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Critical Issues on Taxation of Real Estate Transactions By CA Bhupendra Shah*****9322507220
3/601, Navjivan Society, Lamington Road, Mumbai-400008
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Major changes by Finance Act, 2013
►Transfer of immovable property in certain
cases [ Section 43CA]
► Immovable property received for inadequate
consideration [Section 56(2)(VII)(B)]
► TDS on transfer on certain immovable
properties other than agricultural land [Section
194IA]
► Additional deduction of interest on housing
loan [Section 80EE]
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Amendments made in Form 3CD for Tax Audit Report, w.e.f. A.Y. 2014-15
► Transfer of land/building for less than stamp duty value: Details of land
or building transferred by assessee for less than stamp duty value (under
section 43CA or under section 50C) shall be reported in new Form
3CD [clause 17 of Part B].
► 17. Where any land or building or both is transferred during the
previous year for a consideration less than value adopted or assessed
or assessable by any authority of a State Government referred to
in section 43CA or 50C, please furnish:
► Details of property
► Consideration received or accrued
► Value adopted or assessed or assessable
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Fictional taxation of business income on transfer of immovableproperty in certain cases [S. 43CA]
► Where such assets are held as stock-in-trade, the Finance Act, 2013 has enacted section
43CA w.e.f. 1.4.2014, which falls in chapter-IV relating to the computation of Business
Income. (F.Y. 2013-14)
► 43CA is not retrospective ([2013] 38 taxmann.com 195 (Mumbai - Trib.) Neelkamal
Realtors & Erectors India (P.) Ltd.
► Similar to S.50C as applicable for capital gains computation
► 50C does not apply to Stock-in-trade
► Kan Construction & Colonizers (P.) Ltd. [2012] 20 taxmann.com 381/208 Taxman
478
► Neelkamal Realtors & Erectors India (P.) Ltd. (Supra)
► K.R. Palanisamy v. Union of India [2009] 180 Taxman 253 (Mad.)
► Asst CIT v. Excellent Land Developers (P.) Ltd. [2010] 1 ITR (TRIB.) 563
(Delhi)
► Inderlok Hotels 318 ITR (AT) 234 (Mum),
► Thiruvengadam Investments 320 ITR 345 (Mad.)
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Capital Asset V/S Stock-in-trade
► "Stock-in-trade" includes all such chattels as are required for the purposes of
being sold or let to hire on a person's trade. [See Stroud's Judicial
Dictionary, 4th Edition, Volume 5, page 2623].
► Stock in trade has been excluded from the definition of capital asset by
section 2(14).
► 43CA applies to transfer of land or building or both held other than as a
capital asset i.e., as a stock-in-trade.
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What does 43CA cover?43CA vs 50C
Applies to land or building or both (other than capital asset)
Will include, land, commercial units, residential house, etc.
Continuing controversy on scope of ‘Land or building’ e.g .whether extends to transfer of development rights,
Leasehold/Tenancy rights, etc.
50C does not apply to tenancy rights
ITA No. 1561 / M / 09 [BCAJ] in case of Kishori Gaitonde
Tejinder Singh [147 TTJ 87 (KOL)]
50C does not apply to Transfer of FSI and TDR
Prem Ratan Gupta 31 CCH 384 (Mum)
50C applies to TDR
ARIF A HUSSAIN 45 SOT 257 (MUM)
Chairanjeev Lal Khannavs ITO (Mum.) (Trib.)
50C does not apply to leasehold land
Atul G. Puranik vs. ITO (2011) 132 ITD 499
Pradeep Steel Re-Rolling Mills Pvt. Ltd in ITA No.341/Mum/2010
Shavo Norgren Pvt Ltd 152 TTJ (Mumbai) 482 (matter remanded for finding of leasehold/complete rights)
50C does not apply to booking advance
Yasin Moosa Godil [2012] 20 taxmann.com 424 (Ahd. - Trib.),
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What is Transfer u/s 43CA???
► The definition of "transfer" in section 2(47) applies to capital
assets.
► Therefore, that definition will not apply in the context of
section 43CA. Transfer will have to be understood in the
context of Transfer of Property Act.
► 43CA falls under chapter IV, D of Act, viz, under the head
“Profit and Gains of Business or Profession”.
► Therefore, 2(47) cannot apply to 43CA.
► Though word “transfer” has been used in section 43CA but the
same has not been defined therein.
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Transfer (Continued…)
In the absence of any allegation or anything else to
indicate that the method of accounting followed by
the assessee results in under-estimation of
profits/net income, it has to be accepted that the
income from the sale of plots accrued to the
assessee only on the date of conveyance and not at
the time of execution of tripartite agreement when
the assessee received consideration.
Realest Builders & Services Ltd [307 ITR 202
(SC)].
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Conveyance and Registration
What is the meaning of term “transfer” u/s 43CA, since in terms of
section 2(47), “transfer” is used in relation to Capital Assets, whereas
section 43 CA uses the term “transfer” in relation to an asset (other than a
capital asset)?
Definition of “transfer” as per section 2(47) is confined to “capital
assets”, gains arising out of which is chargeable to tax under the head
“Income from Capital Gains”.
Meaning of “transfer” u/s 43CA has not been defined.
Therefore, the meaning as per the general law i.e., Transfer of Property
Act will apply.
“Transfer” u/s 5 of the Transfer of Property Act, 1882 implies
conveyance of property “in present or in future” by a living person
(including a company or AOP) to himself or to others. Conveyance is
complete by registration of the document in respect of immovable
properties.
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Year of Transfer
Suppose a flat is booked in the year 2008-09 and a
part consideration is also received in cheque. The flat
is registered in the F.Y.: 2013-14, whether section
43CA of the Act is applicable?
In the given situation, section 43CA will be
applicable. This is because, the provision is applicable
from the A.Y.:2014-15 in regard to transfer of assets
other than capital assets. Since the flat is registered in
F.Y.: 2013-2014, transfer has also taken place in that
year.
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Possession, Completion Certificate and Maintenance Charges
Suppose, a flat is booked in the year 2008-2009 or any
date before 31.03.2012 and a part consideration is also
received in cheque. The possession of the flat is given in
F.Y.: 2011-2012 and maintenance charges are also received
in that year. The flat is registered in the F.Y.: 2013-14,
whether 43CA of the Act is applicable? Whether it makes
any difference, if completion certificate is received after
31.03.13?
Date of registration is important for the purpose of
applicability of section 43CA. Possession and other factors
like completion certificate are irrelevant.
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IT : Assessee being a developer of project, profit in its case would arise
only on transfer of title of property and, therefore, receipt of any advance
or booking amount could not be treated as trading receipt of year under
consideration.
[2013] 40 taxmann.com 219 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax-IV
v.
Shivalik Buildwell (P.) Ltd.*
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Cancellation of Flat Booking
Suppose, one builder makes an agreement for sale in a newly launched
project at a price of Rs.5,000/- PSF (Market price on that date is Rs.7,000/- ).
Subsequently, the investor cancels the deal and settles the deal at Rs. 7,000/-
PSF and took the difference of Rs. 2,000/- PSF.
Whether the provisions of section 43CA will apply in the above
example?
The provision of section 43CA is not applicable to the stated fact
situation. The fact that the builder has entered into an agreement with
an investor does not result into transfer of land or building. In the
given fact situation, the builder has incurred a loss and the same is
arising out of and in the course of business. As such, the builder can
claim deduction of loss out of his business profits which is allowable
u/s 28. contd….
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Cancellation of Flat Booking (contd…..)
What would be the situation if in the above case, the investor instead of
canceling the deal, nominate some other person at the market price of
Rs. 7,000/-?
Nominee becomes the confirming party and the buyer in the
conveyance deed that is ultimately executed and registered.
When the conveyance deed is ultimately executed and registered,
the sale will take place u/s 43CA, deemed sale value will be the
assessable value as per this (SVA) on the date of agreement with the
investor, provided the investor has paid the booking amount by
account payee cheque.
The investor has booked the property at a price lower than the SVA
and he has also pocketed the difference received from the nominee.
In spite of the fact that the difference does not go into the pockets of
the builder, he has to face section 43CA inasmuch as per the sub-
section (3) thereof, the actual value of consideration will have to be
substituted by the SVA on the date of agreement. contd….
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Cancellation of Flat Booking (contd…..)
What would be the situation if the investor cancels the deal and
settles for the same amount of Rs. 5,000/-?
If the investor cancels the deal and settles at the same price at
which the property was booked (i.e., at the price less than the
assessable value of the SVA), section 43CA does not come into play.
It can be applied only when there is execution and registration of the
conveyance deed.
Suppose, a builder sells the right in Flat before the construction
is complete – Will the provision of above section be attracted as at
that point of time, the building is not ready for use, so it cannot be
termed as a building, nor does it come under the purview of Land?
The provision of section 43CA cannot be applied where the builder
merely sells the right in flat without entering into sale through the
registered conveyance deed.
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Cancellation of Flat booking (continued…)
Suppose, a builder sells the right in Flat before the construction
is complete – Will the provision of above section be attracted
as at that point of time, the building is not ready for use, so it
cannot be termed as a building, nor does it come under the
purview of Land?
As stated earlier, the provision of section 43CA cannot be
applied where the builder merely sells the right in flat
without entering into sale through the registered conveyance
deed.
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43CA v/s Purchaser
Suppose, a buyer of a flat, who purchased the right in flat @ Rs.
5,000/- PSF, sells the right in flat to another person at Rs. 6,000/-
PSF before the construction is completed. Will the provisions of
section 43CA be attracted, since there is no building or land which he
is selling, although transfer includes extinguishment of rights u/s 2(
47)?
In the hands of the purchaser of right in a flat, the provision of
section 43CA does not apply. The provision of section 43CA applies to
an asset other than a capital asset, being land or building or both.
This is specifically stated in sub section (1) of section 43CA. It is true
that sale of a right in a capital asset results in extinguishment of right
therein, but it is important to note that “extinguishment of right” is a
form of transfer in relation to a capital asset in terms of section 2(47).
Therefore, in the hands of the buyer of the right in flat, the differential
sum on the sale of right is chargeable to tax as capital gains.
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Re-opening etc
Suppose, the Buyer has shown the cost of flat in his Balance Sheet
long back say, in F.Y.: 2005-06 and the developer has also shown the
sale and booked profit in profit & loss account and his return of
income in the said year. Now the flat is getting registered in F.Y.:
2013-14 and the stamp duty value is higher than the sale price even on
the agreement date. I.T. return of either party is not reflecting any
income/loss or any investment in AY 2014-15. Buyer has also taken
benefit u/s 54 in the year of purchase/possession.
Whether the assessing officer can reopen the case for earlier year
for the developer (for considering sec. 43CA) and the buyer for sec.
56(2)(viib) or will do the assessment for the differential price in the
year of registration?
How far it is practically feasible and more so. when the section was
inserted from the AY 2014-15? Contd…..
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Re-opening (Continued)……
It is to be clearly understood that the year of
purchase in the hands of the buyer / investor and the
year of sale in the hands of the builder / promoter /
developer need not be the same.
Buyer holds the same as a capital asset and governed
by “transfer” u/s 2(47) (v). Allowing possession of any
immovable property in part performance of a contract
of the nature referred to in section 53A of the Transfer
of Property Act will amount to “transfer” u/s 2(47).
cont…..
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Re-opening (Continued……)
Builder / promoter not covered u/s 2(47), but sale / transfer will take place
on the execution and registration of sale deed in his case.
Before introduction of section 2(47), the Hon’ble Supreme Court in CIT
vs. Bhurangya Coal Co. 34 ITR 802 held that in the cases of an
immovable property, transfer takes place only when the sale deed is
concluded and not when the agreement for sale is executed. It is only in
case of movable property that the title passes by delivery.
In the case of Alapati Venkataramiah vs. CIT 57 ITR 185 (SC), this
view was once again reiterated. It was held in the context of section 12B
(corresponding to section 45 of 1961 Act) as under –
“Before section 12B of the 1922 Act, can be attracted, title must pass to
the company by any of the modes mentioned in section 12B, of the 1922
Act i.e., sale, exchange or transfer. It is true that the word ‘transfer’ is
used in addition to the word ‘sale’ but even so, in the context
transfer must mean effective conveyance of the capital asset to the
transferee. Delivery of possession of immovable property cannot by
itself be treated as equivalent to conveyance of the immovable
property.” contd..
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Re-opening (Continued……)
If the builder / promoter / developer has already shown
the sale on the basis of handing over of the possession
and agreement in the preceding year(s) and the said
return has been accepted by the department, the
department cannot reopen those assessments as in those
years provision of section 43CA cannot be applied. It may
be noted that there cannot be two sales of the same
transaction.
Re-opening on the basis of change of opinion is not
allowed [Kelvinator of India Ltd. 320 ITR 561 (SC)].
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Stamp Duty Value
► Fictional taxation of business income where there is transfer of land and/ or building
held as stock in trade or current asset for consideration less than stamp duty(SD)
value
► SD value to be treated as full value of consideration for computation of business
income
► Taxable as per method of accounting followed by the taxpayer
► In case of difference in date of agreement to transfer and date of registration ,value
determination w.r.t. date of agreement can be adopted if :
► consideration or part thereof received on or before date of agreement by any
mode other than cash Contd…
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Stamp Duty Value (Continued…)
► Where taxpayer objects to SD value, he can seek valuation by DVO
► In case, DVO’s valuation is lower than SD, tax authority is bound by DVO’s such lower
valuation. However, where DVO’s valuation is higher than SD, taxation will be w.r.t. SD
value.
► Valuation can be challenged in appeal proceedings
► Provision may not apply to following cases :
► Case of transfer of business undertaking, on slump basis as there is no identifiable
consideration paid in respect of land or building
► Case of contribution of stock in trade to partnership firm, since arguably, consideration is
indeterminable in view of ratio of Sunil Siddharthbhai v. CIT (1985) 156 ITR 509 (SC)], in
particular since section 45(3) applies for capital asset.
► Point need to be considered whether section 56(2)(vii)(b) will get trigerred off, if
introduction is at lower rate that FMV as per tax officer.
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Fictional taxation of business income for transfer of immovable property in certain cases [S. 43CA] (A.Y. 2014-15) – Key Issues
► Can a builder, as per fiction of S.43CA, make an entry that consideration has become due, but,
he writes it off as bad debt and claim deduction ??
► Yes, as per TRF Limited (323 ITR 397 SC)
► Can be written off in the same year
► Can difference between fictional value and consideration be treated as business loss??
► Yes, (Harshad J. Choksi 349 ITR 250 [Bom])
► Whether Tax Audit Limit under 44AB and 44AD would include the difference u/s 43CA??
► Yes, being part of Business Income.
► Whether Tax Auditor should report the difference u/s 43CA??
► Yes, under clause 13(e) of form 3CD.
► Whether transaction between 2 builders are covered u/s 43CA??
► 43CA covers builder who is selling but not the builder who is purchasing. Contd…..
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Fictional taxation of business income for transfer of immovable property in certain cases [S. 43CA] (A.Y. 2014-15) – Key Issues (contd..)
► Whether bearer cheque will be considered in mode other than cash??
► Yes, but debatable.
► Whether Barter System is covered??
► No, but debatable
► Whether once the income is deemed u/s 43CA, can it be deferred over a period of
project, based on percentage of completion method, as per the AS of The ICAI and
proposed accounting standard in income tax Act, the income from real estate can be
offered to tax on percentage completion method (also known as work in progress
method)??
► Yes, the very concept of percentage completion method means that only.
► AS 9 also requires percentage completion method.
► Whether 43CA can apply to slump sale? No, because not identifiable. Contd….
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Fictional taxation of business income for transfer of immovable property in certain cases [S. 43CA] (A.Y. 2014-15) – Key Issues (contd..)
► Whether buyer can claim cost step up who buys the property as stock-in-trade??
► No. Hence results in double taxation in hands of seller and buyer. Buyer can
be taxed u/s 56(2).
► Whether builder can claim increased cost on his purchases as per section
43CA??
► No, matching principle does not apply.
► Whether 43CA applies to old stock or land converted into stock-in-trade u/s
45(2)??
► Yes, but can be contested on the basis of natural justice.
► Can 43CA apply after books are rejected u/s 145??
► No
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Retrospective?
Suppose, the Buyer has shown the cost of flat in hisBalance Sheet long back say, in F.Y.: 2005-06 and thedeveloper has also shown the sale and booked profit in profit& loss account and his return of income in the said year.Now the flat is getting registered in F.Y.: 2013-14 and thestamp duty value is higher than the sale price even on theagreement date. I.T. return of either party is not reflectingany income/loss or any investment in AY 2014-15. Buyerhas also taken benefit u/s 54 in the year ofpurchase/possession. Whether the assessing officer canreopen the case for earlier year for the developer (forconsidering sec. 43CA) and the buyer for sec. 56(2)(viib) orwill do the assessment for the differential price in the year ofregistration? How far it is practically feasible and more so.
when the section was inserted from the AY 2014-15?Contd…..
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Retrospective? (Continued…)
► The replies are as under –
(a) It is to be clearly understood that the year of purchase in the hands of the
buyer / investor and the year of sale in the hands of the builder / promoter
developer need not be the same.
(b) A person who purchases a property as a capital asset is governed by the
provisions relating to Capital Gains viz., chapter IV, E of the Act. He is also
governed by the definition of the term “transfer” as per section 2(47), which
has been conferred a very wider meaning. Thus, as per clause (v) thereof,
even allowing of the possession of any immovable property to be taken in
part performance of a contract of the nature referred to in section 53A of the
Transfer of Property Act will amount to “transfer”.
► Contd…..
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Retrospective? (Continued…)
(c) The builder / promoter who is in the real estate business and is showing the income under the head business is not governed by the section 2(47) of the Act. In his hands, the sale / transfer will take place on the execution and registration of sale deed.
In the context of 1922 Act, when the present day wider definition of ‘transfer’ as in section 2(47) was not on the statute book, the Hon’ble Supreme Court in CIT vs. Bhurangya Coal Co. 34 ITR 802 held that in the cases of an immovable property, transfer takes place only when the sale deed is concluded and not when the agreement for sale is executed. It is only in case of movable property that the title passes by delivery. In the case of AlapatiVenkataramiah vs. CIT 57 ITR 185 (SC), this view was once again reiterated. It was held in the context of section 12B (corresponding to section 45 of 1961 Act) as under –
“Before section 12B of the 1922 Act, can be attracted, title must pass to the company by any of the modes mentioned in section 12B, of the 1922 Act i.e., sale, exchange or transfer. It is true that the word ‘transfer’ is used in addition to the word ‘sale’ but even so, in the context transfer must mean effective conveyance of the capital asset to the transferee. Delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of the immovable property.”
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Retrospective? (Continued…)
(d) Thus, the wider definition of “transfer” u/s. 2(47) is confined to the “Capital Asset” and taxation under the head “Capital Gains”. The same cannot be extended to the determination of income under the head “Business”. It is pertinent to note here that the provision of section 43CA falls under chapter IV, D of Act, which relates to the determination of income under the head “Profit and Gains of Business or Profession”.
Though word “transfer” has been used in section 43CA but the same has not been defined therein. Section 2(47) specifically states that “transfer” defined therein is in relation to “capital asset”.
Therefore, for the purposes of section 43CA, “transfer” has to construed as per the general law which has been discussed in the preceding para.(e) If the builder / promoter / developer has already shown the sale on the basis of handing over of the possession and agreement in the preceding year(s) and the said return has been accepted by the department, the department cannot reopen those assessments as in those years provision of section 43CA cannot be applied. It may be noted that there cannot be two sales of the same transaction.
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Proposed Tax on inventory of Builders
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UNSOLD FLATS OF BUILDERS
► In the case of Azimganj Estates (P.) Ltd. [372 ITR 243 (Calcutta)(MAG.)] it
was held that, “Where assessee-property dealer, disclosed rental income
derived from letting out of unsold flats as 'income from house property',
rental income could not be treated as business income merely because
assessee in wealth tax proceedings claimed said unsold flats is its stock-in-
trade.”
► Further in the case of Ansal Housing and Construction Ltd. [220 Taxman
157 (Delhi)(MAG.)] it was held that, “Assessee-construction company is
liable to pay tax on annual letting value of unsold flats owned by it as income
from house property.”
► Not Followed in the case of C.R. Developments Pvt Ltd [ITA
No.4277/Mum/2012 ]
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► RECENT ISSUES ON TAXATION OF IMMOVABLE PROPERTY
FOR INADEQUATE CONSIDERATION. [S. 56(2)(vii)(b)]
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Taxability in case of receipt of immovable property for inadequate consideration [S. 56(2)(vii)(b)](A.Y. 2014-15)
► Section expanded to cover cases of receipt of immovable property by
individual or HUF for inadequate consideration (i.e. for consideration lower
than SD value by more than INR 50,000)
► Difference between the SD value and agreed consideration to be taxed as
income from other sources
► In case of difference in date of agreement to transfer and date of registration
,value can be determination w.r.t. date of agreement if :
► consideration or part thereof received on or before date of agreement by
any mode other than cash
► Reincarnation of provision introduced vide Finance (No. 2) Bill, 2009*
► Withdrawn by Finance Act 2010 with retrospective date, releasing
hardship due to issue of time gap between date of booking and date of
registration
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Taxability in case of receipt of immovable property for inadequate consideration [S. 56(2)(vii)(b)](w.e.f. 1st April 2014)
► Applies to immovable property being land or building or both (which is a
capital asset)
► Will include land including agricultural land , commercial units, residential
house, etc.
► Continuing controversy on scope of ‘Land or building’ such as :
► Whether extends to transfer of development rights, Leasehold /Tenancy
rights etc,?
► Whether covers transactions involving shares in a co-op society?
► On account of existing exemption provisions dealing with gift taxation, the
receipt of property from relatives or on occasion for marriage etc. will continue
to be protected
► Cost step up available to transferee w.r.t. value which is taken into account for
determining taxability under S.56(2)(vii)(b)[Refer, S.49(4)]
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Taxability in case of receipt of immovable property for inadequate consideration [S. 56(2)(vii)(b)](w.e.f. 1st April 2014) - Key Issues
► Double taxation of the same income in the hands of two different person
i.e. section 43CA or in section 50C and be taxed as IFOS under section
56(2)(vii) of the Act. Like it will be taxed in the hands of developer and
under section 56 in the hands of purchaser.
► Whether 56(2)(vii)(b) can apply if the sale is pursuant to court monitored
auction or pursuant to Debts Recovery Tribunal process or sale is by
Union/State Government to recover tax dues?
► Debatable, but No.
► Whether allotment letter issued to buyer constitutes ‘agreement’ for
purposes of 43CA and 56(2)(vii)(b)? What if formal agreement is delayed
due to regulatory restriction or court disputes?
► Debatable, but No.
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Recent Issues on TDS u/s 194IA
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What is the Effective date of TDS??
01/06/2013
Who has to pay TDS??
Any Purchaser
Applicability of this section to all persons even if not subject to tax audit
Who is the Transferee??
Transferee’ includes individual, firms, company, HUF, builder as purchaser, etc.
Transfer between relatives and family members also covered
Is Non Resident Buyer liable to deduct TDS??
Yes
Is Non Resident Seller covered u/s 194IA??
No, Non Resident is covered u/s 195.
Is Barter Exchange of Property covered u/s 194IA??
Yes.
Contd…
TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013)
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What is the limit u/s 194IA??
Rs. 50 lacs and above.
What is the consideration u/s 194IA??
‘TDS with respect to actual consideration – though, seller may have implication
under S.50C or S.43CA or even where seller has exempt capital gains .
In case of dealing between joint buyers and joint seller, what is the position
u/s 194IA??
Qua Property
Whether the limit applies qua each joint seller or qua property??
Qua property
Whether agricultural land is covered u/s 194IA??
No.
Whether section194IA applies to Builders??
Yes. Contd…
TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013) (Continued….)
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In which year the credit of TDS can be claimed??
As per section 199 (read with Rule 37BA) of the Income Tax Act, a person can
avail credit of TDS in the year in which the income is assessable. In case of Real
Estate Developers, who is following project completion method and recognized
the revenue only when the project gets completed, claiming of TDS refund in the
year of completion will be a procedural nightmare. They have to claim the TDS
refund on each year during the construction stage.
Is TDS applicable when seller is claiming exemption u/s 54, 54EC, 54F??
They have to claim refund by filing the return of income
Is there any provision for facility of lower or NIL deduction?
No. Contd…
TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013) (Continued….)
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TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013) (continued…)
► Tax withholding @1% on payment by transferee to resident transferor by way of
consideration for transfer of immoveable property
► Intent is to collect tax at the earliest and to secure reporting of transactions
► S.206AA may require TDS @20% if seller does not furnish PAN
► Should the buyer need to comply with TDS provisions if the agreement is entered
before 1st June 2013 but the payments are made after 1st June 2013? What if when
part payment has been made on or before the agreement date and agreement was
made after 1st June 2013?
► Debatable, but yes
► What if the part payment is made before 1st June and balance is paid after 1st June?
Whether TDS to be deducted on the entire amount or the balance amount?
► Debatable, but yes.
► What are the Forms no??
► 16B for buyer, 26QB for seller
► What is the procedure u/s 194IA??
► https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp
Contd…..
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TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013) (continued…)► Similar proposal in Finance Bill 2012 withdrawn at enactment stage due to additional compliance burden
issue
► Immovable property is defined to mean land (other than agricultural land) or building or part of building
► Immovable property could be commercial units, residential house, etc.
► Applies also to property sold as stock in trade of developer.
► Continuing controversy on scope of ‘Land or building’ such as:
► whether extends to transfer of leasehold/tenancy rights?
► whether covers transactions involving shares in a co-op. society?
► Whether slump sale is covered??
► Case of transfer of business undertaking on slump basis as there is no identifiable consideration paid
in respect of immovable property
► Whether Flat booking is a property?
► Right in property is not property u/s 53A.
► What is the procedure of claiming refund on Flat booking OR cancellation?
► In case of cancellation of transaction / booking, procedure of claiming refund has not been
prescribed.
Contd….
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TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013) (continued…)
► Property as per court order?
► If no PAN, 20% TDS, bur form wants PAN u/s 206AA
► Is Property acquired under compulsory acquisition covered??
► No.
► What if Payment is made by instalments?
► Each time tds
► Whether EMI paid to banks etc is covered??
► When to deduct? Each time or beginning? Normally banks and financial
institutions are exempt from the purview of tax deduction u/s 194-A of Income
Tax Act, 1961. However in the section u/s 194-IA there is no such provision.
Contd….
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TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013) (continued…)► What is the Penalty for non deduction of TDS??
► As per section 201, In case assessee fails to comply with the procedural guidelines of TDS provisions
[deduction or payment], then the assessee will be treated as an assessee in default.
► As per section 201(1A), in case of failure to deduct Tax or short deduction of TDS, interest @1% will be
levied for every month or part of the month, on the amount of tax, from the date on which tax was
deductible to the date on which the same is deducted. Further, when the buyer has failed to deposit
wholly or partly tax so deducted, Interest @1.5% will be levied, for every month or part of the month, on
the amount of tax, from the date of deduction till the date of actual payment.
► As per section 271C of the Income Tax Act, penalty for non deduction / non-payment of TDS are equal
to the amount of Tax which the assessee failed to deduct or pay [This penalty shall be imposed b the joint
commissioner]. Further, Sec 221 provides for penalty to be paid as directed by the assessing officer
which shall not exceed the amount of TDS.
► Builders collecting full sum??
► Still liability of buyer remains
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Additional Interest deduction for Buyers of New Home (S. 80EE) (For A.Y. 2014-15 and 2015-16)
► One time interest deduction on home loan from Financial
Institutions (FIs) sanctioned during period 1 April 2013 to 31 March
2014.
► One time deduction under s. 80EE to be in addition to (or
independent of) deduction of INR 1.5 L in s. 24(b).
► Eligibility conditions :
► Borrowing from FI or housing finance company for acquisition of a residential
house property
► The Taxpayer should not own any residential house property on the date of
sanction of loan
► Sanctioned loan amount not to exceed INR 25 L
► Value of residential property (and not the consideration) not to exceed INR 40 L
► There could be litigation on meaning of “value”.
Continued…
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Additional Interest deduction for Buyers of New Home (S. 80EE) (For A.Y. 2014-15 and 2015-16) (Continued…)
► House could be under construction: possession not
pre-requisite
► No condition on self occupation; even let out house
eligible
► Deduction, if it remains under utilized due to
inadequate interest liability in A.Y. 2014-15, shortfall
is allowed in A.Y. 2015-16
► Deduction can be effectively enjoyed in A.Y.
2014-15 if interest is payable > INR 2.5 L.
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Additional Interest deduction for Buyers of New Home (S. 80EE) (For A.Y. 2014-15 and 2015-16) – Key Issues
► ‘Value’ of property not defined. Controversy may arise whether or not
to include VAT, Service Tax, Stamp duty, Society entrance fees, etc.
► Whether loan borrowed for repaying existing home loan will qualify?
► Benefit should be extended to housing loans availed from
employer
► Salary TDS Circular should permit employer to consider 80EE
deduction for Salary TDS purpose
► It is also recommended that, that the existing upper limit/
deduction should be raised to Rs 2,50,000, so that actual benefit
flows to the taxpayer. By restricting the deduction by imposing
conditions would not serve the purpose of benefiting the
taxpayers
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Recent Issues on JDA, FSI and Accrual of Capital Gain
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JOINT DEVELOPMENT AGREEMENTS
► In the case of Bertha T. Almeida [[2015] 229 Taxman 159 (Bombay)]
it was held that, “Where developer took possession of assessee's land
and started development work, said transaction was to be treated as
transfer of right in property covered under section 2(47)(v)
► In the case of Sadia Shaikh [Appeal 11 & 12 of 2013] [Bom HC]it
was held that, “Where the agreement only permits the development to
be carried out by the developers while entire control over the property
is retained by the owner inasmuch as the license to construct and
occupancy certificate are given in the name of owner, mere execution
of agreement would not amount to transfer under section 2(47)(v) in
the absence of possession as contemplated under section 53A of the
Transfer of Property Act.” 6/21/[email protected]***9
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ACCRUAL AND FSI
► In the case of ANANT CHUNILAL KATE vs. INCOME TAX OFFICER, (2004) 187 CTR
(Bom) 93 : (2004) 267 ITR 482 (Bom) : (2004) 136 TAXMAN 527 it was held that,
“Income* Accrual* Right to receive amount in dispute* Assessee entered into an
agreement with P to purchase a piece of agricultural land and sold 17 out of 23 plots of
said land* Following a dispute between the assessee and P the High Court passed a
compromise decree on the basis of the terms of compromise entered into by the parties*
Admittedly, P did not execute sale deed in favour of the assessee and, therefore,
assessee did not become lawful owner of the land agreed to be sold in his favour* Assessee
had no legal right to sell the plots* By way of compromise decree, assessee was to return
the sale proceeds of plots to P and was to receive back his earnest money* Therefore, right
to receive payment was in dispute and the sale proceeds cannot be added to the income of
the assessee.”
► In the case of Dinesh D. Rankha v. Commissioner of Income-tax, Bangalore [[2016] 69
taxmann.com 118 (SC)] it was held that, “SLP dismissed against High Court's ruling that
where assessee surrendered FAR to developer in respect of remaining land kept for his
personal use and received consideration, same would amount to transfer within definition
of section 2(47).”
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DEVELOPMENT AGREEMENTS
► Development agreements in real estate sector are quite popular. Taxation of the same has
provided interesting set of judicial disputes. It remains to be an intriguing issue equally
for landowners, builders/developers and revenue department and judiciary. Recently, we
had two important rulings relating to taxation of development agreements - one from
Andhra Pradesh High Court and the other from the Hyderabad Tribunal which lay down
important principles regarding taxation of development agreements. Whilst Hyderabad
Tribunal in Binjusaria Properties (P.) Ltd. v. Asstt. CIT1 (hereinafter Binjusaria) held
that where the developer had not performed his part of the contract even if possession
was handed over and advance received, development agreement would not amount to
'transfer' for the purposes of capital gains. The Andhra Pradesh High Court in Potla
Nageswara Rao v. Dy. CIT2 (hereinafter Potla Nageshwar Rao) held that handing over
of possession under a development agreement amounts to transfer and capital gains are
chargeable even where payment of consideration is deferred for a future date. Before
proceeding with the analysis of these judgments it would be worthwhile to be acquainted
with a brief history of the controversy involving developmental agreements.
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INCOME FROM HOUSE PROPERTY V/S BUSINESS INCOME
► Recently, in the case of Chennai Properties &
Investments Ltd. [[2015] 373 ITR 673 (SC)] it was
held that, “Where in terms of memorandum of
association, main object of assessee-company was to
acquire properties and earn income by letting out
same, said income was to be brought to tax as business
income and not as income from house property.”
► Shambhu Investments Pvt. Ltd. (2003) 263 ITR 143
(SC)- not followed.
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