The Delhi bench of the Income-tax Appellate Tribunal (ITAT) has spared a non-resident Indian (NRI) from paying any tax in a case dealing with underpayment of stamp value related to the purchase of a flat in Mumbai, where payment period was three years. The assessing officer (AO) had imposed an additional tax liability after inflating his income by Rs 40.45 lakh on the charges of underpayment of stamp duty.
Shyamkumar Madhavdas Chugh, who is based out of Sharjah, United Arab Emirates (UAE) purchased a flat in West Mumbai for Rs 1.82 crore and the sale agreement was executed on June 21, 2010. The payment for purchasing this flat started from June 17, 2010, however, it went on for three years and ended on August 14, 2013. The registration of the flat was done on August 13, 2013.
Going by the assessing officer's calculation, Chugh paid the stamp duty on the actual amount of Rs 1.82 crore that he paid to the builder; however, the value of the flat had gone up to Rs 2.2245 crore during this prolonged payment period of three years. With this reasoning, the AO asserted that the NRI underpaid for the flat hence, the difference amount (Rs 2.2245 cr - 1.82 cr) of Rs 40.45 lakh must be added to the individual's income leading to an additional income tax liability.
However, the NRI countered that when he had purchased the flat in 2010 and the stamp duty value was Rs 1.40 crore. He said that he paid higher stamp duty on the actual consideration value of Rs 1.82 crore (excluding the stamp duty) as he paid Rs 11.11 lakh as stamp duty in 2013 at the time of registration of the flat.
AO seeks income tax when the individual purchased a flat
In this specific case, the AO imposed the income tax when Chugh purchased the flat. According to the order of ITAT, "AO added Rs 40.45 lakh to the income of the assessee under section 56(2)(vii) (b)(ii) of the Income Tax Act, 1961 on account of consideration paid for the purchase of the flat No. 1301 Building known as "Ram Nivas" at Ganesh Mandar West Mumbai 400052."
Disagreeing with the decision of the AO, the individual decided to fight it out.
Fight starts in Income Tax Appellate Tribunal (ITAT)
AO had passed an order dated January 31, 2023, under section 147 with respect to section 144C (13) of the Income-tax Act, 1961. The individual alleged that, "The AO erred both on facts and in law in confirming the addition of Rs 40.45 lakh."
Chugh cited legal provisions written in a draft order dated March 27, 2022, under section 144C by the Assistant Commissioner of Income Tax, International Taxation Range under section 56(2) (vii) (b) (ii). The individual said it's mentioned in the said draft order that an AO 'MAY TAKE' and not 'SHALL TAKE' the increased stamp duty value of a property in relevant cases.
"Hence the Provisions of Proviso to section 56(2) (vii) (b)(ii) are recommendatory in nature and not Mandatory," said the individual before ITAT.
The AO said, "Here the main contention that the 'may be taken' phrase as in proviso to section 56 (2) (vii)b(i) suggests that the same is directory and not mandatory. So, the stamp duty at date of registration is being considered for applicability of section 56 (2) (vii) b (i). In view of the above the total income of the assessee is computed as under:
(i) Income as per ITR- Rs 68,729
(ii) Addition: as discussed Rs 40,45,0 00 / -
Total Rs 41,13,729"
On hearing the arguments made by the individual and the AO, ITAT ordered that a specific circ*mstance of the case prevents it from applying the relevant provisions of law in order to derive at the value of the flat purchased by the individual.
"In view of the foregoing discussion, the provisions of s. 56(2)(vii)(b) do not apply to the facts of the instant case as it is covered by the first and second provisos in as much as the assessee entered into an agreement fixing the amount of consideration for the purchase of the immovable property in the year 2010 but the actual registration took place in 2013 and, further, the assessee paid a part of the consideration by cheque in the year 2010 before the date of the agreement. In such circ*mstances, we hold that the stamp value on the date of agreement in the year 2010 has to be considered," said ITAT.
Rubal Bansal Maini, Partner, Luthra and Luthra Law Offices India explaining this case says, "The ruling by ITAT is right because the taxpayer entered into the agreement to buy the flat in 2010 but the actual registration took place in 2013, further, taxpayer had paid a part of the consideration by cheque in 2010 before the date of the agreement, therefore, the stamp duty value as on the date of agreement has been rightly considered."
Normally what happens when a flat's registration and sale deed dates spans across different years
According to Maini: Usually if someone buys a flat and the sale deed date and registration dates span across different years the provisions of the Income Tax Act provides:
1)Stamp duty value of such flat - shall be treated as 'income' in the hands of the buyer - in case where the property is received without any consideration.
2)Difference between the consideration and stamp duty of such flat - shall be treated as 'income' in the hands of the buyer - in case where the consideration is less than the stamp duty value by more than Rs 50,000.
"In this case cited above, since the stamp duty value in 2010 was lesser than the consideration paid, therefore, there was no question of any 'income' in the hands of the buyer. But the dispute arose when the AO took 2013's stamp duty value of the flat and demanded tax from the individual," says Maini
