CA. Vijay Maheshwari - Income Tax Bar Association...Reference to DVO – AO bound by the valuation...

CA. Vijay Maheshwari B.Com., FCA, DISA

Capital Assets [2(14)] •Exclusion clause – Rural Agriculture land in India excluding :‐ a) Within municipality having population of 10000 or

more or

b) Within aerial distance of –

Population Distance

>10K < 1 Lac Upto 2 Kms

>1 L < 10 L Upto 6 Kms

>10 Lac Upto 8 Kms

CA. Vijay Maheshwari 2 7‐Nov‐15

Capital Assets [2(14)] •Rural Agriculture land Population Last preceding census, Published before 1st day of the previous year


Capital Assets [2(14)] •Rural Agriculture land Agricultural Land ? Use of Land on date of sale is relevant not the intention of buyer M.S. Srinivasa Naicker Vs ITO [2007] 292 ITR 481 Mad. Factors to be considered CIT Vs Sidharth J. Desai [1982] 10 Taxmann (Guj. HC) 1. Revenue record and payment of Land revenue 2. Actual use or ordinary use 3. Return on investment on Land 4. If ceased to use, cease is temporary or permanent. 5. Even if not used, whether intended to use ? 6. Facilities available; road, plots etc. 7. Use history CA. Vijay Maheshwari 4 7‐Nov‐15

Transfer[2(47)] In relation to Capital assets : Inclusive definition:‐ i. the sale, exchange or relinquishment of the asset ii. the extinguishment of any rights therein ; or iii. the compulsory acquisition thereof under any law iv. Conversion of Capital assets into stock‐in‐trade v. Redemption of Zero coupon bond vi. Part performance of a contract ‐ any transaction

involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A.

vii. Any transaction which has effect of transferring/Enabling the enjoyment of any IP


Transfer[2(47)(v)] Joint Development Arrangement:‐ Issues • Whether transfer and taxable ? • If yes, point of time for transfer? • Fixation of Consideration? General Law Vs Income Tax Chaturbhuj Dwarkadas Kapadia Vs CIT (2003) 260 ITR

491 Bom Jasbir Singh Sarkaria (2007) 294 ITR 196(AAR)


Transfer[2(47)(v)] Joint Development Arrangement:‐ Transfer at the time of agreement If landowner has substaintially relinquish his

ownership Allows developer to execute agreement for sale of

undivided interest on land & Biding on Landowner Property is ultimately intended to sell to developer When Landowner’s right is extinguished later on, at

that time. Chaturbhuj Dwarkadas Kapadia Vs CIT (2003) 260 ITR

491 Bom Jasbir Singh Sarkaria (2007) 294 ITR 196(AAR)


Transfer[2(47)(v)] Joint Development Arrangement:‐ Consideration JDA is like exchange of assets, Money’s worth of property

received in exchange. CIT Vs George Henderson & Co Ltd. (1967) 66 ITR 622

(SC) No Capital gain if any of ingredient of Computation is

indeterminable. CIT Vs B C Sriniwasa Setty (1981) 128 ITR 294 SC


Transfer[2(47] Some other Issues:‐ Revaluation of assets‐ Not a transfer Well Pack Packaging Vs CIT (2003) 130 Taxmann 215

(Mad) Family Arrangement/Settlement –Not a Transfer CIT Vs A Ramanathan (2000) 245 ITR 494 (Mad.) Forfeiture of Sahare application money ‐a Transfer CIT Vs BPL Sanyo Finance Ltd. (2009) 312 ITR 63 (Kar.)


Conversion of Capital assets into SIT[45(2)]


Issues relating to Sec. 45(2) Converted assets is sold in piecemeal in different years Capital gain shall arise in parts in different years and not in year in which last of stock in trade is sold CIT Vs Crest Hotels Ltd. (2001) 78 ITD 213 (Mum.)



Activity Conversion of Capital assets into or treatment as Stock in trade

Taxable Year

In the year of sale or other wise transfer

Consideration

FMV as on date of conversion or treatment



Issues relating to Sec. 45(2) • Capital assets converted in SIT on 25‐06‐

2012 (FY 12‐13) FMV as on that date was – 200 Lacs

• Indexed cost (in FY 12‐13) was – 100 Lacs • Capital assets sold for Rs. 250 Lacs in FY

2015‐16 Year of taxation of LTCG & PGBP – FY 2015‐16 Capital Gain – 100 Lacs PGBP‐ 50 Lacs



Issues relating to Sec. 45(2)

Year % Sold CG PGBP FY 13‐14 10 10 5 FY 14‐15 40 40 20 FY 15‐16 50 50 25 Total 100 100 50

Suppose in above case such Stock is sold in piecemeal as under :‐



Issues relating to Sec. 45(2)

Case Study II In above example suppose Mr. X introduced such Asset (Land) into his partnership firm to carry development thereon in FY 2013‐14, value recorded books of firm was Rs. 200 Lacs,. The Partnership firm sold it in piecemeal as stated above. Whether entire Capital Gain U/s 45(2) will be taxed in FY 203‐14 or as per piecemeal sale? R.Gopinath (HUF) v. ACIT, APPEAL NO: ITA NOS. 29 & 30/Mds/2008

Deeming fiction [Sec 50C & 43CA] 50C ‐Capital Assets w.e.f. 01‐04‐2003 43CA‐ Others [PGBP] w.e.f. 01‐04‐2013 •Language of both the provisions are same. •Judicial pronouncement in respect of Sec. 50C would also be applicable on Sec. 43CA


Deeming fiction [Sec 50C] •The assets transferred is a capital asset. •Asset is Land or Building or Both •There is a value adopted, assessed or assessable by any authority of State govt for the purpose of stamp duty. •The actual consideration is less than the value of such authority. Then •Such value will be consideration for transfer of the asset.


Issues relating to Sec 50C Date for the purpose of Valuation •Normally date of registration of conveyance deed but Case covered Us/ 2(47) (v) i.e. (53A) •Sale agreement executed •Full value paid •Possession of property handed over Then date of sale agreement shall be date for Circle rate. Dy CIT Vs. S Venkat Reddy (2013) 32 Taxmann.com 24 (Hyd.) ITO .v. Modipon Ltd. (Delhi)(Trib.) (2015) www.itatonline.org CA. Vijay Maheshwari 17 7‐Nov‐15

Issues relating to Sec 50C Reference to DVO •If assesee claims before AO that value adopted by valuation officer exceeds FMV and •Valuation by Authority has not been disputed in any appeal/revision/reference before any authority/Court/HC The AO may refer valuation of asset to valuation officer. AO is bound to refer the matter to DVO Manjula Singhal vs ITO (2011) 46 SOT 149 (Jodh.) CA. Vijay Maheshwari 18 7‐Nov‐15

Issues relating to Sec 50C Reference to DVO – AO bound by the valuation of DVO •Reference once made, valuation of DVO is binding of AO, even it is less than circle rate Bharti Jayeesh Sangani Vs ITO (2011) 128 ITD 345 (Mum)

•Burden to claim that Circle rate is higher than FMV is on Assessee. Sharad Dinesh Photograper Vs ITO (2011) 43 SOT 452 (Mum) CA. Vijay Maheshwari 19 7‐Nov‐15

Issues relating to Sec 50C Land or Building or both • Where the Capital assets have been transferred jointly. Suppose :‐ Circle rate of Land – X Circle rate of Building –Y Circle rate (Composite) –Z Case 1 X+Y > Actual consideration, whereas Actual consideration is equal to Z, can AO invoke 50C for X+Y CA. Vijay Maheshwari 20 7‐Nov‐15

Issues relating to Sec 50C Land or Building or both • Case 2 X+Y < Actual consideration, whereas Actual consideration is less than Z, can AO invoke 50C for Z Case 3 Z > Actual Consideration, where as X+Y < Actual Consideration , Can Assessee demands for separate valuation Answer :‐ J. Anjaneya Sharma Vs CIT (2014) 221 Taxmann 148 (AP) If land and Building are sold as one asset, there should be one assessment of value of Land and Building. No, Yes, No CA. Vijay Maheshwari 21 7‐Nov‐15

Issues relating to Sec 50C Capital assets introduced Capital Contribution [45(3)] • Where a capital assets is transferred by a partner to a firm, the amount recorded in books of accounts of firm shall be full value of consideration. Whether 50C overrides Sec. 45(3) ? Carlton Hotel Pvt Ltd. Vs ACIT [2009] 122 TTJ 515 (Luk) Since such transfer doesn’t require registration under the stamp act hence Sec. 50(C) not applies. Note : word assessable has been insered by Fin Act 2009. CA. Vijay Maheshwari 22 7‐Nov‐15

Issues relating to Sec 50C Whether 50C overrides Sec. 45(3) ? • Specific and General provision

•Both deeming provision – same field of consideration.

•Hypothetical reference to stamp valuation authority Chakrabarty Medical Centre Vs. TRO Thee is no legal requirement that there should be a written agreement & duly stamped.


Issues relating to Sec 50C 50C Vs 56 (2) (vii) Both would be applicable ?


Issues relating to Sec 50C Exemption U/s 4, 54F and 54EC etc Case Study Actual Consideration – 50L Circle Value – 60L Indexed cost – 20 L Case I Invested Rs. 30 L No capital gain since entire proceeds have been invested ITAT Banglore Shri Gouli Mahadevappa Vs ITO (2011) 128 ITD 503


Issues relating to Sec 50C Exemption U/s 4, 54F and 54EC etc Case‐II Invested Rs. 40 L Karnataka HC in Shri Gouli Mahadevappa Vs ITO (2013) 356 ITR 90 Capital gain would be computed normally i.e. 40 L and Sum invested (by whatever source) would be eligible for exemption. Similar view in Raj Babbar vs ITO (2013) 56 SOT 1 (Mum tri) Different view Nila V Shah Vs CIT (A) (2012) 51 SOT 461 (Mum‐Trib) Capital gain – Normally computed Investment would be upto actual consideration CA. Vijay Maheshwari 26 7‐Nov‐15

Issues relating to Sec 50C Depreciable assets subject to Sec. 50C ? Case I Block carrying no CG Case II Block exists or Consideration is more than WDV i.e. gain has to be computed ACIT Vs Roger Pareira Communications Pvt Ltd (2009) 34 SOT 64(Mum) Long term or Short term? Rate of Tax? Smita Conductors Ltd. .v. Dy. CIT (2015) 152 ITD 417 (Mum.)(Trib.)


Issues relating to Sec 50C Depreciable assets subject to Sec. 50C ? The deeming provisions has, therefore, to be restricted only to computation of capital gain and for the purpose of other provisions of the Act, the capital gain has to be treated as long‐term capital gain. for the purpose of computation of capital gain, The flat has to be treated as short‐term capital asset under section 50C, but for the purpose of applicability of tax rate it has to be treated as long term capital asset if held for more than three years Smita Conductors Ltd. .v. Dy. CIT (2015) 152 ITD 417 (Mum.)(Trib.) CA. Vijay Maheshwari 28 7‐Nov‐15

Issues relating to Sec 50C Transfer of Lease right in land? Lease right is neither Land or Building or both hence Sec. 50 C not applies. Atul G. Puranik v/s. ITO (2011) 132 ITD 499 (Mum) Transfer of Share of Company owing Land or Building ? Transfer of Share can not be equated to Sec. 53A of transfer of property act hence Sec. 50C not applies. Irfan Abdul Kader Fazlani v/s. CIT (2013) 29 Taxmann.com 424 (Mum)


Issues relating to Sec 43CA Points differ to Sec. 50C Date of Agreement and date of registration is different •If consideration or its part have been received •By any mode other than cash •On or before the date of agreement for transfer Case :‐ Date of agreement 31‐03‐2015 (Circle Value‐ 50 L) Date of registration 30‐06‐2015 (Circle Value – 60L) Actual consideration Rs. 40 L Full value of consideration for PGBP U/s 43CA‐ 50L


Section 56(2)(vii) Receipt of IP without or inadequate consideration


Person Individual/HUF

Activity Receives any immoveable property Consideration Nil or Less than Circle value by > 50,000/‐

Taxable Income Circle Value – Consideration

Excluded events • Received from relative • On occasion of marriage • Under will/ inharitance • Death of Prayer /donor • From a Local Authority/Educational/Medical Institution/Trust etc.

Section 56(2)(vii) Receipt of IP without or inadequate consideration Relative :‐ • Spouse • Brother/Sister • Brother/Sister of spouse • Brother/Sister of either of parents • any lineal ascendant or descendant • any lineal ascendant or descendant of spouse • Spouse of above all (except 1) Note • This provision doesn’t apply on Firm, AOP, CO ect) • Other provisions are similar to Sec. 50C & 43CA CA. Vijay Maheshwari 32 7‐Nov‐15

Section 56(2)(vii) Issues :‐ Case‐ I A purchased a building for Rs. 40 Lacs, Circle rate ‐50 Lacs, in FY 14‐15 and sold it for Rs. 60 Lacs in FY 15‐16. In FY 14‐15– Income U/s 56 – 10 Lacs In FY 15‐16 – Capital Gain 10 Lacs (60‐50) Note : Section 49(4) deems value U/s 56 as cost of acquisition for the purpose of computing CG. Case II In FY 14‐15, A put to use such building for his business. In which sum he will get depreciation allowance? CA. Vijay Maheshwari 33 7‐Nov‐15

Section 56(2)(ix) & Sec. 51 Sec. 56 Money received as an advance or otherwise in course of negotiation of transfer of capital assets is • Such sum is forfeited • Transfer of such assset doesn’t affected Sec. 51 No deduction from Cost/WDV/FMV is taxed u/s 56


Sec. 50D Deeming consideration


Event Transfer of Capital Assets

Consideration Not ascertainable /determinable

Deemed Consideration FMV as on date of transfer

Section 269SS Acceptance of Loan/Deposit/Specified sum The earlier provisions of section 269SS of the Income‐tax Act provide that no person shall take from any person any loan or deposit otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account, if the amount of such loan or deposit is Rs.20,000/‐ or more In case any assessee contravenes the said provisions he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so accepted u/s 271D of the Act.


Section 269SS/269T Amendment made by Finance Act 2015

CIT vs. Madhav Enterprise Pvt. Ltd.( ITA.No. 561 of 2013) Guj HC 269SS “specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.’. 269T ʺspecified advanceʺ means any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place.


Issues: Sec. 269SS/269T

Any exclusion: Yes, if both payee and payer is having agricultural income and not having income chargeable to tax.

Transaction completed in same day? Mens rea is not essential ingredient to invoke 271D,

Ignorance of Las is no excuse for violation Mahak Singh Vs ITO (2010) 127 ITD1 (Del) If it is found that :‐ • There were business exigency forcing assessee to violate • Creditors were genuine and transaction never doubted. • There were no revenue to state CIT Vs Balaji Trades 2007 Tax LR 261 (Mad.) CA. Vijay Maheshwari 38 7‐Nov‐15

Issues: Sec. 269SS/269T

Deposit accepted from agriculturist is only a technical fault.

ITOVs Wooden Industries (2003) SOT 44 (Ahem) If it is found that :‐ • There were business exigency forcing assessee to violate • Creditors were genuine and transaction never doubted. • There were no revenue to state CIT Vs Balaji Trades 2007 Tax LR 261 (Mad.) Credit entries in book is not deposit as per Section 269SS. CIT Vs Lala Murari Lal & Sons 2004 2 SOT 543(Luc.) Transaction between firm and partner inter se CIT Vs Lokpat Film Exchange 2007 212 CTR (Raj) CA. Vijay Maheshwari 39 7‐Nov‐15

Section 194‐IA TDS W.E.F 01‐06‐2013 Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income‐tax thereon. No deduction under sub‐section (i) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees. The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section. Explanation : (b) ʺimmovable propertyʺ means any land (other than agricultural land) or any building or part of a building.


Section 194‐IA TDS W.E.F 01‐06‐2013 Transferor Resident

Transferee Any person (Resident or Non Resident) Asset Transferred Immovable property except agricultural land Point of Deduction Payment or credit whichever is earlier Rate of Deduction 1% (if PAN available otherwise 20%) Consideration paid/payable

Rs. 50 Lacs or more

TAN number Not required

Return Only 26QB followed by payment (PA4‐Nov‐15N must)

Default Interest ‐1.5%/1%

Penalty –Upto Amount of tax defaulted (271C)


Issues relating to Sec 194IA Applies on Capital assets or SIT or both ? Payment to builder in Instalments? If more than one seller having individual share <50L If more than one buyer having individual share <50L Consideration Actual or deemed (U/s 50C/43CA)? Difference in accounting method of Seller & Buyer? Exemption U/s 54 etc. how to avail when receipt is 99% Cancellation of transactions ? Refund? Low deduction/ No deduction certificate U/s 197? Different date of Transfer and payment ? Meaning of transfer ? 2(47) ?


Issues relating to Sec 194IA Agricultural Land, in whose hand? Transferor or

Transferee? Transfer of lease of immovable property? Builder’s charges for amenities like Sports, club, Gym,

Pool, parking etc are subject to TDS? Advance paid (before agreement to buy) and later on

adjusted to consideration? Compensation paid for failing to acquire an IP? Exchange of property (Barter)? JDA? Transfer of TDR?


7‐Nov‐15 CA. Vijay Maheshwari 44

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