registered valuer may represent the assessee in case of appeals before the stamp duty authorities.

5. A registered valuer can cross-examine the valuation officer if he thinks that the latter’s valuation is not correct.

6. He may well be subjected to cross examination in appeals to defend his valuation.

7. He can also appear in appeal proceedings to represent the assessee in respect of matters relating to valuation, since his role as a registered valuer is recognised both under the income tax law and wealth tax law.

50C applies even to unregistered transfer of capital asset

The Hon’ble High Court has held that section 50C provides for adoption of value of stamp duty authority not only when it is adopted or assessed but where it is assessable by such authority which will include even a case where the transfer of the capital asset has not been presented for registration.

Reference to DVO is mandatory for invoking section 50C (2)

In a case CIT (A) in a case confirmed the assessment of AO stating that there is no requirement of remanding the matter back to AO for referring the valuation of land to DVO. Tribunal said that since the Stamp duty rates has been contested by the assessee, a reference to DVO under 50C (2) is logical. Hon’ble Calcutta High Court judgement held that such a reference is mandatory even if the assessee does not make any such prayer.

50C addition without reference to valuation officer not justified

In a case CIT (A) confirmed the order of AO observing that assessee failed to establish that the property sold by her was at Rs.16 lacks as against the stamp duty value of 36.29 lakhs. The Tribunal said that in our opinion, the manner laid down under wealth tax act has to be followed for the purpose of ascertaining the notional value of the property for the purpose of computing capital gain as provided under section 50C of the income tax act. We direct AO to refer to valuation officer to determine the fair market value under section 50C (2). Accordingly determine the capital gain after giving proper opportunity to the assessee.

FMV as on date of sale agreement is relevant for section 50C

In a case AO proposed to take valuation on date of registration i.e in 4/2009 by referring the matter to DVO who estimated the value at Rs. 42 cr. Tribunal held that when the agreement to sale is executed and part consideration is received and therefore provision of 50C is applicable on the date of execution of agreement to sale. The AO was directed by the Tribunal to take the FMV of the property as on the date of agreement to sale and finalise assessment.

Capital gain arising from transfer of development right to attract provision of 50C

In a case, A.O. invoked provision of section 50C and carried out assessment. The amount was revised to Rs. 1,81,34,749 on the basis of DVO’s report under section 50C (2). CIT (A) upheld the order of AO. Assessee contended that provisions of section 50C not applicable as capital gain earned were due to transfer of development rights and not from sale of land or building. He said that he is still the owner and property tax is still in his name. Tribunal has held that when the assessee has received the sale consideration and handed over the possession of the property vide development agreement, the transaction of transfer is completed and hence 50C applies.

50C cannot be invoked if sale has not taken place

In a case A.O. Worked out capital gain u/s 50C on the basis of stamp duty value of 6/2009. Tribunal held that sale has not taken place on or after introduction of 50C (2003) and also that the buyer has taken possession in the year 1991 and thus transfer was complete in 1991. Addition made by A.O. was nullified by Tribunal

Section 50C not applicable to cold storage building

43 (3) defines what is plant w.r.t income from profit and gain of business or profession. The Tribunal stated that we are of the considered view that provision of section 50C is not applicable to cold storage building so as to substitute actual sale consideration by deemed sale consideration under 50C. Similar stand was taken by Hon’ble High court also. Cold Storage.

50C could not be applicable to lease hold rights in land

The judgement in various cases states that: It is the case of revenue that section 50C of the Act would apply also to transfer of lease hold interest in land and is not limited to only to transfer of land and building or both. The tribunal did not accept this contention of the revenue.

50C does not apply to distress sale of land to govt. companies

A.O. assessed LTCG at Rs. 11.29Cr. CIT (A) deleted addition. Tribunal upheld decision of CIT (A) on the ground that sell and purchase was between two government agencies and there is no scope for payment of any unaccounted money and hence the provision of section 50C cannot be invoked.

50C does not apply to sale of right to property

Assessee entered into agreement with M/s Florida Town for purchase of under construction flats (2 nos) in Jan 2009. Assessee acquired certain rights to purchase. Assessee sold its right to Neetu Jain by nominating her for registration of the flats. The flats were registered by the assessee in the name of Neetu Jain by becoming the confirming party to the transaction. Assessee received some consideration for sale of such rights and profits from sale of such right was declared as long term capital gain. He says provision of section 50C does not apply. Revenue did not accept this plea. Tribunal says that assessee has transferred booking rights and received back booking advance. Booking advance/rights cannot be equated with capital asset and therefore section 50C cannot be invoked.

50C not applicable to transfer of FSI & TDR

Assessee sold 2242 sq.mts of land in Thane to a developer for 20 lacks. Stamp duty value was 1.2 Cr. Area of 2110 sq.mts was under acquisition by PWD for road widening. Assessee has given right of additional FSI / TDR to developer which he was entitled to get from local body for the acquisition of land. A.O carried the assessment on the basis of stamp valuation and also value of TDR. CIT (A) accepted the assessment of A.O. Tribunal said that the value of TDR cannot be the subject matter of section 50C. What has to be considered is the net area available with the assessee for transferring to the developer.

In case of encumbered property, stamp duty value cannot be adopted as sale value

For A.Y. 2011 - 12, the Assessee showed the sale price of land at Rs. 27,93,285. Stamp duty value of property was Rs. 11,76,35,500. A.O. made the addition of long term capital gain of Rs. 5.88 Cr. Assessee said that stamp duty authority has valued the property at current rate where as the property was conveyed at the price of 2003 and the consideration under sale agreement of December 2003 was approved by Bombay High Court in October 2004. They have issued a public notice for sale stating that the land is encroached and title of the land is also not perfect. M/s Essar who purchased the property agreed to acquire the piece of land on as is where is basis. CIT (A) confirmed the order of A.O. Tribunal stated that it is an undisputed fact that land under sale was having encumbrances and therefore adoption of stamp valuation under section 50C was not justified. We direct the A.O. to work out the capital gain on the basis of sale consideration shown by the assessee.

50C not applicable if assessee invests entire sale consideration in new house property u/s 54F

Plot in Ajmer sold for Rs. 24.60 lacks. Guideline value of plot Rs. 96.03 lakhs. Assessee invested the entire sum of Rs. 24.60 in purchasing a new house and hence not liable to pay any capital gain tax and provision of 50C would not be applicable. Revenue worked out capital gain tax as follows. Sale consideration under 50C - 96,03,000. Less indexed cost of acquisition - 1,42,200. Balance: 94,60,800. Deduction under 54F: 24,60,000. Income from long term capital gain - 70,00,800. Tribunal says that provision of section 50 C are not applicable to section 54F for the purpose of determining the meaning of full value. In respect of 54F the full value to be with respect to consideration specified in sale deed and not under 50C. How can the assessee invest net consideration of 96.03 lacks in buying the new property when sold only for 24.60 lacks as per A.O.. 54F (a) supports the case of assessee.

Section 50C cannot be avoided merely for sufficiency of exemption u/s 54EC

Assessee joint owner of plot with 25% undivided share. Sold the plot in 9/2007 and received 25 lacks as his share. Invested the entire sum of 25 lacks in purchasing bonds and claimed full exemption of capital gain under section 54EC. Stamp duty authority valued the land at 76,17,702 (25% share). AO determined long term capital gain of Rs. 49,47,344 and passed the order after allowing deduction of 25 lacks. Assessee says since the entire sale consideration has been invested, he must get full exemption from capital gain. CIT (A) allowed Assessee’s appeal. Tribunal allowed Revenue’s appeal stating that for the purpose of exemption u/s 54EC, the deeming fiction contained in 50C cannot be ignored. The assessee could claim exemption only in relation to investment made in specified bonds and not qua the entire capital gain. High court says that computation of assessee’s capital gain and consequently the computation of exemption under section 54EC, shall have to be worked out on the basis of substituted deemed sale consideration of transfer of capital asset in terms of section 50C of the act.

Deeming fiction created by virtue of Sec 50C cannot be extended to section 11 (1A)

In a case Property sold by the Society registered under section 12 A of the act for Rs. 1.22 Cr. A.O made addition of Rs. 43.78 lacks on account of capital gain tax under 50C. CIT (A) deleted the addition made by A.O. Tribunal stated that the provision of section 50C of the act cannot be invoked in the case of a society or a charitable Trust which is registered under section 12A of the act.

Deduction u/s 54EC allowable on actual sale consideration, not on value determined u/s 50C

In a case Assessee sold four shops for Rs. 18.99 lacks. Property valued at Rs. 35.76 lacks by DVO under 50C (2). Assessee invested 18 lacks for exemption under 54EC. A.O. Worked out capital gain by considering stamp value as sale consideration under 50C and after deducting exemption under 54EC. CIT (A) approved order of A.O.

Two types of agricultural lands:

i)Urban agricultural land (comes under the purview of Capital Gain Tax)

ii)Rural agricultural land )(excluded from the purview of Capital Gain Tax)

Urban agricultural lands which are coming under the purview of capital gain tax: Definition:

The agricultural lands which are falling within the jurisdiction of municipality and also outside within the aerial distance specified along with its population as detailed below are treated as urban agricultural land :

1. If the population is 10,000 to 1 lakh, 2 kms from the local limit of municipality.

2. If the population is 1 lakh to 10 lakhs, 6 kms from the local limit of municipality.

3. If the population is more than 10 lakhs, 8 kms from the local limit of municipality.

Whether transfer of a capital asset made under gift or will or inheritance of a property is chargeable for capital gains?

No. It is not chargeable. As per section 47, any property received by means of gift, WILL, inheritance will not be treated as transfer.

In case of gift, how the capital gain is ascertained?

If an asset is acquired by means of a gift, WILL, succession or inheritance or distribution of assets in an HUF, the cost to the recipient shall be the cost to the previous owner. The period the asset was held by the previous owner is also included while determining whether it is long term or short term capital asset.

Section 43CA:

Any increase in the guideline value of land on the date of acquisition, will always reduce the capital gain. This may not be possible as the recent amendment with effect from the 1st day of April, 2021, states that, under section 55 of the Income-tax Act, the fair market value for the purposes of capital gain, shall not exceed the stamp duty value of such asset as on the 1st day of April, 2001. So, the Registered Valuer has got no option of increasing the guideline value.

But the Assessee under this Section 43CA, can decrease the sale consideration value less than the stamp duty value. And, this is possible only before registration of the transfer of asset.

The Finance Act, 2013

After section 43C of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2014, namely:—

Section 43CA: Special provision for full value of consideration for transfer of assets other than capital assets in certain cases.—(1) Where the consideration received or accruing as a result of the transfer by an Assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or Assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or Assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

(2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or Assessed or assessable under sub-section (1).

(3) Where the date of agreement fixing the value of consideration for transfer of the asset and the date of registration of such transfer of asset are not the same, the value referred to in sub-section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement.

(4) The provisions of sub-section (3) shall apply only in a case where the amount of consideration or a part thereof has been received by any mode other than cash on or before the date of agreement for transfer of the asset.”

The Finance Act, 2018- Amendment

In section 43CA of the Income-tax Act, with effect from the 1st day of April, 2019, — (a) in sub-section (1), the following proviso shall be inserted, namely:–

“Provided that where the value adopted or Assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration.”;

(b) In sub-section (4), for the words “by any mode other than cash”, the words “by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account” shall be substituted.

he Finance Act, 2019- Amendment

In section 43CA of the Income-tax Act, in sub-section (4), for the words “bank account”, the words “bank account or through such other electronic mode as may be prescribed” shall be substituted with effect from the 1st day of April, 2020.

The Finance Act, 2020- Amendment

In section 43CA of the Income-tax Act, in sub-section (1), in the proviso, for the words “five per cent.”, the words “ten per cent.” shall be substituted with effect from the 1st day of April, 2021.

Aatma Nirbhar Bharat Package 3.0 – November 2020 Ministry of Finance - Income Tax relief for Real-estate Developers and Home Buyers- Posted On: 13 NOV 2020 4:17PM by PIB Delhi As part of the Aatma Nirbhar Bharat Package 3.0 as announced by Hon’ble Finance Minister on 12th November, 2020, certain income tax relief measures were brought in for real-estate developers and home buyers. Up to 2018, section 43CA of the Income-tax Act, 1961 (‘the Act’) provided for deeming of the stamp duty value (circle rate) as sale consideration for transfer of real-estate inventory in the case the circle rate exceeded the declared consideration. Consequentially, stamp duty value was deemed as purchase consideration in case of buyer under section 56(2) (x) of the Act. In order to provide relief to real estate developers and buyers, the Finance Act, 2018, provided a safe harbour of 5%. Accordingly, these deeming provisions triggered only where the difference between the sale/purchase consideration and the circle rate was more than 5%. In order to provide further relief in this matter, Finance Act, 2020 increased this safe harbour from 5% to 10%. Therefore, currently, the circle rate is deemed to be the sale / purchase consideration for real estate developers and buyers only where the variation between the agreement value and the circle rate is more than 10%. In order to boost demand in the real-estate sector and to enable the real-estate developers to liquidate their unsold inventory at a rate substantially lower than the circle rate and giving benefit to the home buyers, it has been decided to further increase the safe harbour from 10% to 20% under section 43CA of the Act for the period from 12th November, 2020 to 30th June, 2021 in respect of only primary sale of residential units of value up to Rupees Two crores. Consequential relief by increasing the safe harbour from 10% to 20% shall also be allowed to buyers of these residential units under section 56(2) (x) of the Act for the said period. Therefore, for these transactions, circle rate shall be deemed as sale/purchase consideration only if the variation between the agreement value and the circle rate is more than 20%. Legislative amendments in this regard shall be proposed in due course.