Income Tax 01 Feb,2020
834 Views
Amendment to section 50C though inadequate is in tune with needs of time Introduction
S.KrishnanCA

1. Section 50C of the Income-tax Act (the Act) was introduced with effect from 1st April, 2003 by the Finance Act, 2002. The purpose of this section was explained in the Memorandum to the Finance Bill, 2002:

"The Bill proposes to insert a new section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property.

It is proposed to provide that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration, and capital gains shall be computed accordingly under section 48 of the Income-tax Act."

2. Controversy relating to deeming fiction of section 50C addressed by the Tax Reforms Panel

Tax Reforms Panel was set up by the Government to look into the problems faced by a seller when he enters into an agreement to sell the capital asset much before the actual date of transfer of the immovable property and the sale consideration was fixed in such agreement resulting difference in sale consideration causing problems at the time of assessment and the suggestion made by the Panel was accepted by the Government in the Finance Bill, 2016 by way of a proviso to section 50C(1) of the Act to adopt assessed or assessable value by the stamp valuation authority on the date of agreement for the purposes of computing full value of consideration for such transfer, provided the amount of consideration, or a part thereof, has been received by way of an account-payee cheque or account-payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer.

This amendment was made effective from the assessment year 2017-18. However, even this amendment which took care of specific issue of variation in value did not take care of marginal cases where the difference in value was not substantial.

Addressing this Marginal issue in the Finance Bill 2018

3. This issue was addressed to in this Finance Bill by means of an insertion of a proviso to sub-section (1) of section 50C of the Income-tax Act in the following words-(clause 19)

"It is proposed to insert a proviso to sub-section (1) of the said section so as to provide that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five per cent. of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration."

However, realising the importance of inflation, the Government has decided to amend the relevant provision further by raising the difference to ten percent as can be seen below.

Raising the limit to Ten Percent by the Finance Bill 2020

4. The limit is proposed to be raised from five percent to ten percent vide clause 27 in the following words-

"In section 50C of the Income-tax Act, in sub-section (1), in the third proviso, for the words "five per cent.", the words "ten per cent." shall be substituted with effect from the 1st day of April, 2021

Clause 27 of the Bill seeks to amend section 50C of the Income-tax Act relating to special provision for full value of consideration in certain cases. The third proviso to sub-section (1) of the said section provides that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five per cent. of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration. It is proposed to amend the said proviso so as to provide that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and ten per cent. of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration. This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years"

Conclusion.

This amendment, which is a welcome measure, is proposed to be made effective from the 1st day of April, 2021 and shall, accordingly, apply in relation to assessment year 2021-22 and the subsequent years.

However, one is tempted to state that this marginal raise is inadequate and the Government takes care of this every year based on inflation index.