Section 43CA for builder & developers vs. section 50C applicable to capital assets

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Section 43CA for builder & developers vs. section 50C applicable to capital assets

Section 50C was applicable only on sale of capital assets. Builders were not requied to pay the tax on actual sale consideration only as stock in trade is not covered by section 50C. To overcome this, Finance Act, 2013 has introduced a new section 43CA in the Income Tax Act, 1961. Section 43CA is applicable from Financial Year 2013-14 & is applicable for taxing the sale of immovable property (land or building or both) held in the nature of stock in trade, in the same way as applicable for immovable property held in the nature of “capital asset” under section 50C of the Act.

Section 43CA reads as under:

“(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 consideration received or accruing as a result of such transfer.”

Provision of section 43CA shall be applicable for ALL the real estate developers and builders who are dealing in real estate properties.

It requires that in case land or building or both, is transferred by a trader/ a real estate developer for a value less than the circle rate or a stamp duty value notified by the stamp duty authority, stamp duty value in such a case shall be deemed to be the full value of the sale consideration to such person and he shall be required to compute his taxable business income by substituting the actual sale consideration with the above mentioned deemed sale consideration.

It may be recalled that Section 50C of the Income Tax Act, 1961 was introduced by Finance Act, 2002 w.e.f 1.4.2003 which prescribes similar provisions in the case of transfer of land or building or both held in the nature of “capital asset”.

Even in certain cases Revenue had extended the applicability of the provision of Section 50C to cover cases of transfer of such immovable property held as stock in trade, i.e. in the hands of real estate developers and builders etc.

However,   Allahabad High Court in the case of CIT vs. Kan Construction And Colonizers P Ltd. 70 DTR 169 (All) and Madras High Court in the case of CIT vs. Thiruvengadam Investments P Ltd. 320 ITR 345 (Mad) held that Section 50C has limited applicability to capital gains’ assessment and can not apply to assessee holding land or building as trader (stock in trade) and assessed for the same under the head “Income from business”.

Now, as per new section 43CA, it is aptly clear that the intent of the provision of Section 50C applicable in the case of “capital asset” has been extended to real estate developer/ builder holding land or building as stock in trade. Above judgement stands overruled by incorporating section 43CA in the Income Tax Act-1961

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