Decision cited :

In the case of ITO v. Yasin Moosa Godil bearing ITA no. 2519/Ahd/2009 dated 13/04/2012, the Court held that for application of section 50C, there must be transfer of a “capital asset”, being “land” or “building” or “both”. If the “capital asset” under transfer cannot be described as “land” or “building” or “both” then section 50C will cease to apply. Booking advance cannot be equated with the capital asset and therefore section 50C cannot be invoked.

 

In the case of Mrs. Rekha Agarwal v. ITO (2017) 79 taxmann.com 290 (Jaipur Trib.), the Court held that section 50C is a deeming provision and it extends only to “land” or “building” or “both”. What has been transferred by the assessee is a right of allotment in the property and not the actual property itself and in respect of such rights, the deeming provisions of section 50C are not applicable.

 

In the case of Atul G. Puranik v. ITO (2011) 11 ITR(T) 120 (Mum.), the Court held that section 50C applies only to a capital asset, being “land” or “building” or “both”, it cannot be made applicable to “lease rights” in a land. As the assessee transferred lease rights for sixty years in the plot and not the land itself, the provisions of section 50C cannot be invoked.

 

Acelegal Analysis :

Section 43CA is a deeming provision and it extents only to “land” or “building” or “both”. It is a settled legal proposition that deeming provisions can be applied only in respect of situations specifically given and hence, cannot go beyond the explicit mandate of the section.

Accordingly, if an asset (other than capital assets) under transfer cannot be described as “land” or “building” or “both”, then section 43CA will cease to apply.

Thus, receipt of booking advances in respect of units which are under construction relates to creation of transfer of “booking rights” in the favour of the unit buyers and cannot be equated with transfer of assets being “land” or “building” or “both” and hence, section 43CA cannot be invoked.

 

Facts of the case :

The assessee is a builder and developer. The assessee was engaged in development of a commercial project called “Orchid Plaza”. The entire project was completed in AY 2015-16 and sale for all 14 units were duly offered to tax in AY 2015-16 following Project Completion Method. While offering the income, the assessee had offered only the agreement value and not the stamp duty value.

Out of the total 14 units, 7 units were allotted in AY 2013-14 and balance 7 in AY 2014-15. The “agreement for sale” for entire 14 units were registered in AY 2014-15.

During the assessment proceedings, the AO observed that the stamp duty values of these 14 units were higher than the agreement value. Accordingly, he invoked section 43CA and treated the difference between agreement value and stamp duty value for entire 14 units as “supressed sales” added to total income during AY 2014-15 i.e. the year under appeal.

Proceedings before CIT(A) :

Assessee’s contention :

(i)   Registration authorities charged stamp duty based on village / area which is different from area in which the assessee project is situated ;

(ii)  Sale value is based on various market conditions, locations, etc. whereas the stamp duty valuation is based on thumb rule ;

(iii)   The buyer were not willing to make any payment over and above the agreement value ; and

(iv)   Provisions for section 43CA are applicable only from AY 2014-15 and thus cannot be applied to units allotted in AY 2013-14.

CIT(A)’s verdict :

Provisions of section 43CA are applicable only from AY 2014-15 onwards. In the present case, the sale agreements were registered during the year under appeal. Hence, provisions of section 43CA would apply as the “transfer of ownership” in the units has taken place during the year under appeal.

He further observed that the if the assessee disputed the stamp duty value, the provisions of section 43CA provides the assessee to make a representation to the AO for referring the case to DVO for determining the fair market value of the units. However, the said option was not exercised by the assessee.

ITAT’s verdict :

The provisions of section 43CA are applicable only when there is a transfer of assets (other than capital assets), being “land” or “building” or “both”.

During the year under appeal, the project was under construction. Thus, pursuant to registration of agreement with the stamp duty valuation authorities, a right is created in favour of the unit buyers. Hence, what the assessee had transferred was only rights in units (which are under construction) and not the property per se. Thus, provisions of section 43CA cannot be invoked as the assessee had not sold any “land” or “building” or “both”.