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In a favourable outcome for a non-resident taxpayer who invested in a luxurious apartment in an upscale suburb, the income-tax appellate tribunal (ITAT), Mumbai bench, ruled that the amount of Rs 55.9 lakh, representing the difference between the flat's agreement value and the stamp duty value at the time of registration, should not be treated as taxable income under the category of 'income from other sources'.
Typically, when purchasing a flat, the agreement determines the final purchase price, which is then reflected in the agreement itself. Following the initial payment made during the booking process, the buyer proceeds to make periodic payments over several months. The registration of the flat occurs later, and it is at this point that the stamp duty value is significantly higher. In many cases, income tax officers have considered this disparity in value as taxable income and imposed substantial tax assessments, along with punitive interest charges.
Gautam Nayak, a tax partner at CNK & Associates, confirmed that the ITAT ruling, which deals with Section 56(2)(vii)(b), applies to the amended law, Section 56(2)(x), as the provisions remain similar. The provisos in Section 56(2)(vii)(b) of the Income Tax Act state that if the agreement date and registration date differ, tax authorities can use the stamp duty value on the agreed date for tax purposes, provided the payments were made through banking channels and not in cash. Nayak explained that in this particular case, the ITAT accepted the booking form as evidence of the agreement to purchase the property and the determination of the purchase price. Moreover, since the payments were made through banking channels, the ITAT acknowledged that the purchase consideration exceeded the prevailing stamp duty value.
Initially, the taxpayer did not file an income tax return for the fiscal year 2015-16, presumably due to her income in India falling below the exemption limit. However, reassessment proceedings were initiated based on information about her property purchase. In response to the income tax notice, she filed a tax return declaring a taxable income of only Rs 58,940. Nonetheless, the income tax officer invoked Section 56(2)(vii)(b) and sought to tax Rs 55.9 lakh, which is the variance between the stamp duty value during registration (Rs 4.7 crore) and the agreement value (Rs 4.1 crore).
The dispute ultimately reached the ITAT, where the non-resident taxpayer provided evidence showing that she paid a significant portion of the property price by check at the time of booking and that she made subsequent payments through banking channels. She also provided evidence demonstrating that the stamp duty value on the date of booking was lower than the agreement value. Consequently, the income tax officer cannot uphold the addition made based on the provisions of Section 56(2)(vii)(b) of the Act.
The ITAT, established in January 1941, is a quasi-judicial institution specializing in handling appeals under the Direct Taxes Act. Its orders are final and appeals to the High Court are only allowed if a substantial question of law arises. ITAT is known for providing accessible and affordable justice with expert knowledge of Direct Taxes. It is often referred to as the "Mother Tribunal" due to its status as the oldest Tribunal in the country. Many of its members have held esteemed positions in the judiciary and other important institutions. ITAT has been instrumental in administering justice in the field of Direct Taxes and celebrated its 75th anniversary in January 2016.
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