“circle rate”
The decision most relied on for circle rate is CIT v. Shivakami Co. (P.) Ltd. (159 ITR 71), cited in 133 judgments on BharatTax.
Leading authorities on circle rate
The burden of proving an understatement of consideration or the receipt of 'on-money' lies solely with the Revenue, which must provide cogent evidence of actual receipt of higher consideration, beyond mere estimates or suspicion. Additions cannot be made based on assumptions like differences from circle rates without such evidence.
The amendment introducing a tolerance band (safe harbour) under section 50C, allowing a difference of up to 10% between actual sale consideration and stamp duty valuation, applies retrospectively. If the difference falls within this limit, the actual sale consideration is adopted as the full value of consideration for computing capital gains.
The first and second provisos to Section 50C(1) are retrospective in nature and applicable from the inception of the main section. The third proviso to Section 50C(1) is also retrospective and applies from the same date as the main provision.
The circle rate prevalent at the time of entering into an agreement is to be considered for the purpose of Section 50C, as amendments to this section have been held to be retrospectively applicable.
If a Double Taxation Avoidance Agreement (DTAA) provides for a lower tax rate than Section 206AA, tax at source must be deducted at the lower DTAA rate, even if the non-resident deductee fails to provide their PAN. Section 206AA does not override the beneficial provisions of a DTAA.
When an assessee provides loans to its associated enterprise (AE) using its own funds (not borrowed funds), the arm's length interest rate for such inter-company loans should be determined by considering comparable interest rates like PLR, SBI short-term rate, or LIBOR plus a markup. This principle applies even if the funds were raised through sources like zero per cent optional convertible preferential shares.
The determination of Arm's Length Price (ALP) for international transactions involving debt requires consideration of both the amount on which interest should be charged and the arm's length rate for that interest. Guidelines are provided for computing the ALP of the international transaction of 'debt arising during the course of business.'
The amendment to section 50C(1) of the Income Tax Act, 1961, by inserting the third proviso through the Finance Act, 2018, is curative and applies retrospectively. This means the tolerance band for the difference between sale consideration and stamp duty value, introduced by this amendment, is applicable to earlier assessment years.
