Query on Section 56(2)(viib) of income tax act

[mayank bohra]

Hello,

My client is an INDIVIDUAL purchased a commercial property in the FY 15-16 for which the consideration was paid in CASH and agreement done on 27.5.15. During filing of return of income for AY 16-17 (due on 17.10.2016), I have raised this point that stamp duty value of the agreement is more than actual consideration paid so difference needs to be considered as deemed income u.s 56(2)(viib).

Here the client don't mind treating difference as income as per section 56(2)(viib) and pay taxes however here is a catch.

The stamp duty value as taken in agreement (on which stamp duty is paid) is just double the actual circle rate. We don't know how the land registration department had come to value double the actual circle rate. While signing the agreement client overlooked the stamp value as taken by the department and no protest was done. In such scenario, what's the right way to proceed from income tax point of view.

Option A) don't disclose difference as deemed income u/s 56(2)(viib) while filing return of income. If thats the case whether in assessment if the differrence is treated as income, whether cost of acquisition of the property will be revised to actual consideration paid plus difference on account of deemed income now assessed ? Also what will the accounting treatment of such deemed income in normal books of accounting and in which year?

Option B) If we treat the differnece between the ACTUAL circle rate (substantiated by valuation certificate from local assessor) and consideration paid as income, than the case will for sure be selected for assessment. In such case what are the chances that the no further additions made as ACTUAL circle rate is still lessor than the stamp duty value of the agreement.

Option 3) What's the best thing to do now when we have to file the return of income for AY 16-17 due on 17.10.16.

Your replies are really appreciated. Thanking you all in advance. Regards

[Ganeshan Kalyani]

Dear Mayank ji,

Pls go through the provision mentioned by you. Reproducing the extract of the explanation to that section as below:

Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property;]

The text in bold above states that the provison is applicable only if consideration is paid by other than cash mode. Whereas in your query it is mentioned that consideration is in cash. Have a re-look into the said section.

[mayank bohra]

Dear GaneshanJi,

Thanks for your valued response.

How we see is that the said PROVISO was limited to the condition attached ABOVE

"Providedthat where the date of the agreement fixing 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 taken for the purposes of this sub-clause: "

Also from 01.06.2015, all registration were mandatorily made in Cheques.

In current scenario date of agreement and date of registration is same i.e. 27.05.2015. Considering this whats your opinion ?

Thanks for your time!!

Regards

Mayank

[Ganeshan Kalyani]

Sir, in my view the second proviso which I have reproduced need to be considered because if the provison itself does not apply then the considering condition of the proviso mentioned by you would not occur. However I would request views of expert collegues.

AI Summary

Deemed income on stamp duty valuation may not apply if consideration paid in cash before registration. The issue is whether excess of stamp duty value over actual cash consideration for a property sale should be treated as deemed income; a proviso narrows applicability to cases where consideration (or part) was paid by a mode other than cash on or before the agreement date. Here the buyer paid in cash and agreement and registration share the same date, so the proviso's payment mode condition may prevent treating the stamp duty differential as deemed income, though the matter can still attract assessment scrutiny.