The stamp duty value on the date of the agreement should be considered for Section 56(2)(x) if part of the payment was made at that time through a banking channel.

The stamp duty value on the date of the agreement should be considered for Section 56(2)(x) if part of the payment was made at that time through a banking channel.

Issue

For the purpose of applying the deeming provision of Section 56(2)(x) of the Income-tax Act, 1961, should the stamp duty value be taken on the date of the final registration of a property, or can the value as on the date of the initial agreement to sell be adopted, especially when there is a long gap between the two dates?

Facts

• An assessee purchased a property for a consideration of ₹29.96 lakhs. The property was formally registered on October 30, 2018.
• The stamp duty value on the date of registration was much higher, at ₹1.03 crores.
• Seeing this large difference, the Assessing Officer (AO) invoked Section 56(2)(x)(b) and made an addition of the difference, ₹73.67 lakhs, to the assessee’s income.
• The assessee, however, provided crucial evidence to show that:
  1. The agreement to purchase the property, which fixed the consideration amount, was entered into much earlier, back in 2013.
  2. A substantial part of the consideration, amounting to ₹18.71 lakhs, had already been paid in 2013 by way of account payee cheques.

Decision

The court ruled decisively in favour of the assessee.

• It held that the assessee’s case was squarely and correctly covered by the proviso to Section 56(2)(x) of the Act.
• This proviso is a specific safeguard which states that in a situation where the date of the agreement (which fixes the sale price) and the date of the final registration are not the same, the stamp duty value as on the date of the agreement shall be taken for the purpose of the section.
• The only condition to avail this benefit is that at least some part of the consideration must have been paid on or before the date of the agreement by any mode other than cash (e.g., account payee cheque, bank draft, or electronic clearing system).
• Since the assessee had fulfilled these conditions perfectly, the AO was wrong to use the stamp duty value from the 2018 registration date. The provisions of Section 56(2)(x)(b) were not attracted, and the addition was directed to be deleted.

Key Takeways

1. The “Agreement Date” Proviso is a Critical Safeguard: This proviso is a very important safeguard for property buyers. It is designed to protect them from being unfairly taxed on the notional appreciation in a property’s stamp duty value that might occur between the date they finalize the price (the agreement date) and the date the property is finally registered, which can often be months or even years later.
2. A Non-Cash Part Payment is the Key: To lock in the benefit of the agreement date’s stamp duty value, it is absolutely essential that at least some part of the consideration is paid on or before the date of the agreement through a verifiable banking channel. A purely oral agreement or an agreement backed only by cash payments will not be eligible for this benefit.
3. Locking in the Value: By entering into a formal written agreement and making a part payment through the bank, a buyer effectively “locks in” the stamp duty value of that date for the purpose of the deeming provisions of the Income-tax Act.
4. Recognizing Commercial Reality: This provision recognizes the commercial reality of real estate transactions, where deals are often finalized and part payments are made long before the final legal formalities of registration are completed. It allows the tax treatment to follow the substance of the transaction date.