QUESTIONS & ANSWERS
Sale price exceeds guideline value — how is it accounted?
I am proposing to sell a property at Rs. 80 lakh, but the guideline value is only Rs. 45 lakh. It is in this context that I would require to have clarifications. My doubt is whether I have to indicate only the guideline value in the sale deed and if permitted to do so, whether I am allowed to credit the real value in my books. What are the consequences if I credit the full value in my books? If I show only the guideline value, as shown in the document, in my books, would I be free from any trouble if I show the real market value as the sale price for tax purposes? Would I have any problem regarding Stamp Act or Income-tax Act? I propose to reinvest the sale proceeds in Bangalore, where I propose to settle down. Will the lower consideration in the registered document come in the way of my availing the exemption under Sec. 54? Since I am entitled to the benefit of indexation what would be the cost price index, if I sell the property before March 31, 2009? I have purchased the property, which is to be sold, before 1981.
The law requires the actual consideration as agreed, whether oral or in writing to be recorded in the sale deed and reckoned for capital gains tax. The guideline value has no relevance at all in this context. All that Sec. 50C requires is to draw a presumption that the guideline value is the real consideration as against the value recorded in the sale document described as apparent consideration. Sec. 50C applies only to a case where the apparent consideration is lower than the real consideration. It is not permissible to show the guideline valuation as the sale price or for that matter any lower value than the real consideration. It would be violation of stamp law because of the lower stamp duty that is paid on the basis of lower consideration recorded in the document.
It is also violation of income-tax law for reporting lower capital gains, if capital gain is reported on the basis of guidelines when the real consideration is higher.
Registering authorities on discovery of real consideration can impound the document at the stage of registration itself and levy ten times the difference between the stamp duty payable and the actual stamp duty on recorded consideration.
Even after registration, stamp authorities can initiate action for collecting this deficit in stamp duty payable and penalty.
Stamp law provides that any under-stamped document can be impounded by a court, if it is produced as evidence. The income-tax authorities have also the powers of the court for this purpose, since all revenue authorities are vested under the stamp law with same powers as the court. The impounded document will be forwarded to the stamp authorities for necessary action. In fact, they are expected to do so. This answers the first query.
If the reader obliges the purchaser to save his stamp duty by understating the consideration, but reports capital gains and pays tax on the basis of real consideration, there is violation only under the stamp law and not under the income-tax law. This answers the second query.
If the entire capital gains with reference to the actual sale proceeds received are reported for income-tax purposes and capital gains computed on that basis, there is no reason why the full amount should not be eligible for reinvestment relief under Sec. 54 or 54EC.
The assessing officer, in fairness, is expected to treat the extra amount offered as part of the sale proceeds to be eligible for relief. However, if the purchaser denies the extra payment and the assessing officer believes him, the extra amount admittedly received may be taxed as income from other sources so that the benefit of reinvestment will be confined only to what is accounted and assessed as capital gains. This answers the third query.
The index number for transactions in 2008-09 is 582. This answers the fourth query.
S. RAJARATNAM
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