om namo saraswati devi - acaekolkata.orgacaekolkata.org/files/216201652133.pdf · page 5...

[email protected]***9322507220

Om Namo Saraswati Devi

mailto:[email protected]***9322507220


Welcome to all Members


Critical Issues on Taxation of Real Estate Transactions By CA Bhupendra Shah*****9322507220

[email protected]

[email protected]

3/601, Navjivan Society, Lamington Road, Mumbai-400008

mailto:[email protected]

mailto:[email protected]


Major changes by Finance Act, 2013

►Transfer of immovable property in certain

cases [ Section 43CA]

► Immovable property received for inadequate

consideration [Section 56(2)(VII)(B)]

► TDS on transfer on certain immovable

properties other than agricultural land [Section

194IA]

► Additional deduction of interest on housing

loan [Section 80EE]



Amendments made in Form 3CD for Tax Audit Report, w.e.f. A.Y. 2014-15

► Transfer of land/building for less than stamp duty value: Details of land

or building transferred by assessee for less than stamp duty value (under

section 43CA or under section 50C) shall be reported in new Form

3CD [clause 17 of Part B].

► 17. Where any land or building or both is transferred during the

previous year for a consideration less than value adopted or assessed

or assessable by any authority of a State Government referred to

in section 43CA or 50C, please furnish:

► Details of property

► Consideration received or accrued

► Value adopted or assessed or assessable


http://www.taxmanagementindia.com/visitor/detail_act.asp?ID=17930

http://www.taxmanagementindia.com/visitor/detail_act.asp?ID=3611


Fictional taxation of business income on transfer of immovableproperty in certain cases [S. 43CA]

► Where such assets are held as stock-in-trade, the Finance Act, 2013 has enacted section

43CA w.e.f. 1.4.2014, which falls in chapter-IV relating to the computation of Business

Income. (F.Y. 2013-14)

► 43CA is not retrospective ([2013] 38 taxmann.com 195 (Mumbai - Trib.) Neelkamal

Realtors & Erectors India (P.) Ltd.

► Similar to S.50C as applicable for capital gains computation

► 50C does not apply to Stock-in-trade

► Kan Construction & Colonizers (P.) Ltd. [2012] 20 taxmann.com 381/208 Taxman

478

► Neelkamal Realtors & Erectors India (P.) Ltd. (Supra)

► K.R. Palanisamy v. Union of India [2009] 180 Taxman 253 (Mad.)

► Asst CIT v. Excellent Land Developers (P.) Ltd. [2010] 1 ITR (TRIB.) 563

(Delhi)

► Inderlok Hotels 318 ITR (AT) 234 (Mum),

► Thiruvengadam Investments 320 ITR 345 (Mad.)



Capital Asset V/S Stock-in-trade

► "Stock-in-trade" includes all such chattels as are required for the purposes of

being sold or let to hire on a person's trade. [See Stroud's Judicial

Dictionary, 4th Edition, Volume 5, page 2623].

► Stock in trade has been excluded from the definition of capital asset by

section 2(14).

► 43CA applies to transfer of land or building or both held other than as a

capital asset i.e., as a stock-in-trade.



What does 43CA cover?43CA vs 50C

Applies to land or building or both (other than capital asset)

Will include, land, commercial units, residential house, etc.

Continuing controversy on scope of ‘Land or building’ e.g .whether extends to transfer of development rights,

Leasehold/Tenancy rights, etc.

50C does not apply to tenancy rights

ITA No. 1561 / M / 09 [BCAJ] in case of Kishori Gaitonde

Tejinder Singh [147 TTJ 87 (KOL)]

50C does not apply to Transfer of FSI and TDR

Prem Ratan Gupta 31 CCH 384 (Mum)

50C applies to TDR

ARIF A HUSSAIN 45 SOT 257 (MUM)

Chairanjeev Lal Khannavs ITO (Mum.) (Trib.)

50C does not apply to leasehold land

Atul G. Puranik vs. ITO (2011) 132 ITD 499

Pradeep Steel Re-Rolling Mills Pvt. Ltd in ITA No.341/Mum/2010

Shavo Norgren Pvt Ltd 152 TTJ (Mumbai) 482 (matter remanded for finding of leasehold/complete rights)

50C does not apply to booking advance

Yasin Moosa Godil [2012] 20 taxmann.com 424 (Ahd. - Trib.),



What is Transfer u/s 43CA???

► The definition of "transfer" in section 2(47) applies to capital

assets.

► Therefore, that definition will not apply in the context of

section 43CA. Transfer will have to be understood in the

context of Transfer of Property Act.

► 43CA falls under chapter IV, D of Act, viz, under the head

“Profit and Gains of Business or Profession”.

► Therefore, 2(47) cannot apply to 43CA.

► Though word “transfer” has been used in section 43CA but the

same has not been defined therein.



Transfer (Continued…)

In the absence of any allegation or anything else to

indicate that the method of accounting followed by

the assessee results in under-estimation of

profits/net income, it has to be accepted that the

income from the sale of plots accrued to the

assessee only on the date of conveyance and not at

the time of execution of tripartite agreement when

the assessee received consideration.

Realest Builders & Services Ltd [307 ITR 202

(SC)].



Conveyance and Registration

What is the meaning of term “transfer” u/s 43CA, since in terms of

section 2(47), “transfer” is used in relation to Capital Assets, whereas

section 43 CA uses the term “transfer” in relation to an asset (other than a

capital asset)?

Definition of “transfer” as per section 2(47) is confined to “capital

assets”, gains arising out of which is chargeable to tax under the head

“Income from Capital Gains”.

Meaning of “transfer” u/s 43CA has not been defined.

Therefore, the meaning as per the general law i.e., Transfer of Property

Act will apply.

“Transfer” u/s 5 of the Transfer of Property Act, 1882 implies

conveyance of property “in present or in future” by a living person

(including a company or AOP) to himself or to others. Conveyance is

complete by registration of the document in respect of immovable

properties.



Year of Transfer

Suppose a flat is booked in the year 2008-09 and a

part consideration is also received in cheque. The flat

is registered in the F.Y.: 2013-14, whether section

43CA of the Act is applicable?

In the given situation, section 43CA will be

applicable. This is because, the provision is applicable

from the A.Y.:2014-15 in regard to transfer of assets

other than capital assets. Since the flat is registered in

F.Y.: 2013-2014, transfer has also taken place in that

year.



Possession, Completion Certificate and Maintenance Charges

Suppose, a flat is booked in the year 2008-2009 or any

date before 31.03.2012 and a part consideration is also

received in cheque. The possession of the flat is given in

F.Y.: 2011-2012 and maintenance charges are also received

in that year. The flat is registered in the F.Y.: 2013-14,

whether 43CA of the Act is applicable? Whether it makes

any difference, if completion certificate is received after

31.03.13?

Date of registration is important for the purpose of

applicability of section 43CA. Possession and other factors

like completion certificate are irrelevant.



IT : Assessee being a developer of project, profit in its case would arise

only on transfer of title of property and, therefore, receipt of any advance

or booking amount could not be treated as trading receipt of year under

consideration.

[2013] 40 taxmann.com 219 (Gujarat)

HIGH COURT OF GUJARAT

Commissioner of Income-tax-IV

v.

Shivalik Buildwell (P.) Ltd.*


http://www.taxmann.com/topstories/101010000000087188/no-tax-on-receipt-of-booking-amount-by-builder-as-in-his-case-profit-would-arise-only-on-transfer-of-property.aspx


Cancellation of Flat Booking

Suppose, one builder makes an agreement for sale in a newly launched

project at a price of Rs.5,000/- PSF (Market price on that date is Rs.7,000/- ).

Subsequently, the investor cancels the deal and settles the deal at Rs. 7,000/-

PSF and took the difference of Rs. 2,000/- PSF.

Whether the provisions of section 43CA will apply in the above

example?

The provision of section 43CA is not applicable to the stated fact

situation. The fact that the builder has entered into an agreement with

an investor does not result into transfer of land or building. In the

given fact situation, the builder has incurred a loss and the same is

arising out of and in the course of business. As such, the builder can

claim deduction of loss out of his business profits which is allowable

u/s 28. contd….



Cancellation of Flat Booking (contd…..)

What would be the situation if in the above case, the investor instead of

canceling the deal, nominate some other person at the market price of

Rs. 7,000/-?

Nominee becomes the confirming party and the buyer in the

conveyance deed that is ultimately executed and registered.

When the conveyance deed is ultimately executed and registered,

the sale will take place u/s 43CA, deemed sale value will be the

assessable value as per this (SVA) on the date of agreement with the

investor, provided the investor has paid the booking amount by

account payee cheque.

The investor has booked the property at a price lower than the SVA

and he has also pocketed the difference received from the nominee.

In spite of the fact that the difference does not go into the pockets of

the builder, he has to face section 43CA inasmuch as per the sub-

section (3) thereof, the actual value of consideration will have to be

substituted by the SVA on the date of agreement. contd….



Cancellation of Flat Booking (contd…..)

What would be the situation if the investor cancels the deal and

settles for the same amount of Rs. 5,000/-?

If the investor cancels the deal and settles at the same price at

which the property was booked (i.e., at the price less than the

assessable value of the SVA), section 43CA does not come into play.

It can be applied only when there is execution and registration of the

conveyance deed.

Suppose, a builder sells the right in Flat before the construction

is complete – Will the provision of above section be attracted as at

that point of time, the building is not ready for use, so it cannot be

termed as a building, nor does it come under the purview of Land?

The provision of section 43CA cannot be applied where the builder

merely sells the right in flat without entering into sale through the

registered conveyance deed.



Cancellation of Flat booking (continued…)

Suppose, a builder sells the right in Flat before the construction

is complete – Will the provision of above section be attracted

as at that point of time, the building is not ready for use, so it

cannot be termed as a building, nor does it come under the

purview of Land?

As stated earlier, the provision of section 43CA cannot be

applied where the builder merely sells the right in flat

without entering into sale through the registered conveyance

deed.



43CA v/s Purchaser

Suppose, a buyer of a flat, who purchased the right in flat @ Rs.

5,000/- PSF, sells the right in flat to another person at Rs. 6,000/-

PSF before the construction is completed. Will the provisions of

section 43CA be attracted, since there is no building or land which he

is selling, although transfer includes extinguishment of rights u/s 2(

47)?

In the hands of the purchaser of right in a flat, the provision of

section 43CA does not apply. The provision of section 43CA applies to

an asset other than a capital asset, being land or building or both.

This is specifically stated in sub section (1) of section 43CA. It is true

that sale of a right in a capital asset results in extinguishment of right

therein, but it is important to note that “extinguishment of right” is a

form of transfer in relation to a capital asset in terms of section 2(47).

Therefore, in the hands of the buyer of the right in flat, the differential

sum on the sale of right is chargeable to tax as capital gains.



Re-opening etc

Suppose, the Buyer has shown the cost of flat in his Balance Sheet

long back say, in F.Y.: 2005-06 and the developer has also shown the

sale and booked profit in profit & loss account and his return of

income in the said year. Now the flat is getting registered in F.Y.:

2013-14 and the stamp duty value is higher than the sale price even on

the agreement date. I.T. return of either party is not reflecting any

income/loss or any investment in AY 2014-15. Buyer has also taken

benefit u/s 54 in the year of purchase/possession.

Whether the assessing officer can reopen the case for earlier year

for the developer (for considering sec. 43CA) and the buyer for sec.

56(2)(viib) or will do the assessment for the differential price in the

year of registration?

How far it is practically feasible and more so. when the section was

inserted from the AY 2014-15? Contd…..



Re-opening (Continued)……

It is to be clearly understood that the year of

purchase in the hands of the buyer / investor and the

year of sale in the hands of the builder / promoter /

developer need not be the same.

Buyer holds the same as a capital asset and governed

by “transfer” u/s 2(47) (v). Allowing possession of any

immovable property in part performance of a contract

of the nature referred to in section 53A of the Transfer

of Property Act will amount to “transfer” u/s 2(47).

cont…..



Re-opening (Continued……)

Builder / promoter not covered u/s 2(47), but sale / transfer will take place

on the execution and registration of sale deed in his case.

Before introduction of section 2(47), the Hon’ble Supreme Court in CIT

vs. Bhurangya Coal Co. 34 ITR 802 held that in the cases of an

immovable property, transfer takes place only when the sale deed is

concluded and not when the agreement for sale is executed. It is only in

case of movable property that the title passes by delivery.

In the case of Alapati Venkataramiah vs. CIT 57 ITR 185 (SC), this

view was once again reiterated. It was held in the context of section 12B

(corresponding to section 45 of 1961 Act) as under –

“Before section 12B of the 1922 Act, can be attracted, title must pass to

the company by any of the modes mentioned in section 12B, of the 1922

Act i.e., sale, exchange or transfer. It is true that the word ‘transfer’ is

used in addition to the word ‘sale’ but even so, in the context

transfer must mean effective conveyance of the capital asset to the

transferee. Delivery of possession of immovable property cannot by

itself be treated as equivalent to conveyance of the immovable

property.” contd..



Re-opening (Continued……)

If the builder / promoter / developer has already shown

the sale on the basis of handing over of the possession

and agreement in the preceding year(s) and the said

return has been accepted by the department, the

department cannot reopen those assessments as in those

years provision of section 43CA cannot be applied. It may

be noted that there cannot be two sales of the same

transaction.

Re-opening on the basis of change of opinion is not

allowed [Kelvinator of India Ltd. 320 ITR 561 (SC)].



Stamp Duty Value

► Fictional taxation of business income where there is transfer of land and/ or building

held as stock in trade or current asset for consideration less than stamp duty(SD)

value

► SD value to be treated as full value of consideration for computation of business

income

► Taxable as per method of accounting followed by the taxpayer

► In case of difference in date of agreement to transfer and date of registration ,value

determination w.r.t. date of agreement can be adopted if :

► consideration or part thereof received on or before date of agreement by any

mode other than cash Contd…



Stamp Duty Value (Continued…)

► Where taxpayer objects to SD value, he can seek valuation by DVO

► In case, DVO’s valuation is lower than SD, tax authority is bound by DVO’s such lower

valuation. However, where DVO’s valuation is higher than SD, taxation will be w.r.t. SD

value.

► Valuation can be challenged in appeal proceedings

► Provision may not apply to following cases :

► Case of transfer of business undertaking, on slump basis as there is no identifiable

consideration paid in respect of land or building

► Case of contribution of stock in trade to partnership firm, since arguably, consideration is

indeterminable in view of ratio of Sunil Siddharthbhai v. CIT (1985) 156 ITR 509 (SC)], in

particular since section 45(3) applies for capital asset.

► Point need to be considered whether section 56(2)(vii)(b) will get trigerred off, if

introduction is at lower rate that FMV as per tax officer.



Fictional taxation of business income for transfer of immovable property in certain cases [S. 43CA] (A.Y. 2014-15) – Key Issues

► Can a builder, as per fiction of S.43CA, make an entry that consideration has become due, but,

he writes it off as bad debt and claim deduction ??

► Yes, as per TRF Limited (323 ITR 397 SC)

► Can be written off in the same year

► Can difference between fictional value and consideration be treated as business loss??

► Yes, (Harshad J. Choksi 349 ITR 250 [Bom])

► Whether Tax Audit Limit under 44AB and 44AD would include the difference u/s 43CA??

► Yes, being part of Business Income.

► Whether Tax Auditor should report the difference u/s 43CA??

► Yes, under clause 13(e) of form 3CD.

► Whether transaction between 2 builders are covered u/s 43CA??

► 43CA covers builder who is selling but not the builder who is purchasing. Contd…..



Fictional taxation of business income for transfer of immovable property in certain cases [S. 43CA] (A.Y. 2014-15) – Key Issues (contd..)

► Whether bearer cheque will be considered in mode other than cash??

► Yes, but debatable.

► Whether Barter System is covered??

► No, but debatable

► Whether once the income is deemed u/s 43CA, can it be deferred over a period of

project, based on percentage of completion method, as per the AS of The ICAI and

proposed accounting standard in income tax Act, the income from real estate can be

offered to tax on percentage completion method (also known as work in progress

method)??

► Yes, the very concept of percentage completion method means that only.

► AS 9 also requires percentage completion method.

► Whether 43CA can apply to slump sale? No, because not identifiable. Contd….



Fictional taxation of business income for transfer of immovable property in certain cases [S. 43CA] (A.Y. 2014-15) – Key Issues (contd..)

► Whether buyer can claim cost step up who buys the property as stock-in-trade??

► No. Hence results in double taxation in hands of seller and buyer. Buyer can

be taxed u/s 56(2).

► Whether builder can claim increased cost on his purchases as per section

43CA??

► No, matching principle does not apply.

► Whether 43CA applies to old stock or land converted into stock-in-trade u/s

45(2)??

► Yes, but can be contested on the basis of natural justice.

► Can 43CA apply after books are rejected u/s 145??

► No



Retrospective?

Suppose, the Buyer has shown the cost of flat in hisBalance Sheet long back say, in F.Y.: 2005-06 and thedeveloper has also shown the sale and booked profit in profit& loss account and his return of income in the said year.Now the flat is getting registered in F.Y.: 2013-14 and thestamp duty value is higher than the sale price even on theagreement date. I.T. return of either party is not reflectingany income/loss or any investment in AY 2014-15. Buyerhas also taken benefit u/s 54 in the year ofpurchase/possession. Whether the assessing officer canreopen the case for earlier year for the developer (forconsidering sec. 43CA) and the buyer for sec. 56(2)(viib) orwill do the assessment for the differential price in the year ofregistration? How far it is practically feasible and more so.

when the section was inserted from the AY 2014-15?Contd…..



Retrospective? (Continued…)

► The replies are as under –

(a) It is to be clearly understood that the year of purchase in the hands of the

buyer / investor and the year of sale in the hands of the builder / promoter

developer need not be the same.

(b) A person who purchases a property as a capital asset is governed by the

provisions relating to Capital Gains viz., chapter IV, E of the Act. He is also

governed by the definition of the term “transfer” as per section 2(47), which

has been conferred a very wider meaning. Thus, as per clause (v) thereof,

even allowing of the possession of any immovable property to be taken in

part performance of a contract of the nature referred to in section 53A of the

Transfer of Property Act will amount to “transfer”.

► Contd…..




(c) The builder / promoter who is in the real estate business and is showing the income under the head business is not governed by the section 2(47) of the Act. In his hands, the sale / transfer will take place on the execution and registration of sale deed.

In the context of 1922 Act, when the present day wider definition of ‘transfer’ as in section 2(47) was not on the statute book, the Hon’ble Supreme Court in CIT vs. Bhurangya Coal Co. 34 ITR 802 held that in the cases of an immovable property, transfer takes place only when the sale deed is concluded and not when the agreement for sale is executed. It is only in case of movable property that the title passes by delivery. In the case of AlapatiVenkataramiah vs. CIT 57 ITR 185 (SC), this view was once again reiterated. It was held in the context of section 12B (corresponding to section 45 of 1961 Act) as under –

“Before section 12B of the 1922 Act, can be attracted, title must pass to the company by any of the modes mentioned in section 12B, of the 1922 Act i.e., sale, exchange or transfer. It is true that the word ‘transfer’ is used in addition to the word ‘sale’ but even so, in the context transfer must mean effective conveyance of the capital asset to the transferee. Delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of the immovable property.”




(d) Thus, the wider definition of “transfer” u/s. 2(47) is confined to the “Capital Asset” and taxation under the head “Capital Gains”. The same cannot be extended to the determination of income under the head “Business”. It is pertinent to note here that the provision of section 43CA falls under chapter IV, D of Act, which relates to the determination of income under the head “Profit and Gains of Business or Profession”.

Though word “transfer” has been used in section 43CA but the same has not been defined therein. Section 2(47) specifically states that “transfer” defined therein is in relation to “capital asset”.

Therefore, for the purposes of section 43CA, “transfer” has to construed as per the general law which has been discussed in the preceding para.(e) If the builder / promoter / developer has already shown the sale on the basis of handing over of the possession and agreement in the preceding year(s) and the said return has been accepted by the department, the department cannot reopen those assessments as in those years provision of section 43CA cannot be applied. It may be noted that there cannot be two sales of the same transaction.



Proposed Tax on inventory of Builders



UNSOLD FLATS OF BUILDERS

► In the case of Azimganj Estates (P.) Ltd. [372 ITR 243 (Calcutta)(MAG.)] it

was held that, “Where assessee-property dealer, disclosed rental income

derived from letting out of unsold flats as 'income from house property',

rental income could not be treated as business income merely because

assessee in wealth tax proceedings claimed said unsold flats is its stock-in-

trade.”

► Further in the case of Ansal Housing and Construction Ltd. [220 Taxman

157 (Delhi)(MAG.)] it was held that, “Assessee-construction company is

liable to pay tax on annual letting value of unsold flats owned by it as income

from house property.”

► Not Followed in the case of C.R. Developments Pvt Ltd [ITA

No.4277/Mum/2012 ]



► RECENT ISSUES ON TAXATION OF IMMOVABLE PROPERTY

FOR INADEQUATE CONSIDERATION. [S. 56(2)(vii)(b)]



Taxability in case of receipt of immovable property for inadequate consideration [S. 56(2)(vii)(b)](A.Y. 2014-15)

► Section expanded to cover cases of receipt of immovable property by

individual or HUF for inadequate consideration (i.e. for consideration lower

than SD value by more than INR 50,000)

► Difference between the SD value and agreed consideration to be taxed as

income from other sources

► In case of difference in date of agreement to transfer and date of registration

,value can be determination w.r.t. date of agreement if :

► consideration or part thereof received on or before date of agreement by

any mode other than cash

► Reincarnation of provision introduced vide Finance (No. 2) Bill, 2009*

► Withdrawn by Finance Act 2010 with retrospective date, releasing

hardship due to issue of time gap between date of booking and date of

registration



Taxability in case of receipt of immovable property for inadequate consideration [S. 56(2)(vii)(b)](w.e.f. 1st April 2014)

► Applies to immovable property being land or building or both (which is a

capital asset)

► Will include land including agricultural land , commercial units, residential

house, etc.

► Continuing controversy on scope of ‘Land or building’ such as :

► Whether extends to transfer of development rights, Leasehold /Tenancy

rights etc,?

► Whether covers transactions involving shares in a co-op society?

► On account of existing exemption provisions dealing with gift taxation, the

receipt of property from relatives or on occasion for marriage etc. will continue

to be protected

► Cost step up available to transferee w.r.t. value which is taken into account for

determining taxability under S.56(2)(vii)(b)[Refer, S.49(4)]



Taxability in case of receipt of immovable property for inadequate consideration [S. 56(2)(vii)(b)](w.e.f. 1st April 2014) - Key Issues

► Double taxation of the same income in the hands of two different person

i.e. section 43CA or in section 50C and be taxed as IFOS under section

56(2)(vii) of the Act. Like it will be taxed in the hands of developer and

under section 56 in the hands of purchaser.

► Whether 56(2)(vii)(b) can apply if the sale is pursuant to court monitored

auction or pursuant to Debts Recovery Tribunal process or sale is by

Union/State Government to recover tax dues?

► Debatable, but No.

► Whether allotment letter issued to buyer constitutes ‘agreement’ for

purposes of 43CA and 56(2)(vii)(b)? What if formal agreement is delayed

due to regulatory restriction or court disputes?

► Debatable, but No.



Recent Issues on TDS u/s 194IA



What is the Effective date of TDS??

01/06/2013

Who has to pay TDS??

Any Purchaser

Applicability of this section to all persons even if not subject to tax audit

Who is the Transferee??

Transferee’ includes individual, firms, company, HUF, builder as purchaser, etc.

Transfer between relatives and family members also covered

Is Non Resident Buyer liable to deduct TDS??

Yes

Is Non Resident Seller covered u/s 194IA??

No, Non Resident is covered u/s 195.

Is Barter Exchange of Property covered u/s 194IA??

Yes.

Contd…

TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013)



What is the limit u/s 194IA??

Rs. 50 lacs and above.

What is the consideration u/s 194IA??

‘TDS with respect to actual consideration – though, seller may have implication

under S.50C or S.43CA or even where seller has exempt capital gains .

In case of dealing between joint buyers and joint seller, what is the position

u/s 194IA??

Qua Property

Whether the limit applies qua each joint seller or qua property??

Qua property

Whether agricultural land is covered u/s 194IA??

No.

Whether section194IA applies to Builders??

Yes. Contd…

TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013) (Continued….)



In which year the credit of TDS can be claimed??

As per section 199 (read with Rule 37BA) of the Income Tax Act, a person can

avail credit of TDS in the year in which the income is assessable. In case of Real

Estate Developers, who is following project completion method and recognized

the revenue only when the project gets completed, claiming of TDS refund in the

year of completion will be a procedural nightmare. They have to claim the TDS

refund on each year during the construction stage.

Is TDS applicable when seller is claiming exemption u/s 54, 54EC, 54F??

They have to claim refund by filing the return of income

Is there any provision for facility of lower or NIL deduction?

No. Contd…

TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013) (Continued….)



TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013) (continued…)

► Tax withholding @1% on payment by transferee to resident transferor by way of

consideration for transfer of immoveable property

► Intent is to collect tax at the earliest and to secure reporting of transactions

► S.206AA may require TDS @20% if seller does not furnish PAN

► Should the buyer need to comply with TDS provisions if the agreement is entered

before 1st June 2013 but the payments are made after 1st June 2013? What if when

part payment has been made on or before the agreement date and agreement was

made after 1st June 2013?

► Debatable, but yes

► What if the part payment is made before 1st June and balance is paid after 1st June?

Whether TDS to be deducted on the entire amount or the balance amount?

► Debatable, but yes.

► What are the Forms no??

► 16B for buyer, 26QB for seller

► What is the procedure u/s 194IA??

► https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

Contd…..


https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp


TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013) (continued…)► Similar proposal in Finance Bill 2012 withdrawn at enactment stage due to additional compliance burden

issue

► Immovable property is defined to mean land (other than agricultural land) or building or part of building

► Immovable property could be commercial units, residential house, etc.

► Applies also to property sold as stock in trade of developer.

► Continuing controversy on scope of ‘Land or building’ such as:

► whether extends to transfer of leasehold/tenancy rights?

► whether covers transactions involving shares in a co-op. society?

► Whether slump sale is covered??

► Case of transfer of business undertaking on slump basis as there is no identifiable consideration paid

in respect of immovable property

► Whether Flat booking is a property?

► Right in property is not property u/s 53A.

► What is the procedure of claiming refund on Flat booking OR cancellation?

► In case of cancellation of transaction / booking, procedure of claiming refund has not been

prescribed.

Contd….



TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013) (continued…)

► Property as per court order?

► If no PAN, 20% TDS, bur form wants PAN u/s 206AA

► Is Property acquired under compulsory acquisition covered??

► No.

► What if Payment is made by instalments?

► Each time tds

► Whether EMI paid to banks etc is covered??

► When to deduct? Each time or beginning? Normally banks and financial

institutions are exempt from the purview of tax deduction u/s 194-A of Income

Tax Act, 1961. However in the section u/s 194-IA there is no such provision.

Contd….



TDS on Immovable property transaction (S.194IA)(w.e.f. 1 June 2013) (continued…)► What is the Penalty for non deduction of TDS??

► As per section 201, In case assessee fails to comply with the procedural guidelines of TDS provisions

[deduction or payment], then the assessee will be treated as an assessee in default.

► As per section 201(1A), in case of failure to deduct Tax or short deduction of TDS, interest @1% will be

levied for every month or part of the month, on the amount of tax, from the date on which tax was

deductible to the date on which the same is deducted. Further, when the buyer has failed to deposit

wholly or partly tax so deducted, Interest @1.5% will be levied, for every month or part of the month, on

the amount of tax, from the date of deduction till the date of actual payment.

► As per section 271C of the Income Tax Act, penalty for non deduction / non-payment of TDS are equal

to the amount of Tax which the assessee failed to deduct or pay [This penalty shall be imposed b the joint

commissioner]. Further, Sec 221 provides for penalty to be paid as directed by the assessing officer

which shall not exceed the amount of TDS.

► Builders collecting full sum??

► Still liability of buyer remains



Additional Interest deduction for Buyers of New Home (S. 80EE) (For A.Y. 2014-15 and 2015-16)

► One time interest deduction on home loan from Financial

Institutions (FIs) sanctioned during period 1 April 2013 to 31 March

2014.

► One time deduction under s. 80EE to be in addition to (or

independent of) deduction of INR 1.5 L in s. 24(b).

► Eligibility conditions :

► Borrowing from FI or housing finance company for acquisition of a residential

house property

► The Taxpayer should not own any residential house property on the date of

sanction of loan

► Sanctioned loan amount not to exceed INR 25 L

► Value of residential property (and not the consideration) not to exceed INR 40 L

► There could be litigation on meaning of “value”.

Continued…



Additional Interest deduction for Buyers of New Home (S. 80EE) (For A.Y. 2014-15 and 2015-16) (Continued…)

► House could be under construction: possession not

pre-requisite

► No condition on self occupation; even let out house

eligible

► Deduction, if it remains under utilized due to

inadequate interest liability in A.Y. 2014-15, shortfall

is allowed in A.Y. 2015-16

► Deduction can be effectively enjoyed in A.Y.

2014-15 if interest is payable > INR 2.5 L.



Additional Interest deduction for Buyers of New Home (S. 80EE) (For A.Y. 2014-15 and 2015-16) – Key Issues

► ‘Value’ of property not defined. Controversy may arise whether or not

to include VAT, Service Tax, Stamp duty, Society entrance fees, etc.

► Whether loan borrowed for repaying existing home loan will qualify?

► Benefit should be extended to housing loans availed from

employer

► Salary TDS Circular should permit employer to consider 80EE

deduction for Salary TDS purpose

► It is also recommended that, that the existing upper limit/

deduction should be raised to Rs 2,50,000, so that actual benefit

flows to the taxpayer. By restricting the deduction by imposing

conditions would not serve the purpose of benefiting the

taxpayers



Recent Issues on JDA, FSI and Accrual of Capital Gain



JOINT DEVELOPMENT AGREEMENTS

► In the case of Bertha T. Almeida [[2015] 229 Taxman 159 (Bombay)]

it was held that, “Where developer took possession of assessee's land

and started development work, said transaction was to be treated as

transfer of right in property covered under section 2(47)(v)

► In the case of Sadia Shaikh [Appeal 11 & 12 of 2013] [Bom HC]it

was held that, “Where the agreement only permits the development to

be carried out by the developers while entire control over the property

is retained by the owner inasmuch as the license to construct and

occupancy certificate are given in the name of owner, mere execution

of agreement would not amount to transfer under section 2(47)(v) in

the absence of possession as contemplated under section 53A of the

Transfer of Property Act.” 6/21/[email protected]***9

3225072205

2



ACCRUAL AND FSI

► In the case of ANANT CHUNILAL KATE vs. INCOME TAX OFFICER, (2004) 187 CTR

(Bom) 93 : (2004) 267 ITR 482 (Bom) : (2004) 136 TAXMAN 527 it was held that,

“Income* Accrual* Right to receive amount in dispute* Assessee entered into an

agreement with P to purchase a piece of agricultural land and sold 17 out of 23 plots of

said land* Following a dispute between the assessee and P the High Court passed a

compromise decree on the basis of the terms of compromise entered into by the parties*

Admittedly, P did not execute sale deed in favour of the assessee and, therefore,

assessee did not become lawful owner of the land agreed to be sold in his favour* Assessee

had no legal right to sell the plots* By way of compromise decree, assessee was to return

the sale proceeds of plots to P and was to receive back his earnest money* Therefore, right

to receive payment was in dispute and the sale proceeds cannot be added to the income of

the assessee.”

► In the case of Dinesh D. Rankha v. Commissioner of Income-tax, Bangalore [[2016] 69

taxmann.com 118 (SC)] it was held that, “SLP dismissed against High Court's ruling that

where assessee surrendered FAR to developer in respect of remaining land kept for his

personal use and received consideration, same would amount to transfer within definition

of section 2(47).”

6/21/[email protected]***9

3225072205

3



DEVELOPMENT AGREEMENTS

► Development agreements in real estate sector are quite popular. Taxation of the same has

provided interesting set of judicial disputes. It remains to be an intriguing issue equally

for landowners, builders/developers and revenue department and judiciary. Recently, we

had two important rulings relating to taxation of development agreements - one from

Andhra Pradesh High Court and the other from the Hyderabad Tribunal which lay down

important principles regarding taxation of development agreements. Whilst Hyderabad

Tribunal in Binjusaria Properties (P.) Ltd. v. Asstt. CIT1 (hereinafter Binjusaria) held

that where the developer had not performed his part of the contract even if possession

was handed over and advance received, development agreement would not amount to

'transfer' for the purposes of capital gains. The Andhra Pradesh High Court in Potla

Nageswara Rao v. Dy. CIT2 (hereinafter Potla Nageshwar Rao) held that handing over

of possession under a development agreement amounts to transfer and capital gains are

chargeable even where payment of consideration is deferred for a future date. Before

proceeding with the analysis of these judgments it would be worthwhile to be acquainted

with a brief history of the controversy involving developmental agreements.

6/21/[email protected]***9

32250722054



INCOME FROM HOUSE PROPERTY V/S BUSINESS INCOME

► Recently, in the case of Chennai Properties &

Investments Ltd. [[2015] 373 ITR 673 (SC)] it was

held that, “Where in terms of memorandum of

association, main object of assessee-company was to

acquire properties and earn income by letting out

same, said income was to be brought to tax as business

income and not as income from house property.”

► Shambhu Investments Pvt. Ltd. (2003) 263 ITR 143

(SC)- not followed.



Issues for consideration

6/21/2016


http://images.google.co.in/imgres?imgurl=http://readerszone.com/wp-content/uploads/Logo/search_logo_readerszone.jpg&imgrefurl=http://readerszone.com/page/59&usg=__WJrCSa25fF9uYwbnZ9wZBBSDbag=&h=300&w=300&sz=38&hl=en&start=5&um=1&tbnid=_HFgbTp2q9sMsM:&tbnh=116&tbnw=116&prev=/images?q=queries&um=1&hl=en&sa=X

http://images.google.co.in/imgres?imgurl=http://readerszone.com/wp-content/uploads/Logo/search_logo_readerszone.jpg&imgrefurl=http://readerszone.com/page/59&usg=__WJrCSa25fF9uYwbnZ9wZBBSDbag=&h=300&w=300&sz=38&hl=en&start=5&um=1&tbnid=_HFgbTp2q9sMsM:&tbnh=116&tbnw=116&prev=/images?q=queries&um=1&hl=en&sa=X


Queries please?????????????

► ????????????????

6/21/2016


[email protected]***93225072206/21/2016


om namo saraswati devi - acaekolkata.orgacaekolkata.org/files/216201652133.pdf · page 5...

Documents