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SECTION - 50 C. Rajiv K. Doshi B. Com, LL. B., F. C.A., D.I.S.A. Section 50 C. Introduction

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Section 50 c
SECTION - 50 C

Rajiv K. Doshi

B. Com, LL. B., F. C.A., D.I.S.A.


Section 50 c1
Section 50 C

  • Introduction

  • Section 50C has been inserted by the Finance Act, 2002 with effect from 1st April, 2003. Provision when construed literally and applied to cases in which value of transfer is honestly or truly stated/declared as per contractual but which is lower than the value assessed or adopted by the stamp valuation authority, would produce absurd and irrational picture because the assessee would be required to pay capital gain tax on the amount which he had not contracted and which has not accrued or received by him as profit or gain.

  • In Circular No.8 of 2002 dated 27th August, 2002 [(2002) 178 CTR (St) 9] the provision of section 50C as enacted has been explained.

Rajiv Doshi


Prior to amendment
Prior to Amendment.

  • Section 50C is applicable wef :01.04.03, ie A.Y.03-04. The law applicable on the date of transfer of capital asset should be taken into consideration.

    Nevillede Noranha 115TTJ (Kol) 390.

  • Up to AY 02-03, in the sale of land or building or both, the value declared in the transfer (sale) deed was taken as the full value of consideration for computing capital gains.

    [CIT v. Smt. Nilofer I. Singh, 221 CTR 277 (Del.)]

Rajiv Doshi


Applicability
Applicability

  • Section 50C is applicable if the following conditions are satisfied –

  • Condition 1There is a transfer of land or building or both. The assets may be long-term capital asset or short term capital asset. It may be depreciable or non-depreciable asset.

  • Condition 2The sale consideration is less then value adopted (or assessed) by any authority of a State Government for the purpose of payment of stamp duty (hereinafter referred to as “Stamp duty Authority”) in respect of such transfer.

  • Inderlok Hotels Pvt. Ltd. v. ITO, Circle 5(2)(1)

  • Navneet Kumar Thakkar v. ITO [2007] 112 TTJ (Jodh.) 76.

Rajiv Doshi




Example

  • X owns a piece of land situated in Shapar (date of acquisition: March 1, 1983, cost of acquisition: Rs.19291, value adopted by Stamp duty authority at the time of purchase: Rs.45,000). On March 30, 2008, the piece of land is transferred for Rs.4 lakh.

  • Find out the capital gains chargeable to tax in the following situations –

  • The value adopted by Stamp duty authority is Rs.5.5 lakh. X does not dispute it.

  • The value adopted by the Stamp duty authority is Rs.5.75 lakh. X Files an appeal under the Stamp Act and Stamp duty valuation has been reduced to Rs.4.90 lakh by the Allahabad High Court.

  • The value adopted by the Stamp duty authority is Rs.5.60 lakh. X does not challenge it under the Stamp Act. However, he claims before the Assessing Officer that Rs.5.60 lakh is more than the fair market value of the land. The Assessing Officer referred it to the Valuation Officer who determines Rs.5.25 lakh as fair market value.

Rajiv Doshi



  • Manjurani Jain 24SOT 24 (Del).

  • Jitendra Mohan Sayena. 117 TTj (Lukhnow) 974.

  • Meghraj Baid 114 TTJ (Jd) 841.

  • Navneetkumar Thakkur 112 TTJ (Jd) 76.

  • Ambattur Clothing Co. Ltd. v. Asstt. CIT: (2009) 221 CTR (Mad) 196

  • AKG Consultants 17SOT 592 (Lukhnow)

  • Ravikant 110 TTJ (Mum) 297.

  • Rajini Venugopal v. Addl. CIT & Anr.: (2009) 221 CTR (Mad) 199

Rajiv Doshi


Practical consideration in the value under section 50c 1
Practical consideration in the value under section 50C(1)

  • The Valuation Officer’s report is an opinion but not guess work. It has to be based upon relevant materials. He should meet with the report of a registered valuer. There are different methods of valuation and he has to select an appropriate method for arriving at fair market value. As the statute does not prescribe any particular method, the comparative sale method or rent capitalization method as applicable may be applied.

Rajiv Doshi


Is there any exception in this enactment
Is there any exception in this enactment.

  • The new law does not contain exception. There might be transfer below the stamp value on account of special circumstances and would be justifiable at lower value e.g. transfers from landlord to tenant distress sales, property with defective title, encumbered property, transfer to banks or financial institutions in contractual obligations, transfers to relatives, etc.

Rajiv Doshi


  • Re-computation of capital gain in case the consideration is revised in any appeal, revision, etc.

  • Reference to Valuation Officer [Sec.55A]

  • Where the value of the assets as claimed by the assessee is in accordance with the estimate made by are registered valuer (who works in a private capacity under a licence issued by the Board and his valuation is not bunding on the Assessing Officer), but the Assessing Officer is of opinion that the value so claimed is less than its fair market value [sec. 55C(a)].

  • Where the Assessing Officer is of opinion that the fair market value of the asset exceeds the value of the asset by more than Rs.:25,000 or 15 percent of the value claimed by the assessee, whichever is less [Sec.55A(b)(i), read with rule 111AA].

Rajiv Doshi


  • Where the Assessing Officer is of opinion that, having regard to nature of an asset and relevant circumstances, it is necessary to make a reference to the Valuation Officer [sec.55A(b)(ii)].

    [It can be seen that in a case where the assessee has opted for substitution of the cost of acquisition of an asset by its fair market value as on April 1, 1981, the fair market value as claimed by him may be higher than its actual fair market values. The provisions of section 55A (a) and (b)(i) are, therefore, not applicable to such a case. It is, however, open to the Assessing Officer to make a reference to the Valuation Officer under section 55A(b)(ii)].

    The Central Government have appointed a large number of Valuation Officer under section 12A of the Wealth-tax Act and these Valuation Officer exercise their functions in relation to the categories of assets for which they have been appointed. The jurisdiction of the Valuation Officer has been defined in rule 3A of the Wealth-tax Rules. The Valuation Officer exercises the same jurisdiction for income-tax purposes also.

Rajiv Doshi


The determination of Fair Market Value under the chapter on Capital Gains is required only for the following purposes:

  • Section 45(1A) relating to asset received under an insurance from an insurer on account of damage or destruction of any capital asset due to certain natural clamities.

  • Section 45(2) relating to conversion of capital assets into stock-in-trade for determining its consideration price on the date of conversion.

  • Section 45(4) relating to distribution of capital asset by the firm to its partners on dissolution, for determining sale consideration.

  • Section 46(2) relating to distribution of assets by the company to its shareholders at the time of its liquidation.

  • Section 55 for determining the market value of an assets as on 01.4.1981.

  • Section 2(47) for determining the fair market value of an assets is exchanged.

  • Section 50C where the assessee claims before the Assessing Officer that the value adopted or assessed by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer.

Rajiv Doshi


Section 50 c2
SECTION - 50 C Capital Gains is required only for the following purposes:

Thank You

Rajiv Doshi


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