Section 50C of IT Act In Respect of Land and Buildings Transactions

Provisions of Section 50C of Income Tax Act, 1961 In Respect of Land and Buildings Transactions
Section 50C containing very harsh and controversial provisions is one more attempt by the Government to bring to revenue the unaccounted portion of the property transactions. Earlier, we had Chapter XXA from 5-11-1972 to 30-9-1986 providing for acquisition of immovable property by the Government when it was found that fair market value was higher than the consideration stated in instrument of transfer. However, the Supreme Court in the case of K.P. Verghese 131 ITR 597 (SC) took a view that apart from determining the fair market value of the property transferred, the Government was also required to prove that extra consideration not stated in the transfer document had passed on from the buyer to the seller. This requirement of proving passing of extra consideration from the buyer to the seller rendered Chapter XXA unworkable.

Thereafter (1-10-1986) Chapter XXA was replaced by Chapter XXC which granted the Government pre-emptive right to purchase immovable property at a price agreed to by the transferor.

This led to many litigations between the assessees and the Income Tax department. It was also observed that even when tax department acquired such high priced properties, the same could not be disposed of at a profit. This had resulted in a situation whereby the Department was criticized for unnecessarily acquiring the high priced immovable properties. The funds of the Government were unnecessarily blocked. Thus, neither the Income Tax Department nor the people were happy about Chapter XXC. The Finance Act, 2002 deleted Chapter XXC w.e.f. 1st July, 2002.

The Government decided to introduce section 50C with effect from April 1, 2003.

The Finance Act, 2002 had amended the Income-tax Act, 1961 inter alia by inserting section 50C with effect from 1st April 2003 i.e. from A.Y. 2003-04 affecting transactions in land and buildings taking place on or after 1st April, 2002.

Section 50C provides that if the value stated in the instrument of transfer is less than the valuation adopted or assessed or assessable by the stamp duty authorities, such valuation of the stamp duty authorities will be considered as the sale consideration for the purpose of computation of capital gains arising on transfer of land or building or both.

Explanation 2 has been inserted in Section 50C w.e.f. 1-10-2009 stating that value “assessable” by the stamp valuation authority means the price which would have been adopted/assessed had the transaction been referred to such valuation authority for the payment of stamp duty. Prior to insertion of this Explanation, it had been held in many cases that for invoking the provisions of Section 50C, the transfer of property must first be registered for the purpose of payment of stamp duty. Now, by virtue, of this amendment, the above judgments are rendered redundant and the income-tax authorities are free to refer the property to stamp valuation authority irrespective of whether the same has been registered for stamp duty purposes or not.

Provisions apply to transfer for a consideration of land or building if only held as capital asset at the time of such transfer. Thus, transactions of flats, shops, galas, factories being parts of buildings etc. are covered by the provisions of section 50C.

Under the Bombay Stamp Act, 1958, the stamp duty authorities have the power to revise valuation of immovable property within a period of 6 years from the date of stamping.

The assessee may represent before the Income Tax Officer that the valuation adopted by stamp duty authorities is higher than the fair market value of property on the date of transfer and that the Income Tax Officer may refer the matter of valuation to the Valuation Officer of the Income Tax Department itself.

If the valuation by the Valuation Officer of the IT department is lower, then such lower valuation will be adopted. However, if valuation by the Income Tax Valuation Officer is higher than the valuation adopted by the stamp duty authorities, the stamp duty valuation will be adopted and higher valuation by the Income Tax Valuation Officer will be disregarded.

The DVO will have to follow the procedure under relevant sub-sections of section 16A of the Wealth Tax Act wherein the DVO will have to call for the records, give an opportunity of being heard to the assessee and lead evidences and then pass a speaking order of valuation. Further, the order of the DVO can be appealed against.

Section 155(15) provides that where the value adopted by stamp duty authorities is revised due to an appeal, revision or reference, the assessment made on the basis of earlier valuation shall be amended and capital gains shall be recomputed on the basis of such revised value.

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2 thoughts on “Section 50C of IT Act In Respect of Land and Buildings Transactions

  1. As per Explanatory Notes to provisions of Finance (No.2) Act, 2009 vide circular No:5 of 2010 dated 03-06-10 in para 23.1 it has been explained that prior to 1st October, 2009 the scope of provisions of 50C does not include transactions which are not registered with Stamp Valuation Authority.

  2. Sale deed execute at lower than Govt. valuation,conidering facing,shape of land but full stamp duty paid.
    For capital gain computation, can ITO force higher value than actually received?

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