2025 (8) TMI 1502 - AT - Income Tax

Stamp duty and registration paid by seller not deductible; buyer's sale deed amount governs under section 56(2)(x), 5% tolerance retrospective

SPL Shelters Private Limited and Sriprop Properties Pvt. Ltd. Versus DCIT, CC-1 (4), Chennai And (Vice-Versa)

SPL Shelters Private Limited and Sriprop Properties Pvt. Ltd. Versus DCIT, CC-1 (4), Chennai And (Vice-Versa) - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether proceedings initiated under section 153C are valid (issue raised but rendered academic by final disposition). 2. Whether the deeming provision of section 56(2)(x) can be invoked where the asset transferred/acquired is stock-in-trade. 3. Whether, for the purpose of computing the differential under section 56(2)(x), stamp duty and registration charges borne by the seller may be reduced from the consideration paid by the purchaser. 4. Whether the tolerance limit (proviso providing a tolerance band-5% as originally introduced) to section 56(2)(x) is retrospective/curative and therefore applicable to the assessment year under consideration so as to preclude addition where the difference between stamp duty value and transaction value is within that band. ISSUE-WISE DETAILED ANALYSIS Issue 3 - Reduction of consideration by stamp duty and registration charges borne by the seller Legal framework: Section 56(2)(x) is a deeming provision which looks to the 'consideration' in the hands of the purchaser for the purpose of taxing the difference between stamp duty valuation and actual consideration. Stamp and registration charges are distinct statutory/contractual costs related to transfer. Precedent treatment: The CIT(A) directed that the AO should not reduce the consideration actually paid by the purchaser by amounts of stamp duty and registration charges borne by the seller. The Tribunal upheld the CIT(A)'s approach. Interpretation and reasoning: The Tribunal observed that the purchaser paid the consideration as per the sale deed and there is no provision in section 56(2)(x) permitting reduction of the purchaser's actual consideration by amounts the seller chose to bear. The AO's rationale-that seller-borne stamp duty indicates inter-party expediency or could produce double deduction on subsequent sale-was rejected as not a valid basis to alter the statutory notion of 'consideration'. The Tribunal emphasized the strict scope of deeming provisions: words in a deeming provision cannot be expanded beyond their clear statutory import to encompass extraneous adjustments. Ratio vs. Obiter: Ratio. The Tribunal held as a legal proposition that for the purposes of section 56(2)(x) the relevant consideration is the actual price paid by the purchaser under the deed and there is no statutory basis to reduce that consideration by stamp duty and registration charges borne by the seller. Conclusion: Adjustment of purchaser's consideration by reducing stamp duty and registration charges borne by the seller is not permissible under section 56(2)(x); CIT(A)'s deletion of that adjustment was sustained. Issue 4 - Retrospective applicability of the tolerance limit in section 56(2)(x) Legal framework: Parliament introduced a proviso (tolerance band) to provisions dealing with valuation differences (parallel provisions include sections 50C and 43CA). The proviso exempts adjustments where stamp duty value does not exceed transaction value by more than a specified percentage (5%, later increased to 10% by later amendment). Precedent treatment (followed/distinguished): The Tribunal relied on coordinate-bench decisions addressing sections 50C and 43CA which found the proviso/tolerance band to be curative/beneficial and to have retrospective operation (examples discussed: decisions holding the proviso to be retrospective; decision distinguishing earlier contrary precedents). The Tribunal applied the same reasoning to section 56(2)(x). The Tribunal treated cases holding prospective operation as distinguishable. Interpretation and reasoning: The Tribunal reasoned that the amendatory proviso is curative/clarificatory in character because it remedies unintended harsh consequences of the anti-avoidance scheme (i.e., penalizing small bona fide variations between stamp duty valuation and transaction value). Relying on the rationale articulated by coordinate benches (and doctrinal principles regarding beneficial remedial amendments), the Tribunal held that the proviso should be applied retrospectively to the date of the parent statutory provision. By parity of reasoning with sections 50C and 43CA (similarly worded anti-avoidance provisions), the tolerance band must be applied to earlier assessment years where the difference falls within the prescribed tolerance. Ratio vs. Obiter: Ratio. The Tribunal decisively held that the tolerance provision is curative/beneficial and therefore applicable retrospectively, and that where the difference between stamp duty value and consideration falls within the tolerance band (5% for the relevant period), no addition under section 56(2)(x) is warranted. Conclusion: The tolerance limit (5% for the period relevant to the assessment year) applies retrospectively; where the difference is less than that threshold, additions under section 56(2)(x) must be deleted. Accordingly, additions based on a differential below the tolerance band were disallowed. Issue 2 - Applicability of section 56(2)(x) to assets held as stock-in-trade Legal framework: Section 56(2)(x) targets receipt of property/benefit and operates as an anti-avoidance deeming provision; statutory definitions distinguish between 'property' in the context of capital assets and assets held as stock-in-trade. Precedent treatment: The Tribunal noted that the assessee raised the contention that section 56(2)(x) should not apply where the asset is stock-in-trade. The Tribunal did not decide the issue on merits because the retrospective application of the tolerance band rendered the challenge academic. Interpretation and reasoning: The Tribunal recorded the contention that the statutory definition of 'property' applies to capital assets and not to stock-in-trade, but expressly left the issue open because the main relief (tolerance band) obviated the need to adjudicate applicability of section 56(2)(x) to stock-in-trade in the facts before it. Ratio vs. Obiter: Obiter (academic). No definitive ruling was rendered on whether section 56(2)(x) applies to stock-in-trade; the point remains undecided in the present judgment. Conclusion: Left open as academic; no adjudication due to outcome on tolerance-band ground (cross-reference to Issue 4). Issue 1 - Validity of proceedings under section 153C Legal framework: Section 153C empowers assessments arising out of search and seizure material; validity questions relate to procedural and jurisdictional requirements for issuing notices and making assessments. Precedent treatment: Parties argued on section 153C, but the Tribunal did not decide the validity because relief granted on substantive valuation/tolerance grounds made this issue academic. Interpretation and reasoning: The Tribunal indicated the point was raised but expressly left it open without adjudication, given the deletion of additions and acceptance of tolerance-band relief. Ratio vs. Obiter: Obiter (academic). No conclusion reached on validity of section 153C proceedings. Conclusion: Left open as academic; not decided (see cross-reference to Issues 2 and 4). Overall Disposition and Principal Legal Conclusions 1. For the purpose of section 56(2)(x) the statutory 'consideration' is the actual consideration paid by the purchaser as recorded in the sale deed; amounts of stamp duty and registration charges borne by the seller cannot be subtracted from that consideration in the absence of express statutory provision permitting such adjustment (ratio). 2. The tolerance proviso (beneficial/curative amendment) to the relevant deeming provisions should be given retrospective effect; where the difference between stamp duty valuation and transaction consideration is within the tolerance limit in force for the relevant period (5% in the facts before the Tribunal), no addition under section 56(2)(x) is warranted (ratio). 3. Issues regarding applicability of section 56(2)(x) to stock-in-trade and the validity of proceedings under section 153C were rendered academic by the Tribunal's conclusions on the foregoing points and thus were left open (obiter).