Full value of consideration for transfer of immovable property (other than a capital asset)

Introduction

Where consideration received or accruing on account of transfer of land or building (other than a capital asset) is less than the stamp duty value, the value so adopted is deemed to be the full value of consideration received or accruing for the purposes of computing profits and gains from transfer of such asset. However, if the stamp duty value does not exceed 110% of sales consideration, the sales consideration shall not be substituted by the stamp duty value.

1. About

The Act has not defined the term ‘full value of consideration’. Therefore, it has to be understood in commercial sense according to the prevalent usage. It is the amount of consideration received or receivable by the owner of asset in lieu of transfer thereof. Such consideration may be received in cash or in kind. If it is received in kind, then fair market value of such assets is to be taken as full value of consideration.

Adequacy or inadequacy of consideration is not a relevant factor to determine the full value of consideration. It refers to the price bargained for by the parties to the sale. The expression “full value” means the whole price, bargained by the parties without any deduction whatsoever

However, in the cases explained below, the full value of consideration shall be calculated in contrast to the general principle enumerated above:

(a) Transfer of immovable property held as capital asset;

(b) Transfer of immovable property other than a capital asset.

Where an immovable property, being land or building or both, is held as capital asset, the full value of consideration is determination as per provisions of Section 78. If such immovable property is not held as capital asset but as stock-in-trade, the full value of consideration is determined under this provision of Section 53.

2. Transfer of immovable property other than a capital asset

Where consideration received or accruing on account of transfer of land or building (not being a capital asset) is less than the value adopted by Stamp Valuation Authority of State Government, for the purposes of payment of stamp duty in respect of such transfer, the value so adopted is deemed to be the full value of consideration received or accruing for the purposes of computing profits and gains from transfer of such asset.

Where the sale agreement and date of registration are not same, the stamp duty value may be taken as on the date of sales agreement (and not on the date of registration), provided the amount of consideration (or a part thereof) has been received by specified banking or online mode on or before the date of agreement to transfer.

Specified Banking or Online Mode shall mean a transaction by an account payee cheque or an account payee bank draft, or by use of an electronic clearing system through a bank account, or through such other electronic mode as may be prescribed.

2.1. Exception 1: Within Safe-harbour Limit (another period)

If the stamp duty value does not exceed 110% of sales consideration, the sales consideration shall not be substituted by the stamp duty value for the purpose of full value of consideration. In other words, actual sales consideration shall be deemed to be the full value of consideration if stamp duty value does not exceed 110% of actual sales consideration.

Example, the assessee sold a plot of land in Rs. 1 crore but the stamp duty value of such plot of land is Rs. 1.04 crore. The full value of consideration in such case shall be the actual sales consideration of Rs. 1 Crore. However, if the stamp duty value is Rs. 1.11 Crore, the full value of consideration shall be deemed to be Rs. 1.11 crore as it exceeds the actual value of consideration by more than 10%.

2.2. Exception 2: Reference to Valuation Officer

The assessee can apply to the Assessing Officer to not take the value adopted by the stamp valuation authority for the purpose of computing profits and gains from transfer of such asset. Such option can be exercised by the assessee only if stamp value exceeds the fair market value of the property (i.e., price it would ordinarily fetch in the open market) on the date of the transfer, and the assessee has not disputed such value in any appeal before any authority or court. In this case, the Assessing Officer should refer the matter to the Valuation Officer for ascertaining the value of the capital asset.

Where case is referred to the Valuation Officer, ‘full value of consideration’ shall be lower of value ascertained by the Valuation Officer and value adopted by the stamp valuation authority.

[Also see ICDS-III (Construction Contracts)]

References

CIT v. George Henderson & Co. Ltd. (1976) 66 ITR 622 (SC)

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.