HOUSE PROPERTY & STAMP DUTY VALUATION

From a financial planning point of view, there are four good reasons for treating the purchase of house property as an intrinsic part of overall investment strategy: 1.The rent which would have been paid for a similar property in the same or similar locality is no longer required to be paid, and hence, in effect it is a notional income. In fact, this ‘fair rent’ is brought under the ambit of tax by the Income Tax Act (ITA).

2. Investment in house property, as in the case of shares or bullion serves as a hedge against inflation. This is theory. In practice, unless you are in the real estate business, buying a house is not an investment, but consumption. Surely, you would not sell your residence, just because the prices have gone very high.

3. Normally, the repayment is in installments. When the market price keeps pace with inflation and when your own income is expected to rise, you make payment against the original price with money that becomes cheaper day by day. You should, therefore, explore the various avenues for taking loans against mortgage of your house.

4. Finally, the most important reason for buying a house is — a nagging spouse!!

But jokes aside, it is necessary for an owner or a would-be owner of a house property to know the various modalities governing purchase or sale of a house as well as the related tax provisions. In this week’s article, let us one such important aspect, that is to do with Stamp Duty valuation.

Stamp Duty Valuation: Sec. 50C U/s 50C, when a ‘capital asset’ is transferred for a consideration which is less than its stamp duty value, then such value is taken as full value of consideration for computing tax on capital gains.

To negate several judicial decisions which held that immovable property held as stock-in-trade is not a capital asset, FA13 has inserted Sec. 43CA mandating the stamp duty value of stock-intrade on its transfer to be taken as its deemed value of consideration for computing income under the head ‘Profits and gains of business or profession’. This forces the builders who also have also to pay VAT, to jack up their prices which are already skyhigh.

Sec. 55A gives a right to the AO to refer to a Stamp Valuation Authority (SVA) if he feels that value of the asset as claimed by the assessee (even if it is in conformity with the stamp office valuation), is less than its market value as on the date of its purchase or as on 1.4.81 wherever necessary.

Provisions of section 50C are not applicable in case of mere transfer of tenancy rights — DCIT, Central Circle VI v Tejinder Singh [2012] 19taxmann.com4 (Kolkata - Trib).

In spite of the ruling by SC that a registered sale deed is the only legal tool for property transactions, many land or house transactions continue to take place circumventing cost of registration by using ‘Agreement to Sell’ or ‘Power of Attorney’. FA09 has plugged this loss of revenue by amending Sec. 50C for computing tax on capital gains as well as on gifts requiring taking the stamp duty valuation in such cases.

If the assessee objects the valuation of the SVA, then the AO has to makes a reference to the Regional Valuation Officer or a District Valuation Officer, or an Assistant Valuation Officer. If the valuation thus obtained is higher than the value as per SVA then u/s 50C(3) the valuation of SVA will be adopted as a sale consideration — Jitendra Mohan Saxena v ITO [ITA 705 (Luc) 2005].

Where the reasonable rent is much higher than what is shown in the returns on basis of lease deed, penalty is leviable u/s 271(1)(c) — [2011] 15taxmann.com201 (Delhi).

Will the purchaser be allowed to take this fictitious higher cost as his cost of acquisition for paying tax on LTCG when he sells this house in future? We wonder . . .

Will the Department take the difference between the Sec. 50C value and that declared by the purchaser as his undisclosed income u/s 69B? DCIT v Virjibhai Kalyanbhai Kukadia, ITAT (Ahm Bench ‘D’) [2012] 26taxmann.com13 provides the answer — “Sec. 50C is a deeming provision where under the stamp duty rate is treated as full value of consideration for the purpose of computing capital gain u/s 48. It is applicable to the seller of property and therefore cannot be invoked in case of purchaser of property for the purpose of Sec. 69B which deals with investments not fully disclosed in books of accounts.”

As per the Maharashtra Ownership Flats (Amended) Rules, it is the duty of the developer to get the flat registered u/s 32 of the Indian Registration Act, if he has received more than 20% of the sale price from the buyer.

The recent FA16 has inserted the following provision in Sec. 50C--“Where

the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer if and only if the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer.”

Lastly, in Budget 2017, in joint redevelopment agreements between owner and builder, with a view to minimise the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer, it is proposed to insert a new sub-section (5A) in section 45 so as to provide that in case of an assessee being individual or HUF, who enters into a specified agreement for development of a project, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority. It is further proposed to provide that the stamp duty value of his share, being land or building or both, in the project on the date of issuing of said certificate of completion as increased by any monetary consideration received, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

The authors may be contacted at wonderlandconsultants@yahoo.com