Stamp Duty Value Increase Post Land Conversion Paid by Buyer Cannot Trigger Section 56(2)(x) Addition

ORDER

Sanjay Garg, Judicial Member. – The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”), dated 08.1 1.2024 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2022-23.

2. The brief facts of the case are that the Assessing Officer (in short, ‘the AO’), during the assessment proceedings, observed that the assessee vide registered sale deed dated 08.06.2021 has purchased land at Okaf – Survey No. 324/1 for a consideration of Rs.4,93,36,000/-. However, as per the registered sale deed, the stamp duty paid on purchase value was Rs.77,96,500/- as per stamp duty paid, the stamp duty value of the said property worked out at Rs. 15,91,12,245/-. Therefore, the AO show caused the assessee vide notice dated 1 1.03.2024 to explain as to why addition of difference of stamp duty value and actual purchase value declared i.e. Rs. 10,97,76,245/- (Rs.15,91,12,245 – Rs. 4,93,36,000) should not be added to the income of the assessee under the head ‘income from other sources’ by invoking provisions of section 56(2)(x) of the Act.

2.1 In response, the assessee submitted that it is engaged in the business of Real Estate Development. The following companies were amalgamated with the assessee company w.e.f. 01.04.2019 vide approval order of the National Company Law Tribunal dated 22.03.2021 and in terms of the said approval order, all the assets and the liabilities of the amalgamated companies have been deemed to be transferred to the assessee w.e.f. 01.04.2019.

2.2. It was submitted that the assessee company during the year had purchased 45 chunks of land from different parties/farmers, out of which, the agreements to sale relating to 35 chunks of land were entered into with the sellers / farmers by the erstwhile amalgamated company, namely, Himalay Darshan Developers (Gujarat) Private Limited, in A.Y. 2017-18; agreement to sale relating to the five lands were entered into by the erstwhile amalgamated company “Citygold Logistics Limited” in A.Y. 201 112. It was the case of the assessee that the agreement to sale were executed for agricultural lands at an agreed value and at the time of execution of the agreements to sale for all the 45 lands, the assessee company (including by the amalgamated companies) had made part payment in advance and the full payment was made at the time of execution of sale deed. The AO accepted the contention of the assessee in respect of 40 lands as the part payment was made to the sellers through banking channel/cheque at the time of execution of respective agreements to sale. However, in respect of 5 lands in question, the assessee submitted that it had made an agreement for purchase for the said 5 chunks of land on 31.03.201 1 for a consideration of Rs.4,93,36,000/- and has also paid Rs.25,332/- in cash at the time of entering into agreement of sale. The assessee contended that the provisions of Section 56(2)(x) were not applicable as the stamp duty value at the time of entering into agreement has to be taken for purpose of taxation.

2.3. The AO, however, was not satisfied with the above contentions of the assessee. He observed that, since the property under consideration was purchased during the financial year 20212022, and the advance payment Rs.25,332/- claimed to be paid was not 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, therefore, the claim of the assessee of taking the consideration at the rate as mentioned in the agreement was not admissible. He, accordingly, invoked the provisions of Section 56(2)(x) of the Act, thereby, made the addition of Rs. 10,97,76,245/- to the income of the assessee under the head ‘income from other sources’.

2.4. Being aggrieved by the said order of the AO, the assessee preferred the appeal before the Ld. CIT(A), however, remained unsuccessful.

3. We have heard the rival contentions of the Ld. Representative of the parties and gone through the record.

3.1 The Ld. Counsel for the assessee has submitted that it is not a simple case where the value adopted by the Stamp Duty Authority was more than the actual consideration paid by the assessee and, therefore, the provisions of Section 56(2)(x) of the Act would be attracted. She has submitted that, in this case, the controversy has arisen due to the change of character of the land from agricultural to non-agricultural. Since, the stamp duty value of non-agricultural land was more than the agricultural land, hence, the AO ignoring the agreement to sale entered by the assessee for the land in question whilst its character was agricultural, has taken the stamp duty value of the land as applicable for non-agricultural land at the time of execution / registration of the sale deed. The Ld. Counsel for the assessee has also contended that since he had been consistently challenging the stamp duty value of the land, therefore, in terms of provisions of Section 56(2)(x) of the Act, the AO / Ld. CIT(A) ought to have referred the valuation of the land to the DVO. She has further, contended, that in fact, there was no increase in the market value of the land because of any development, improvement or commercialisation of the land or in its vicinity, rather, the presumption has been drawn only because of different stamp duty value rates fixed for agricultural and non-agricultural lands.

3.2 The Ld. DR, however, has relied upon the findings of the lower authorities and submitted that the AO has already admitted the claim of the assessee in respect of 40 properties, out of total 45 properties. That since, for the property in question, no advance payment was made through banking channel, hence, the sale consideration cannot be considered as per the terms of agreement to sell. He has also pointed out about certain litigations between the seller and one Saiyad Mohammad Azaruddin from whom the seller, namely, Naishad Dave had purchased the property in question and submitted that the mutation of land from said Saiyad Mohammad Azaruddin to the assessee was cancelled on 14.09.201 1 and, therefore, the seller was not holding good title of the property. He has also contended that the agreement to sale was entered into by Citygold Logistics Limited and not by the assessee.

3.3 The Ld. AR, on the other hand, has explained from the contents of the sale deed dated 08.06.2021, itself, that earlier Saiyad Mohammad Azaruddin Bukhari was the owner and in joint possession of land in question. Said Mr. Saiyad Mohammad Azaruddin Bukhari sold his share to Shri Naishad Dave vide registered sale deed dated 18.09.2010. However, later on, a dispute occurred with the co-sharers, the mutation note of the aforesaid transfer of land was cancelled by the Mamlatdar (Land Revenue Officer) on 14.09.201 1. The seller filed further appeal to the Deputy Collector whereupon the Deputy Collector vide order dated 16.07.2012 ordered to sanction the mutation entry. She, therefore, has submitted that neither there was any dispute nor any raised by the AO, regarding the ownership of the seller. Even the chronology of events including the amalgamation of Citygold Logistics Limited into the assessee company has been explained and that there was no confusion about that.

3.4 Having considered the rival contentions of both the parties, we do not find anything adverse against the assessee so far as the contentions of the Ld. DR regarding the issue of title to the land of the seller or the vesting of rights and liabilities of the amalgamated company into the assessee are concerned. Now, the short issue left for adjudication before us is ‘whether the provisions of Section 56(2)(x) of the Act have been rightly invoked in the case of the assessee for making addition on account of difference in the stamp duty value for non-agricultural land and the purchase consideration of immovable property as mentioned in the sale deed as agreed in the agreement to sale dated 31.03.2011.

3.5 . Before, proceeding further, it is pertinent to mention here that it is not the case of the AO/Department that any consideration over and above the consideration mentioned in the sale deed has exchanged hands. The entire dispute is regarding the applicability of presumption u/s 56(2)(x) of the Act.

3.6 . It has been explained that in the State of Gujarat, there is a prohibition of sale/purchase of agricultural land for non-agricultural purposes and that a non-agriculturist is not allowed to purchase agricultural land. Since, the assessee was not agriculturist and the land was intended to be used for non-agricultural purposes / Real Estate Development, therefore, there was a bar for the sellers to sell the land to the assessee. Therefore, it was agreed that before the execution of the sale deed, the sellers will apply for change of character of the lands from agricultural to non-agricultural, however, all the expenditure, fees or payments will be incurred by the purchasers / assessee. Thereafter, the change of character of all the 45 chunks of lands owned by different parties from agricultural to non-agricultural was allowed by the competent authority / Collector and costs thereof were borne by the assessee. Even as per the policy of the Government, 40% of the area of the lands were retained/taken by the Government and the ownership of the sellers of the lands in question was reduced to 60% of the total lands. However, the assessee had paid the sale consideration as per the agreement of the entire land (100%). Since, the part payment in respect of 40 chunks of land was by way of banking channel/cheque at the time of execution of the agreement to sale, therefore, the AO did not invoke the provisions of section 56(2)(x) of the Act in respect to the said lands. However, since, the part payment in respect of 5 chunks of lands in question, was not by way of banking channel / cheque at the time of execution of the agreement in the year 201 1, therefore, the AO invoked the provisions of Section 56(2)(x) of the Act and added the difference of the sale consideration and stamp duty value into the income of the assessee.

4. Before proceeding further, we deem it appropriate to reproduce the relevant provisions of Section 56(2)(x) of the Act:

56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.

(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :–

………………………………………………

(x) where any person receives, in any previous year, from any person or persons on or after the 1st day ofApril, 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,–

5. Further, the relevant provisions of Section 50C of the Act are reproduced as under:

“50C. (1) ……………………………………………………

(2) Without prejudice to the provisions of sub-section (1), where–

(a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority under sub- section (1) exceeds the fair market value of the property as on the date of transfer;

(b) the value so adopted or assessed or assessable by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Office and…………………………………..”

6. A perusal of the above reproduced provisions of Section 56(2)(x) of the Act reveals that firstly, there is an exception clause that if the assessee proves that the sale consideration was agreed at a lesser rate at the time of entering into the agreement to sale, the addition on the basis of aforesaid presumption u/s 56(2)(x) of the Act shall not be attracted. However, in the case in hand, the agreement in question was executed in the year 201 1 (31.03.201 1), however, the provisions of Section 56(2)(x) of the Act came into force w.e.f. 01.04.2017. The assessee could not have foreseen the insertion of Section 56(2)(x) into the Act to make the part payment by way of banking channel / cheque at the time of execution of the agreement. Further, the presumption of receiving the immovable property of higher market value (taken at the stamp duty value) at a lesser sale consideration, is a rebuttable presumption as the assessee can dispute the same and the AO under the circumstances may refer the matter to the Departmental Valuation Officer (‘DVO’) to assess the market value of the land at the time of sale. Under the circumstances, we have to consider the other evidences available on record to hold as to whether the assessee has been able to rebut the presumption u/s 56(2)(x) of the Act.

6.1 It is undisputed that the assessee in this case has consistently disputed the market value of the land in question. It was the case of the assessee that the higher stamp duty value has been charged only because of the change of character of the land in the land revenue records, otherwise, there was no change or increase in the market value of the land because of any development or improvement of the land in question or in the vicinity. As observed above, the presumption u/s 56(2)(x) as in Section 50C of the Act is rebuttable. In our view, such a presumption can be rebutted not only by referring the matter to the DVO to assess the market value of the property, but also, the assessee may prove his contention with other reliable evidences to show that the market value of the property in question was lesser than the stamp duty value and there may be instances of lesser value owing to certain factors, such as, the property in question being under litigation, ownership disputed or under unauthorized possession of the third party etc. The various courts of law have taken note of such contentions and evidences relied upon by the assessee and have held time and again that if the assessee proves that the market value of the property is as per the consideration mentioned in the sale deed, the presumption u/s 50C or Section 56(2)(x) of the Act will not be attracted.

6.2 The Ld. Counsel for the assessee has drawn our attention to the copy of the sale deed (translated version of which was placed before us) pointing out that the property sold was consistently described as agricultural land, and nowhere mentioned the property as non-agricultural land and that there was repeated mention of the agreement to sale, upon the terms of which, the sale deed was executed. She has further submitted that the application for change of character of land to non-agricultural was moved by the seller Shri Naishad Dave who was eligible to make such application, thereafter, the land was approved as non-agricultural on 04.02.2016 for which premium / fees amounting to Rs.22,20,120/- was paid, which funds were received by him from assessee and its directors and promoters. She in this respect has relied upon the bank statement of the seller Naishad Dave held with The Cosmos Co-operative Bank bearing account no. 058100102974 wherein the source of payment of NA premium is duly reflected.

6.3 The sellers / farmers intended to sell their property because of need of money and also getting a suitable price for their agricultural land. There being no agriculturists ready to purchase their land, they under such compulsion, entered into agreement to sale with non-agriculturist (assessee), with the condition that the purchaser (assessee) will get the character of the land changed in land revenue records as non-agricultural land and, thereafter, to get the sale deed executed. Even, all the expenditure was to be borne by the assessee/purchaser for getting the character of the land changed to non-agricultural land. The character of the land was changed from agricultural to non-agricultural vide order of the Collector / competent authority dated 04.02.2016 and the entire expenditure for such change of character of land was borne by the assessee. The sale deed in question was executed on 08.06.2021, which is much after the conversion of land from agricultural to non-agricultural and the expenses being borne by the assessee, hence, it is evident that the agreement to sale was entered between the parties prior to 04.02.2016. Further, the payment having been made through banking channel to the seller for charges for conversion of land shows that the parties have acted as per the terms of the agreement. Moreover, after change of character as non-agricultural land, the 40% part / area of the land has been retained /taken by the Government and only 60% area returned to the seller, however, the sale deed has been entered as per the original agreement and sale consideration paid of the full (100%) land as per the terms of the agreement. These facts on the file rebuts presumption u/s 56(2)(x) of the Act beyond doubt.

6.4 Even otherwise, it is the market value at which the sale consideration can be presumed by the AO, taking the stamp duty value as the yard stick, for making addition u/s 56(2)(x) of the Act, however, it is not the case of the AO that the market value of the land in question had increased, rather, it is only because the stamp value for transfer of non-agricultural land is higher than the agriculture land, there being no evidence on the file of any improvement or increase in the market value of the land. Section 56(2)(x) of the Act was introduced to stop tax evasion and stop people from transferring money, property, or assets below their true market value by showing regular business or personal transactions as cheap or free gifts. Parliament repealed the Gift Tax Act in October 1998. People started using tax-free gifts to launder black money. So, the government brought gift taxation back inside the Income Tax Act (starting in 2004 and expanding via Section 56(2)(x) in 2017). Instead of taxing the donor, the law now taxes the recipient under “Income from Other Sources ” if the gift value crosses Rs. 50,000 without fair consideration. In the case in hand, even if it is assumed that because of change of character of the land to non-agricultural, there is improvement or addition in the value of the land, even then, the crucial point here is that the cost of improvement has been borne by the prospective purchaser and not the seller. Therefore, it cannot be said that the purchaser has paid less consideration of a land of higher value. The appreciation in value, if any, due to conversion of the land to non-agricultural character has been generated by the buyers investment and, hence, it is not a case of gift or inadequate consideration from the seller.

7. In view of the discussion made above, it is held that invocation of provisions of Section 56(2)(x) of the Act, in this case by the AO, is not justified and the impugned addition made by the AO is not sustainable and, hence, the same is ordered to be deleted.

8. In the result, appeal of the assessee stands allowed.