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Sale or Gift of the PU Land by the builder & Developer vis a vis Section 43CA
Section 43CA provides for notional taxation in the hands of the Builders/Developers if such builder / developers transfer the immoveable property below its stamp duty valuation / Ready reckoner value.
Section 43CA of the Income Tax Act-1961 reads as under:
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 6[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 computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration:
7[Provided further that in case of transfer of an asset, being a residential unit, the provisions of this proviso shall have the effect as if for the words “one hundred and ten per cent”, the words “one hundred and twenty per cent” had been substituted, if the following conditions are satisfied, namely:—
(i) the transfer of such residential unit takes place during the period beginning from the 12th day of November, 2020 and ending on the 30th day of June, 2021;
(ii) such transfer is by way of first time allotment of the residential unit to any person; and
(iii) the consideration received or accruing as a result of such transfer does not exceed two crore rupees.]
(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 or through such other electronic mode as may be prescribed8 on or before the date of agreement for transfer of the asset.
9[Explanation.—For the purposes of this section, “residential unit” means an independent housing unit with separate facilities for living, cooking and sanitary requirement, distinctly separated from other residential units within the building, which is directly accessible from an outer door or through an interior door in a shared hallway and not by walking through the living space of another household.]
Section 43CA doesn’t provide for any exception & as such all the transaction of transfer of immoveable property below its stamp duty valuation is liable for notional taxation U/s 43CA of the Income Tax Act-1961.
The question often arises whether the provision of section 43CA will be applicable if the builder or developers gifts the plots or flats (i.e., stock in trade) to any person without any consideration? Often the Builder / Developers gifts the PU Land (i.e., Public Utility Land) to the trusts or other institutions engaged in the noble charitable cause.
Even there are instances wherein the gift of land/flat/shop (Not PU Land) is being done by the builder and developer so as to resolve the litigation / disputes in the property?
In all above cases, the issue of taxation vis a vis section 43CA is very vital. The issue arises for the reason that section 43CA uses the word “adopted or assessed or assessable” which means that even if the sale consideration received is zero then also the stamp duty valuation would be relevant and section 43CA would be applicable.
Ideally, in case of gift, the builder or developer will not be receiving any consideration on transfer of the plots or flats. Since the provision of section 43CA will be applicable to the builder/developer, the stamp duty valuation of the property which is considered as “full value consideration” for the purpose of section 43CA can be treated as “Sales Promotion Expenses” by the builder. It can then be claimed as deduction U/s 37 if the gift is done to the charitable trust or institutions for charitable purposes. Obviously, the gift of the plots/PU Land by the builder to the trust would benefit the builder
(a) in selling the balance plot at a higher rate or
(b) will enable builder to sale the left out plot by pointing out the activity to be undertaken by the trust over PU Land or
(c) may help the builder in the new scheme launching, etc.
If the gift is done by the builder or developer as a matter of disputes resolution to any person (not charitable trust) then also the same can be claimed as deduction U/s 37 by giving the expenses head the title of “Settlement Expenses A/c” or “Litigation settlement Expenses A/c”.
Taxation in the hands of the Recipient:
The applicability of section 56(2)(x) provides for the taxation in the hands of the recipient if the immovable property is received without any consideration or for a consideration which is lower than its stamp duty valuation. Let us see the taxation in both the above cases from the recipient perspective.
Gift received by Trust:
5th Proviso to section 56(2)(x) provides clear cut immunity from the applicability of section 56 in case of receipt by the trust / institution registered U/s 12AB of the Income Tax Act-1961. In short, the trust registered U/s 12AB of the Income Tax Act-1961 will not be liable for any income tax if it receives the immovable property or PU Land as gift from the builder.
Gift received by person other than Trust:
Section 56(2)(x) do not provides for any exclusion from the applicability of notional taxation in such a case. The recipient in such a case will be liable for notional taxation U/s 56.