Query 1]

I have a query in Capital Gains. Mr. A enters into an agreement with Mr. B for purchase of an Agricultural land and paid Rs. 8,00,000/- as advance. In 2004, the balance of Rs. 1600000/- was to be paid at the time of registry. Mr. B has made another agreement with Mr. C for the same Land. Both Mr. A & C sued Mr. B for performance of contract. In the year 2012, all the three parties made compromise and Mr. A & C withdraws there case against Mr. B and the land was sold to Mr. D for sale consideration of Rs. 48,00,000/- whereas the Market value of stamp duty purpose was Rs. 140,00,000/-.

The sale consideration of Rs. 48,00,000/- was shared by all the three parties equally (i.e., Mr. A , B &C each receiving Rs.16 Lacs). In addition to his share in the Sale Consideration of Rs. 16 Lacs, Mr. A further received 1/7th share of the same land for which he has made agreement with Mr. B earlier. Mr. A is my client and I want to what will be treatment of these transactions for him? [CA. R*******-s*****.***@gmail.com]


It is indeed a very usual query with many option and alternatives as far the income tax issues are concerned. I have tried to break up the query in various parts to resolve the taxability of income in such cases and have two options which could be considered for working out capital gain tax.


  1. By paying Rs. 8 Lacs, Mr. “A” has acquired a “Right” in the property.
  2. Transfer/surrender / Relinquishment of “Rights” in a capital assets rise to capital gain & would accordingly attract capital gain tax.
  3. In lieu of surrender of Rights in the property by Mr. A, he has received Rs. 16 Lacs in cash/Cheque and 1/7th Share in the property. To be precise, against Rs. 8 Lacs of Advance paid by Mr. A for acquiring the Right in the property, he has received Rs. 16 Lacs PLUS 1/7th Share in the property.
  4. The total of Rs. 16 Lacs plus market value of the 1/7th Share of the Land could be treated as the sale consideration. The benefit of indexation would be available on Rs. 8 Lacs paid initially for acquiring the Rights in the property. The difference between the sale consideration and the indexed cost of acquisition would be the amount of Long Term Capital Gain.
  5. The market value of the land so added in the sale consideration as mentioned above could be treated as the cost of acquisition in the hands of Mr. A.


The alternate argument could be to treat Rs. 3.42 Lacs [i.e., 1/7th share in the property for an agreed price of Rs. 24 Lacs (Rs. 8 Lacs paid initially as advance & Rs. 16 Lacs balance payable at the time of Registry)] as the cost of acquisition of 1/7th share of Land and the difference between Rs. 16 Lacs of amount received by you and indexed value of Rs. 4.58 Lacs (i.e., Rs. 8 Lacs less Rs. 3.42 Lacs) as the amount of long term capital gain.

Query 2]

We are dealing in properties as a broker. Recently, we have been told that the purchaser of the property will also be liable to pay the tax if the property is purchased for an amount lesser than the stamp duty valuation? Is it true? Please elaborate on the provision if it is so? If it is so, from which date it will be applicable? Is it applicable even if the actual price is lesser than the stamp duty valuation? Is there any exception to the rule?

So far, the seller were liable for the tax on the basis of stamp duty valuation if it was higher than the actual sale price. Whether the same rule will be applicable for the seller? If yes, then will it not be harsh & improper?  [NPBA]


Presently, Section 56(2)(vii) taxes the receipts of all moveable properties by Individuals or HUF’s, if it is receive without consideration or it is receive at a consideration less than the fair value.

However, the receipt of any immoveable property is taxable only if its received without consideration (from non-relatives), and is not taxable if it is received for a consideration lesser than the fair value.

By the Finance Bill-2013, it is now proposed to amend the provisions with effect from 01.04.2013 so as to provide that even if the immovable property is received for an inadequate consideration (i.e. the difference between stamp duty valuation and transactions value is more than Rs.50,000/-), then such difference shall be taxable in the hands of the recipient individual or HUF as Income from Other Source.

It is also proposed that where the date of agreement and date of registration are not the same, then the stamp duty valuation may be taken on date of agreement and not transfer in such cases where the amount of consideration or part thereof has been received by any mode other than cash on or before the date of agreement. The existing provision in respect of taxability in the hands of seller remains unchanged.

Now, this, in my view is illogical and harsh and purchasing the property below the stamp duty valuation is taxing now. It would make two people pay tax on the same transaction. If the seller has transferred immovable property at a price lower than the to stamp duty valuation, then the seller would pay tax based on stamp duty valuation & on the other side, even the buyer is made to pay tax on the difference between the stamp duty valuation & actual purchase price of the property. One more harsh part of the provision is that the cost of acquisition in the hands of the buyer would be the actual purchase price and not the stamp duty value of the property.