The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) ruled that the provisions of Section 56(2)(x) of the Income Tax Act, 1961, do not apply to a property transaction where the agreement was executed before April 1, 2017.
Romell Housing LLP, engaged in real estate development, filed its return of income for the assessment year 2018-19, declaring Nil income. The Deputy Commissioner of Income Tax selected the income tax return for scrutiny, observing that the assessee had purchased four immovable properties during the year at values below the Stamp Duty Authority’s valuation.
The Assessing Officer (AO) invoked Section 56(2)(x) of the Income Tax Act, which taxes the difference between the consideration paid for property and its stamp duty value if the difference exceeds certain thresholds.
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The AO assessed an additional income of Rs. 31.49 crore, arguing that since the assessee LLP came into existence only in 2015, the property’s registration date in April 2017 was crucial, not the date of the agreement in 2010.
Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] arguing that the property acquisition was complete when the agreement was executed on March 31, 2017, before Section 56(2)(x) came into effect, and substantial payments were made before that date.
However, the CIT(A) upheld the AO’s assessment, stating that Section 56(2)(x) applied based on the registration date (April 2017) and noted that the transaction wasn’t reflected in the assessee’s financial statements for FY 2016-17.
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Dissatisfied with the CIT(A)’s ruling, the assessee challenged the order before the ITAT arguing that under Section 47 of the Registration Act, 1908, once a deed is registered, it operates from the date of execution, not from the registration date. Thus, the execution date of March 31, 2017, should be considered placing the transaction outside the scope of Section 56(2)(x).
The assessee’s counsel highlighted that the payments and possession were completed before the introduction of Section 56(2)(x), so the law could not retroactively apply.
The Revenue argued that the assessee LLP did not exist in 2010 and therefore, the stamp duty value from 2010 cannot be applied. The date of registration was the correct date for valuation under Section 56(2)(x), which mandates the use of the stamp duty value on the date of registration.
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The two-member bench comprising Sandeep Singh Karhail (Judicial Member) and Gagan Goyal (Accountant Member) analyzed the legal provisions of Section 56(2)(x), which deals with the stamp duty value to be considered for tax purposes.
The tribunal observed that Section 47 of the Registration Act, 1908, clarifies that a document, once registered, operates from the date of execution, not from the date of registration. Since Romell Housing LLP symbolically received possession and completed payments before 31 March 2017, the transaction predated the enactment of Section 56(2)(x).
The Tribunal relied on the Supreme Court ruling in Kanwar Raj Singh (D) Th. Lrs. vs. Gejo (D) Th.Lrs., which held that a registered sale deed operates from the date of execution if the consideration is paid before registration. The tribunal concluded that the same logic applies to Romell Housing LLP’s transaction, making Section 56(2)(x) inapplicable.
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Therefore, the tribunal held that the provisions of Section 56(2)(x) do not apply to the assessee’s case, as the deed was executed before 1 April 2017 and the addition made by the Assessing Officer under Section 56(2)(x) was deleted.
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