Why FM should scrap the concept of notional taxation on the basis of ready recknoner value?
Income tax is not always on actual income but also on “deemed income”. Such deemed income don’t have anything to do with the real and actual income. Similarly, such deeming fiction has nothing to do with actual transaction & genuineness of the transactions.
Its impact is all the more harmful when the economy in a slowdown phase or in a correction mode – whether cyclical or structural.
All the efforts taken by the Government for boosting or improving the economy is not showing any sign of improvement.
Circulation of money in the economy is needed for coping up with the slowdown. What the Government should do to make the circulation of money easy. Here are few suggestions./
1. Real Estate Sector has totally been bed ridden in the last few years, more particularly after RERA Laws. The Government need to understand that the real Estate Sector is facing high Liquidity crunch. It is further impacted by THREE important sections in the Income Tax Act -1961 which are Section 43CA, 50C & Section 56 (x) of the Income Tax Act.”
2. Let us know about this three sections:
Section 43CA: Special provision for full value of consideration for transfer of assets other than capital assets in certain cases.
43CA. (1) Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable 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 or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer:
[Provided that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty 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 computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration.]
(2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under sub-section (1).
(3) Where the date of agreement fixing the value of consideration for transfer of the asset and the date of registration of such transfer of asset are not the same, the value referred to in sub-section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement.
(4) The provisions of sub-section (3) shall apply only in a case where the amount of consideration or a part thereof has been received [by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account] 49[or through such other electronic mode as may be prescribed] on or before the date of agreement for transfer of the asset.
From above, one can reasonably understand that only 5% concessions has been given for market value vs ready reckoner rates.
Undeniable fact is that there is high recession in the real estate wherein the market actual rate are at a high discount as compared to the ready recknoner rate. At some places, it is even at 50% of the ready recknoner rate.
Result is obvious. No circulation of the money in the economy. Levy of tax on the basis of artificial income is well against the settled principles of “Real Income” as declared by the Apex Court in a number of cases. Hon’ble Supreme Court have earlier rightly held that the circle rates are merely guidelines and do not have a binding effect on the actual valuation of the immovable property.
1. Paminder Singh and Others Vs. Union of India and others (1995) (5) SCC 310
2. U.P. Jal Nigam, Luknow through its Chairman and another Vs. Kalra Properties (P) Ltd., Lucknow and others (1996) (3) SCC 124
3. Ramesh Chandra Bansal Vs. D.M./Collector Ghaziabad (1999) RD 499
4. P. Ram Reddy & Others Vs. LAO, Hyderabad Urban Development Authority, Hyderabad & Others. (1995) (2) SCC 305,
5. Land Acquisition Officer, Eluru & Others Vs. Jasti Rohani (Smt.) and another (1995) (1) SCC 717,
6. Krishi Utpadan Mandi Samiti, Sahaswan, District Badaun Vs. Moh. Ibrahim and others (2004) (2) AWC 1829 (SC),
7. Union of India Vs. Pramod Gupta (D) by LRs and others (2005) (12) SCC 1 & R.Sai.Bharathi Vs. J.Jayalalitha (2004) (2) SCC 9
Above are some of the cases which have laid down that the Circle Rates are mere guidelines and do not have a binding force.
Section 50C: Section 43CA is applicable if the assets transferred is a stock in trade or not a capital assets whereas Section 50C is applicable if the assets transferred is a capital assets.
Section 43CA & 50C operates in the hands of the seller. The same impact is there in the hands of the buyer by virtue of section 56(2)(x) who are also required to pay tax on notional basis.
For example, Mr Ram has sold a property to Mr Shyam for Rs. 50 Lakh whereas ready reckoner value of the property was Rs. 90 Lakh. In this case, Mr Ram would be required to pay the tax considering sale value as Rs. 90 Lakh and not Rs. 50 Lakh. In addition to Mr. Ram,. Mr Shyam would also be required to pay tax on Rs. 40 Lakh as it is deemed as his income u/s 56(2)(x).
Prior to the amendment permitting concession of 5% difference in ready recknoner value vis a vis actual value, some courts have ruled that deviation up to 15% could be permitted.
What should be done by FM to boos the circulation of money:
To make circulation faster FM must immediately scrap notional and artificial taxation section like section 43CA, Section 50C & Section 56(x) of the Income Tax Act with immediate effect. It will ensure speedy movement of money in the economy and will control the effect of slowdown to some extent. Hope someone is reading in the north block.