Flat Agreement Price & Stamp Duty Diff Can’t Be Taxed: Itat, ET RealEstate

June 28, 2023

MUMBAI: In a relief to a non-resident taxpayer who had bought an apartment in a posh suburb of the city, the income-tax appellate tribunal (ITAT), Mumbai bench, held that Rs 55.9 lakh, the difference between the flat’s agreement value and the stamp duty value on the date of registration, cannot be taxed in her hands as ‘income from other sources’.

Typically, when a person books a flat, the purchase price is finalised and is reflected in the agreement. After the sum paid at the time of booking, the buyer makes periodic payments over several months. The flat gets registered at a later date. Understandably, the stamp duty value is much higher at the date of registration.

In several instances, income tax officers have treated this difference in value as taxable income and raised heavy tax demands, including penal interest.

“Section 56(2)(vii)(b), which is covered by this ITAT order, has been replaced by section 56(2)(x). However, the ITAT order would also apply to the amended law, as provisions are similar,” said Gautam Nayak, tax partner at CNK & Associates.

Provisos to section 56 (2)(vii)(b) of the I-T Act state that where the date of the agreement (which fixes the amount of consideration for the transfer of immovable property) and the date of registration are not the same, the stamp duty value on the date of the agreement may be considered if the payments have been via banking channels (modes other than by cash).

“In this case, the ITAT accepted the booking form as evidence of the agreement to purchase the property and fixation of the purchase price. In addition to the fact that the payments were made via banking channels, the ITAT also took cognizance of the fact that purchase consideration was higher than the stamp duty value which then prevailed,” said Nayak.

The taxpayer had initially not filed an I-T return for the financial year 2015-16, presumably because her income, taxable in India, was way below the exemption limit. Based on the information that she had purchased a flat, reassessment proceedings were initiated. In response to the I-T notice, she filed a tax return declaring a taxable income of Rs 58,940 only.

But the I-T officer invoked section 56(2)(vii)(b) and sought to tax Rs 55.9 lakh — the difference between the stamp duty value on the date of registration (Rs 4.7 crore) and the agreement value (Rs 4.1 crore).

Ultimately, the litigation reached the ITAT. The non-resident taxpayer submitted that when the flat was booked, a significant portion of the price was paid by cheque. Subsequently, part-payments were made via banking channels.

She also placed on record evidence that showed the stamp duty value on the date of booking the flat was lower than the agreement value. Thus the addition made by the I-T officer by invoking the provisions of section 56(2)(vii)(b) of the Act cannot be sustained.

  • Published On Jun 28, 2023 at 09:23 AM IST

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