Pre-incorporation land transfer at cost did not trigger deemed income addition under the stamp value rule

A pre-incorporation acquisition of land by promoters for a proposed company, followed by later conveyance to the company at cost after conversion of the land, was not treated as a fresh purchase by the company for section 56(2)(x)(B). The later deed was viewed as completing the original arrangement rather than creating a new bargain, and the company was not in existence when the property was first acquired. On those facts, the higher stamp duty value at the time of conveyance did not, by itself, trigger the deeming addition. The assessment addition was deleted.

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Issues: Whether the addition under section 56(2)(x)(B) of the Income-tax Act, 1961 was sustainable where land was initially purchased by the promoters before incorporation of the company for the proposed business and later conveyed to the company after conversion from agricultural to non-agricultural land.

Analysis: The transfer to the company was held to be the completion of a pre-incorporation arrangement made by the promoters for the proposed business. The company was not yet in existence when the land was first acquired, and the promoters had purchased the property on behalf of the proposed company at cost, without any margin. The later conveyance deed merely gave effect to the earlier arrangement and could not be treated as a fresh purchase by the company for the purpose of comparing the 2017 stamp value with the original consideration. In these facts, the statutory deeming provision was not attracted on the basis adopted by the lower authorities.

Conclusion: The addition under section 56(2)(x)(B) was not leviable; the issue was decided in favour of the assessee.

Final Conclusion: The assessment addition based on the stamp duty value of the later conveyance was deleted and the appeal was allowed.

Ratio Decidendi: Where promoters acquire property before incorporation for the proposed company under a pre-incorporation arrangement and later convey it to the company at cost, the subsequent higher stamp valuation on transfer does not, by itself, justify addition under section 56(2)(x)(B) on the footing of a fresh purchase by the company.

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