Stamp duty difference and flat agreement price cannot be taxed: ITAT

MUMBAI: The Mumbai branch of the Income Tax Appellate Tribunal (ITAT) ruled in favor of a non-resident taxpayer who had bought an apartment in a posh area of the city, saying that she could not be taxed on the difference of Rs. 55.9 lacks between the agreement value of the apartment and the stamp duty value on the date of registration as “income from other sources.

“The purchase price is often finalized and represented in the agreement when a person books a flat. The buyer makes recurring payments over a period of months after the amount paid at the time of booking. The flat is later registered. At the time of registration, the stamp duty value is obviously significantly higher.

Income tax officials have on multiple occasions considered this value difference as taxable income and imposed hefty tax demands, including penal interest.

“Section 56(2) (x) has taken the place of Section 56(2) (vii)(b), which is covered by this ITAT order. The provisions of the modified statute are similar enough, though, that the ITAT order would also apply to it, according to Gautam Nayak, a tax partner at CNK & Associates.

The I-T Act’s provisos to section 56 (2)(vii)(b) state that the stamp duty value on the agreement date may be taken into consideration if the payments were made through banking channels (modes other than cash) if the dates of the agreement (which fix the amount of consideration for the transfer of fixed property) and the date of registration are not the same.

“In this case, the ITAT accepted the booking form as evidence of the purchase agreement and the determination of the purchase price. The ITAT recognized that the purchase consideration was greater than the then-applicable stamp duty value in addition to the fact that the payments were made through banking channels, according to Nayak.

The taxpayer did not initially submit an I-T return for the fiscal year 2015–2016, most likely because in India-taxable income was far below the exemption threshold. Reassessment proceedings were started based on the knowledge that she had purchased a flat. She filed a tax return in response to the I-T notification, declaring a single taxable income of Rs 58,940.

But the I-T officer used section 56(2)(vii)(b) to try and tax the difference between the agreement’s worth (Rs 4.1 crore) and the stamp duty value on the date of registration (Rs 4.7 crore): Rs 55.9 lakh.

The dispute ultimately made it to the ITAT. The non-resident taxpayer said that when the unit was reserved, a sizable chunk of the cost was paid via cheque. Part payments were then paid using financial methods.

She also provided documentation demonstrating that the stamp duty value on the date the flat was reserved was less than the contractual value. As a result, the addition made by the I-T officer by relying on the Act’s requirements in section 56(2)(vii)(b) cannot be upheld.