'Double' taxation of 'single' income

[sathyanarayanan kasinathan]

'A' Sells a property for Rs.80 L(Assume it's the FMV) to 'B'. The guideline/stamp value for the property is Rs. 120 L. The Full value of Consideration for the purposes of Transfer shall be 120 L in the hands of 'A'. In the hands of the buyer, before Finance Act 2009 came into effect, 'B' shall take Cost of Acquisition as '80'L. Finance Act 2009 vowed to tax immovable properties carrying inadequate consideration u/s 56(2). Sec 56(2)(vii)(b) taxes immovable property that carries an inadequate consideration which is defined to be the difference between Guideline Value and the FMV and is taxable in the hands of the receiver of the gift(Mr.B in our case) So 120 L - 80 L = 40 L gets taxed under Income from other sources for Mr. B. Please point out any mistakes in the above para, if any.

[CAGOPALJI AGRAWAL]

There is no mistake in your understanding the law. If the buyer would have paid the consideration of Rs. 120 lac instead of 80 lac so Rs. 40 lac would had already suffered the tax and the seller would had paid the tax as per total consideration of Rs. 120 lac so it is not a case of double taxation at all.

[sathyanarayanan kasinathan]

Mr.Gopalji, Don't you think an amount = Rs.40 L gets taxed in both hands while there is no 'REAL' income.

AI Summary

Deemed income on undervalued property transfers may result in concurrent taxation of the price differential under transfer and receipts rules. The transferor's taxable receipt is the full value of consideration equal to guideline/stamp value for capital gains; Finance Act 2009's section 56(2)(vii)(b) deems the excess of guideline value over actual consideration as taxable income of the acquirer under income from other sources, creating an apparent overlap where the same differential may be taxed in both transferor's and transferee's hands.