C Gain : Sale Consideration is less than stamp duty value

Taxation of property transactions where the consideration is less than stamp duty value

Section 56(2)(x) of the Income Tax Act was introduced to address the taxation of gifts or property received without adequate consideration. It replaced the earlier provisions under Section 56(2)(vii) and (viia) and widened the scope to include all categories of taxpayers (individuals, HUFs, firms, companies, and others).

Applicability of Section 56(2)(x): 

Section 56(2)(x): Applicability in case money or Property (movable or immovable) is received without adequate consideration. This section applies when any sum of money or property (movable or immovable) is received without adequate consideration, exceeding specified thresholds. It includes transactions where consideration paid is significantly less than the fair market value or stamp duty value.

Taxable Items and Thresholds of Section 56(2)(x)

1. Taxable if the aggregate amount received without consideration exceeds INR 50,000 during the FY.

• • Immovable Property: Without consideration: Taxable if the SDV exceeds ₹50,000. With consideration: Taxable if the difference between SDV and consideration exceeds ₹50,000.
  • Movable Property (e.g., jewelry, shares, etc.):Without consideration: Taxable if the aggregate FMV exceeds ₹50,000. With consideration: Taxable if the difference between FMV and consideration exceeds ₹50,000.
  • Section 56(2)(x) applies to all taxpayers, unlike its predecessors, which were limited to specific categories. Includes all types of assets, including money, immovable property, and specified movable property. If the threshold is exceeded, the entire amount or value is taxable, not just the excess.

Exceptions of Applicability Section 56(2)(x):

The provisions do not apply in the following scenarios:

• • Gifts from specified relatives (spouse, siblings, ascendants, descendants, etc.).
  • Occasions: On the occasion of an individual’s marriage.
  • Inheritance: Received by way of will, inheritance, or upon the death of the donor.
  • Specific Institutions: Gifts or property received from local authorities, educational institutions, trusts, or entities exempt under Section 10.
  • Trusts for Relatives: Property received by a trust created solely for the benefit of relatives of the individual.

Exceptions and Practical Considerations in case Taxation of property transactions where the consideration is less than stamp duty value

• Exempt Relatives: Transactions with specified relatives are exempt to prevent taxation of genuine family gifts.
• Fair Market Value and Stamp Duty Value: Ensures that property transactions reflect realistic valuations and deter undervaluation or misuse of tax exemptions.
• Banking Channels: Payments made through banking channels are considered to establish genuineness and apply relevant exceptions (e.g., stamp duty value on the date of agreement).

Section 56(2)(x) of the Income Tax Act addresses the taxation of property transactions where the consideration is less than the stamp duty value. A proviso to this section allows the stamp duty value on the date of the agreement to be considered, instead of the date of registration, provided that a part of the consideration was paid through banking channels on or before the date of the agreement.

Several judicial pronouncements have interpreted this proviso in favor of the Assessee:

1. Radha Kishan Kungwani vs. Income Tax Officer Ward – 1(2) : In this case, the assessee entered into an agreement to purchase a flat and made payments at the time of booking. The Income Tax Appellate Tribunal Jaipur held that the stamp duty valuation should be considered as of the date of payment made by the assessee towards booking, aligning with the proviso to Section 56(2)(x).

1. Sanjay Dattatraya Dapodikar vs. Income Tax Officer Ward – 6(2), Pune : Here, the assessee paid a part of the consideration by cheque before the date of the agreement for purchasing a plot. The Income Tax Appellate Tribunal Pune ruled that, since the conditions of the proviso to Section 56(2)(x) were fulfilled, the stamp duty value as on the date of the agreement should be applied.

1. Ashutosh Jha vs. Income Tax Officer Ward-2(5), Ranchi : In this instance, the assessee made a part payment by cheque immediately after executing the purchase agreement, with registration occurring a year later. The Income Tax Appellate Tribunal Kolkata concluded that no addition could be made under Section 56(2)(x) for the difference between the sale consideration and the stamp duty value on the registration date, as the proviso’s conditions were satisfied.

1. Siraj Ahmed Jamalbhai Bora vs. Income Tax Officer Ward-1(3)(1) : The Income Tax Appellate Tribunal Mumbai emphasized that the date of registration is irrelevant for Section 56(2)(x) when substantial obligations are discharged on the date of the agreement, supporting the assessee’s position.

Final Consclusion 

These cases underscore that when there is a difference between the date of agreement and the date of registration and part of the payment is made through banking channels before the agreement date, the stamp duty value on the agreement date should be considered for taxation purposes u/s 56(2)(x).  The section has been applied and interpreted in various cases, often considering exceptions and genuineness of transactions. Courts have generally supported taxpayers when:

• Payments are made via banking channels.
• Exceptions under the section (e.g., gifts from relatives) are clearly established.
• Stamp duty value on the agreement date is used when payment precedes the agreement.

By covering broader categories of transactions while allowing specific exemptions, Section 56(2)(x) aims to balance tax enforcement with fairness in genuine cases.

**********************************************************

If this article has helped you in any way, i would appreciate if you could share/like it or leave a comment. Thank you for visiting my blog.

Legal Disclaimer:
The information / articles & any relies to the comments on this blog are provided purely for informational and educational purposes only & are purely based on my understanding / knowledge. They do noy constitute legal advice or legal opinions. The information / articles and any replies to the comments are intended but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as a legal advice or an indication of future results. Therefore, i can not take any responsibility for the results or consequences of any attempt to use or adopt any of the information presented on this blog. You are advised not to act or rely on any information / articles contained without first seeking the advice of a practicing professional.