POONAM DHAVALKUMAR SHAH,MUMBAI vs. ADDL. CIT/ACIT/JCIT/ITO -NFAC, MUMBAI

The Assessee has preferred this appeal against the order dated 19.05.2023 impugned herein passed by National Faceless Appeal Centre (NFAC), Delhi {in short ‘NFAC’}/Ld. Commissioner of Income Tax (in short “Ld Commissioner”) u/s 250 of the Income Tax Act 1961 (in short ‘the Act’).

Poonam Dhavalkumar Shah 2. In the instant case, it was observed by the AO that the Assessee has registered an agreement for sale for purchase of Flat No. A/901, Samadhan CHS Ltd. for Rs. 38,78,000/- on 02.08.2017 however, the value calculated by stamp valuation authority for the purpose of stamp duty valuation is Rs. 53, 39,000/- thus there is a difference of Rs. 14,61,000/- between the purchase value and stamp duty value. Consequently, the Assessee was show caused to explain as to why the differential amount should not be taxed u/s 56(2)(x) as income from other sources. The Assessee in response claimed that she has purchased under construction flat on 6th December, 2014 in the joint name of her and Mrs. Ankisha N. Shah, and the registration of property was done on 2nd August 2017. The flat/property was purchased at Rs. 38,78,000/- in the F.Y 2014-15 when the stamp duty value of the property was Rs. 36,35,792/- only so the provisions of section u/s 56(2)(vii)(b) and 56(2)(x) are not applicable in this case.

Poonam Dhavalkumar Shah The AO considered the said claim of the Assessee but not found acceptable and doubted the allotment letter and ultimately made the addition of Rs. 14,61,000/- being the difference between the purchase value and stamp duty value, as per the provisions of section 50C(2) of the Act, as income from other sources by concluding as under:-

“3.7 Thus, form the examination of the allotment letter and agreement to sale, it is evident that the allotment letter is merely a document earmarking a certain property to the assessee even when the same is not in existence. It may again be noted that the construction work is yet to commence at the time of issuance of the alleged allotment letter to the assessee. Sale agreement is different from allotment letter. Sale agreement contains agreed upon terms and conditions between seller and buyer for the sale of property. It also specifies the date by which the transaction will be completed. Sale agreement is a road-map how properly transaction will be completed. Thus, letter of allotment is not a document which transfers any rights per se on to the buyer as there is no property in existence.

“3.7.1 The Letter of Allotment dated: 16-12-2014 as mentioned in the promoter's letter however, the assessee has submitted a letter dated 27.11.2014, cannot be considered as the date of execution of agreement by any stretch of imagination. The proviso to section 56(2)(x) clearly states that where the date of agreement fixing the amount of consideration and the date of registration are not same, the stamp duty value as on the date of agreement may be taken for the purposes of this section. Thus, the Act mentions about the difference in the dates of agreement to sale and the registered sale deed and not about the difference between the allotment letter and agreement to sale. In the instant case the agreement to sale itself was entered into in Aug 2017.

Poonam Dhavalkumar Shah 3.8 Besides, if a mere letter of allotment is to be considered for the purposes of determination of value of consideration of property, then for any transaction builders and developers can issue a letter of allotment back dated with the sole intent of lowering of the value of the property. This would not only help the buyer in saving on the stamp duty as he/she would land up paying lower stamp duty as per the allotment date and the builder will benefit by taking the current market value of the property in cash. All that the buyer would be required to do is pay a token amount and procure an allotment letter.

3.9 It is further mentioned that immovable property is not conveyed by delivery of possession, but by a duly registered deed. Further, it is the date of execution of registered document, not the date of delivery of possession or the date of registration of document which is relevant. In the case of Alapati Venkataramiah Vs. CIT (1965) 57 ITR 185 (SC), CIT VS Podar Cements Pvt.Ltd. (1997)226 ITR 625 (SC), it is held that once the executed documents are registered, the transfer will take place on the date of execution of documents and not on the date of registration of documents. Section 56(2)(x) clearly stipulates that where any immovable property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs.50,000/-, the stamp duty value of such property as exceeds such consideration, shall be chargeable to tax in the hands of the individual or HUF as Income from Other Sources. It is applicable from A.Y.2018-19.

3.10 The facts of this case is squarely covered by the decision of the Hon'ble Mumbai ITAT in the case of Sujauddian Kasimsab 10/06/2019 where identical issue has been adjudicated upon by the Hon'ble Court in favour of Revenue.

3.11 In view of the above discussion, I bring to tax Rs. 14,61,000/-, being the difference between the purchase value and stamp duty value as per the provisions of section 56(2)(x) as Income from Other Sources.”

Poonam Dhavalkumar Shah 4. On appeal, the ld. Commissioner affirmed the said addition by concluding as under:-

“In this case, the appellant had already paid Rs 10,00,000 on 27.11.2014 when the construction work had not even started. As per the payment schedule mentioned in Agreement to Sale Rs. 10,00,000/- is to be paid on completion of Foundation, UG Tank & plinth 1st and 2nd Slab. However, this payment was made even before the commencement of construction of he said building. Thus, this payment of Rs 10,00,000 is nothing more but EMD. In simple terms, Earnest Money deposit is the amount a buyer pays to show that his interest in a said property is genuine. The Earnest Money deposit is also known as a binder, token money or good-faith deposit.

Thus, form the examination of the allotment letter and agreement to sale, it is evident that the allotment letter is merely a document earmarking a certain property to the assessee even when the same is not in existence. It may again be noted that the construction work is yet to commence at the time of issuance of the alleged allotment letter to the assessee Sale agreement is different from allotment letter. Sale agreement contains agreed upon terms and conditions between seller and buyer for the sale of property. It also specifies the date by which the transaction will be completed. Sale agreement is a road-map how properly transaction will be completed. Thus, the letter of allotment is not a document which transfers any rights per se on to the buyer as there is no property in existence.

In light of the above discussion and respectfully following the judgement cited above, the action of the AO taxing Rs.14,61,000/-, being the difference

Poonam Dhavalkumar Shah between the purchase value and stamp duty value as per the provisions of section 56(2)(x) as Income from Other Sources is upheld.

In the result, the appeal is dismissed.”

(x) where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,- (a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum; (b) any immovable property.- (A) without consideration, the stamp duty value of which exceeds fifty thousand rupees the stamp duty value of such property: (B) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees the stamp duty value of such property as exceeds such consideration:

Poonam Dhavalkumar Shah Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause :

Provided further that the provisions of the first proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of agreement for transfer of such immovable property:

Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under those sections;

(c) any property, other than immovable property,- (A) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (B) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration 6.1 Though the authorities below perused and considered the provisions of section 56(2)(x)(b) of the Act, however failed to Poonam Dhavalkumar Shah consider First proviso to section 56(2)(x)(b) of the Act which specifies “where the date of agreement fixing the amount of consideration for transfer of immovable property and date of registration are not the same, then the stamp duty value on the date of agreement may be taken for the purposes of this provision”. In the instant case the authorities below, considered the issue “as to whether the allotment letter can be equated with the legally enforceable agreement” and ultimately declined to entertain the allotment letter as the agreement fixing amount for consideration under the provision of section 56(2)(x)(b) of the Act. Controversy with regard to the treatment of allotment letter as “Agreement fixing the sale price” has been considered by various courts including by the Hon’ble jurisdictional High Court in the case of in the case of PCIT-3 Vs. Vembo Vaidyanathan (2019) 261 taxman 376 (Bom.) wherein the Hon’ble Court dealt with the identical issue and approved the acquisition of property from the date of “letter of allotment” and infact directly or indirectly given sanctity to the letter of allotment” by holding as under: “Issue raised by the revenue in its appeal before the Hon'ble High Court was, as to whether the Tribunal was justified in reckoning the acquisition of the property from the date of letter of allotment which though did not lead to creation of any proper and effective right over the capital asset, and not from the date on which the agreement" which spelled out the exact terms and conditions for acquisition was executed. It was observed by the Hon'ble High Court, that the CBDT vide its Circular No. 471, dated 15.10.1996 had clarified that when an Assessee purchases a flat to be constructed by Delhi Development Authority (D.D.A) for which allotment letter is issued, date of such allotment would be the relevant date for the purpose of capital gain tax as the date of acquisition. Further, referring to the clarification issued by the CBDT, vide its Circular No. 672, dated 16.12.1993, it was observed by the Hon'ble High Court, that the Board had clarified that if the terms of the schemes of allotment and construction of flats/houses by the co-operative societies or other institutions were Poonam Dhavalkumar Shah similar to the terms of allotment and construction by D.D.A, then on the same basis the acquisition of the property was to be related to the date on which the allotment letter was issued. On the basis of its aforesaid observations, the Hon'ble High Court had dismissed the appeal of the revenue. In the backdrop of our aforesaid deliberations, we are of the considered view that as no infirmity emerges from the order of the CIT(A), who we find had rightly concluded that the date of acquisition of the property under consideration was to be reckoned from the date of the allotment letter i.e. 03.12.1999, therefore, we uphold his order.”

6.2 The Hon’ble Punjab & Haryana High Court, Chandigarh in the case of Ms. Madhu Kaul Vs. CIT, Chandigarh (ITA No. 89/1999 decided on 17.01.2014) also dealt with the allotment letter, for determining the Long Term Capital Gain and by holding that the payment of balance installments, identification of particular flat and delivery of possession are consequential acts that relate back to and arise from the rights conferred by the “allotment letter”, determined as under:

“13. On careful reading of the Circular issued by the Board, para 2 thereof describes the nature of right that an allottee acquires on allotment of flat under Self-Financing Scheme. According to it, the allottee gets title to the property on the issuance of an allotment letter and the payment of installments is only a consequential action upon which the delivery of possession flows. Admittedly, the flat was allotted to the appellant on 07.06.1986, vide letter conveyed to the Assessee on 30.06.1986. The Assessee paid the first installment on 04.07.1986, thereby conferring a right upon the appellant to hold a flat, which was later identified and possession delivered on a later date. The mere fact that possession was delivered later, does not detract from the fact that the allottee was conferred a right to hold property on issuance of an allotment letter. The payment of balance installments, identification of a particular flat and delivery of possession are consequential acts, that relate back to and arise from the rights conferred by the allotment letter. In view of what has been recorded hereinabove, we have no hesitation in holding that the Income Tax Appellate Tribunal has erred in holding that the transaction does not envisage a long term capital gain. Consequently, we allow

Poonam Dhavalkumar Shah the appeal, set aside order dated 15.02.1999 and answer the substantial questions of law in favour of the Assessee.”

6.3 On the aforesaid analyzations and the dictum laid down by the Hon’ble High Courts, I do not have any hesitation to hold that for consideration of the holding period of the property or for determination of LTCG, the date of the “allotment of property” is also paramount and the payment of installments/consideration, delivery of possession etc. are infact consequential acts in pursuance to allotment letter and/or originates from the date of allotment and “allotment letter” if confirms the allotment and having essential constituents of a Contract and confers any rights per se on to the buyer, etc., then the same can be considered for determining the stamp duty value u/s 56(2)(x) and for the purpose of section 50C of the Act, which in the instant case appears to be so, hence simply on the assumption “ if a mere letter of allotment is to be considered for the purposes of determination of value of consideration of property, then for any transaction builders and developers can issue a letter of allotment back dated with the sole intent of lowering of the value of the property” as assumed by the AO, the letter of Allotment cannot be brushed aside specifically under the facts of this case, as in pursuance to the Allotment letter, payment of installments has been made and finally Sale Deed has been executed, hence I am inclined to entertain the ” allotment letter and date of allotment letter ” as relevant for determining the stamp duty value u/s 50C & 56(2)(x) of the Act. Consequently the addition under consideration is deleted.