Assessment year 2014-15 maybe quite bothersome from builders and real estate traders as till 31/03/2013, they were not bothered about the stamp duty valuation of the sold flats. Only investors who were showing it as investment were suffering from the provision of section 50C under which the stamp duty valuation was being taken as deemed consideration. But, from assessment year 2014-15 , the provision u/s 43CA has been introduced which now covers transfer of land or buildings held as stock in trade. Readers should note, almost identical provision u/s 56(2)(vii)(b) under which an Individual or HUF who buys property are required to pay the tax on difference of stamp duty valuation and actual price paid .Readers can read the article CASS Scrutiny for Property Buying ? Know These 6 Most Important Laws Affecting Your Case . This post is going to simplify our understanding of all the taxation isues arising out of the provision of section 43CA of the Income Tax Act which applies in case of land and building transfer out o stock-in-trade
Table of Contents
First the Law ! Section 43CA
The provision of section 43CA as effective from assessment year 2014-15 is as under :
43CA. (1) Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer.
(2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under sub-section (1).
(3) Where the date of agreement fixing the value of consideration for transfer of the asset and the date of registration of such transfer of asset are not the same, the value referred to in sub-section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement.
(4) The provisions of sub-section (3) shall apply only in a case where the amount of consideration or a part thereof has been received by any mode other than cash on or before the date of agreement for transfer of the asset
What type of assessee are affected by section 43CA?
Al kinds of person- individual , HUF ,company or firm – as the provision u/s 43CA uses the term assessee. This is unlike section 56(2)(vii)(b) which is applicable only in case of Individual & HUF.
What type of asset’s sale comes within section 43CA?
The land or buildings which are not a capital asset for you ( i.e held by you as stock-in-trade) comes within purview of section 43CA. So, house , flats , warehouse or villa or land comes within purview of provision u/s 43CA.
At what point of time , the law u/s 43CA becomes applicable ?
The provision under sec. 43CA has been introduced from 01/04/2014 i.e asst. yr 2014-15 . But the starting point when this law is activated is when the land or building is transferred . Further sec. 43CA(3) uses the phrases “(3) Where the date of agreement fixing the value of consideration for transfer of the asset and the date of registration of such transfer of asset are not the same”………it means that the provision of section 43CA will be applied in
In other words, the law is applicable in the year of registration of transfer deed. This is clear from the words and phrases “the date of registration of such transfer” . The legislature has clearly provided the scope of applying stamp duty valuation on a date prior to registration of transfer.
In my considered opinion , the provision u/s 43CA is applicable in case of sale of stock-of –trade in Assessment Year 2014-15 and onwards only , if the land or building is registered in assessment year 2014-15 ( read FY 2013-14 ) on wards .But , before one applies the stamp duty valuation as deemed sales consideration , it must be seen that
- whether the seller of property had an agreement with the buyer and
- whether the buyer had paid the amount of consideration in any mode other than cash.
If the answer to Both the aforesaid question is yes, then even the law u/s 43CA will apply, the deemed sales consideration of the year in which agreement was signed , shall be applicable. [/infobox]
In ordinary sense for a typical builder , the allotment date , if the payment is done in cheque , shall be agreement date for the purpose of section 43CA . For example , a buyer was allotted a flat in an under-construction building in the FY 2010-11 on payment of Rs 1 Lakh ……..ultimately that flat was registered in FY 2013-14 .
So, the builder will have to value the flat sale by taking stamp duty valid for the year 2010-11 and not the FY 2013-14 . Readers should note that a separate article on this aspect shall follow.
What happens when the builder gave possession of flat /land before FY 2013-14 and also received substantial amount of the payments of flats, but registration of transfer deed is done in FY 2013-14 ?
Usually , the builder will not give possession of flats before taking payments almost 100 % . If that is the case , that is , the 90 to 100 % of payment was taken and possession was also given before 01/04/2013 , then the provision u/s 43CA is inapplicable , because for purpose the flat was already transferred and in all probability the revenue out of such sale has also been recognized substantially.
It must be noted that the provision u/s 43CA was introduced from assessment year 2014-15 for transfer during FY 2013-14 , so it cannot be applied to a sale ( transfer) which had been completed for all practical purpose much before FY 2013-14 .[infobox style=”alert-warning”]
Readers should note that because of lack of clarity on this point , there will be tussle with Income Tax department , but I am 99.99% sure that you will get relief from appellate authorities.[/infobox]
Is the provision u/s 43CA applies to builders cases , if the % completion method is being followed ?If yes , at what stage the stamp duty valuation should be applied ?
This is another legally complex issue , but in my considered opinion , the Para 5 of Guidance Note on Revenue Recognition in Real Estate Transaction has to be followed in true spirit following should be the way out :
- The % completion method is almost applicable on all kinds of builders .
- Since the allotment of flats are usually done by talking cheque , the allotment date is the agreement date.
- The stamp valuation as on the date of allotment (agreement date ) should be the deemed value consideration.
- Recognize the value in your accounts as per that stamp duty value (step 3)
A separate posting will follow to discuss the application of section 43CA and percentage completion method as per guidance note issued by ICAI.
What if the Builder Develops & Give the Flats / House on Lease?
For two reasons, I believe that the flats /land given on lease shall not be covered under section 43CA :
- The provision u/s 43CA speaks of transfer and not lease. Lease transaction creates rights in lessee. So, in ordinary circumstances, a lease transaction does not result in transfer of property in name of the lessee. If that be so , i.e , there is no transfer , there cannot be any application of provision u/s 43CA.
- Basically the provision u/s 43CA is akin to section 50C which applies in case of sale of capital asset . That is the reason also , that section 43CA(2) provides for application of section 50C(2) of the Income Tax Act . Now , it is now almost settled position that section 50C which deems sales consideration for sale of capital asset does not apply to a case of right in the property. Please read the article lease or tenancy right not covered u/s 50C .