Blog#21 . Finance Act 2018



Analysis of
Direct Tax Proposals in Finance Act, 2018
24th February, 2018
Gujarat Chamber of Commerce and Industry
&
Agriculture Produce Market Committee,
Mahuva

CA. Mohit Balani 


1. Rates of Taxes : In respect of income of all categories of assessees liable to tax for the assessment year 2018-19, the rates of income-tax have been specified in Part I of the First Schedule to the Bill. These are the same as those laid down in Part III of the First Schedule to the Finance Act, 2017 for the purposes of computation of “advance tax”, deduction of tax at source from “Salaries” and charging of tax payable in certain cases.
A. Individual, Hindu undivided family, association of persons, body of individuals, artificial juridical person.
The amount of income-tax computed in accordance with the preceding provisions of this Paragraph shall be increased by a surcharge at the rate of,—
(i) ten per cent. of such income-tax in case of a person having a total income exceeding fifty lakh rupees but not exceeding one crore rupees; and
(ii) fifteen per cent. of such income-tax in case of a person having a total income exceeding one crore rupees.
However, in case of (i) above, the total amount payable as income-tax and surcharge on total income exceeding fifty lakh rupees but not exceeding one crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of fifty lakh rupees by more than the amount of income that exceeds fifty lakh rupees. Further, in case of (ii) above, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax and surcharge on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. {Marginal Relief shall be granted.}
B. Co-operative Societies
No change in Tax Rates
The amount of income-tax shall be increased by a surcharge at the rate of twelve per cent. of such income-tax in case of a co-operative society having a total income exceeding one crore rupees.
However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. {Marginal Relief shall be granted.}
C. Firms
In the case of firms, the rate of income-tax has been specified in Paragraph C of Part III of the First Schedule to the Bill. This rate will continue to be the same as that specified for financial year 2017-18. {No Change}
The amount of income-tax shall be increased by a surcharge at the rate of twelve per cent. of such income-tax in case of a firm having a total income exceeding one crore rupees. However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. {Marginal Relief shall be granted.}
D. Local authorities
The rate of income-tax in the case of every local authority has been specified in Paragraph D of Part III of the First Schedule to the Bill. This rate will continue to be the same as that specified for the financial year 2017-18. The amount of income-tax shall be increased by a surcharge at the rate of twelve per cent. of such income-tax in case of a local authority having a total income exceeding one crore rupees. However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. {Marginal Relief shall be granted.}
E. Companies
The rates of income-tax in the case of companies have been specified in Paragraph E of Part III of the First Schedule to the Bill. In case of domestic company, the rate of income-tax shall be twenty five per cent. of the total income if the total turnover or gross receipts of the previous year 2016-17 does not exceed two hundred and fifty crore rupees and in all other cases the rate of Income-tax shall be thirty per cent. of the total income.
In the case of company other than domestic company, the rates of tax are the same as those specified for the financial year 2017-18. Surcharge at the rate of seven per cent. shall continue to be levied in case of a domestic company if the total income of the domestic company exceeds one crore rupees but does not exceed ten crore rupees. Surcharge at the rate of twelve per cent. shall continue to be levied if the total income of the domestic company exceeds ten crore rupees. In case of companies other than domestic companies, the existing surcharge of two per cent. shall continue to be levied if the total income exceeds one crore rupees but does not exceed ten crore rupees. Surcharge at the rate of five per cent. shall continue to be levied if the total income of the company other than domestic company exceeds ten crore rupees. However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees but not exceeding ten crore rupees, shall not exceed the total amount payable as income-tax on a total income of one crore rupees, by more than the amount of income that exceeds one crore rupees. The total amount payable as income-tax and surcharge on total income exceeding ten crore rupees, shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees, by more than the amount of income that exceeds ten crore rupees.
In other cases (including sections 115-O, 115QA, 115R, 115TA or 115TD), the surcharge shall be levied at the rate of twelve per cent..
For financial year 2018-19, additional surcharge called the “Health and Education Cess on income-tax” shall be levied at the rate of four per cent. on the amount of tax computed, inclusive of surcharge (wherever applicable), in all cases. No marginal relief shall be available in respect of such cess.

2. Rate of TDS
The rates for deduction of income-tax at source during the financial year 2018-19 from certain incomes other than “Salaries” have been specified in Part II of the First Schedule to the Bill. The rates for all the categories of persons will remain the same as those specified in Part II of the First Schedule to the Finance Act, 2017, for the purposes of deduction of income-tax at source during the financial year 2017-18.
However, in case of long-term capital gain referred to in section 112A of the Act, tax shall now be deducted at source at the rate of 10 per cent.
3. Deduction in respect of income of Farm Producer Companies
S.80PA introduce vide Finance Act, 2018 which read as under :-
80PA.
(1) Where the gross total income of an assessee, being a Producer Company having a total
turnover of less than one hundred crore rupees in any previous year, includes any profits and gains derived from eligible business, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent. of the profits and gains attributable to such business for the previous year relevant to an assessment year commencing on or after the 1st day of April, 2019, but before the 1st day of April, 2025.
(2) In a case where the assessee is entitled also to deduction under any other provision of this
Chapter, the deduction under this section shall be allowed with reference to the income, if any, as referred to in this section included in the gross total income as reduced by the deductions under such other provision of this Chapter.
Explanation.—For the purposes of this section,—
(i) “eligible business” means—
(a) the marketing of agricultural produce grown by the members; or
(b) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to the members; or
(c) the processing of the agricultural produce of the members;
(ii) “member” shall have the meaning assigned to it in clause (d) of section 581A of the Companies Act, 1956;
(iii) “Producer Company” shall have the meaning assigned to it in clause (l) of section 581A of
the Companies Act, 1956.
Explanation
Section 80P provides for 100 percent deduction in respect of profit of cooperative society which provide assistance to its members engaged in primary agricultural activities. It is proposed to extend similar benefit to Farm Producer Companies (FPC), having a total turnover upto Rs 100 Crore, whose gross total income includes any income from-
(i) the marketing of agricultural produce grown by its members, or
(ii) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or
(iii) the processing of the agricultural produce of its members
The benefit shall be available for a period of five years from the financial year 2018-19.This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
4. Start Ups
Section 80-IAC of the Act, inter alia, provides that deduction under this section shall be available to an eligible start-up for three consecutive assessment years out of seven years at the option of the assessee, if-
(i) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019;

(ii) the total turnover of its business does not exceed twenty-five crore rupees in any of the previous years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021; and

(iii) it is engaged in the eligible business which involves innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

Eligible start-up

In order to improve the effectiveness of the scheme for promoting start ups in India, it is proposed to make following changes in the taxation regime for the start ups:—

(i) The benefit would also be available to start ups incorporated on or after the 1st day of April 2019 but before the 1st day of April, 2021;

(ii) The requirement of the turnover not exceeding Rs 25 Crore would apply to seven previous years commencing from the date of incorporation;

(iii) The definition of eligible business has been expanded to provide that the benefit would be available if it is engaged in innovation, development or improvement of products or processes or services, or “a scalable business model with a high potential of employment generation or wealth creation.”

The amendment will take effect, from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years. [Clause 26]

5. S.80JJA. Incentive for employment generation
S.80 JJA Applicability
(i). 44AB applicable
(ii). Includes profit and gains from business
Deduction : 30% of Additional Employee Cost
Period : 3 years starting from the year in which new employment is provided.
What is Additional Employee Cost ?
Total Emoluments paid or Payable to Additional Employees employed during the previous years
Provided that in existing business additional employee cost shall be nil if there is no increase in the total number of employees as compared to last year or emoluments are paid in cash.
What is Additional Employee ?
Explanation (ii) defines
Additional Employee hired but does not include
An employee whose total emoluments are more than Rs.35,000/-.
Employee who have been employed for less than 240 days (150 in case of apparel industry or “Footwear and leather industry”{Amended by Finance Act, 2018 ).
Employee who does not participate in the recognised provident fund.
Emoluments (Explanation (iii)): Any sum paid or payable to an employee but does not includes contribution made by employer in any provident fund and retrenchment compensation.
At present, under section 80-JJAA of the Act, a deduction of 30% is allowed in addition to normal deduction of 100% in respect of emoluments paid to eligible new employees who have been employed for a minimum period of 240 days during the year. However, the minimum period of employment is relaxed to 150 days in the case of apparel industry. In order to encourage creation of new employment, it is proposed to extend this relaxation to footwear and leather industry.
Further, it is also proposed to rationalize this deduction of 30% by allowing the benefit for a new employee who is employed for less than the minimum period during the first year but continues to remain employed for the minimum period in subsequent year.
This amendment will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years. [Clause 27]

6. Tax treatment of transactions in respect of trading in Agricultural commodity derivatives
Clause (5) of section 43 defines speculative transaction. The proviso to the said clause, however, stipulates certain transactions to be non-speculative nature even though the contracts are settled otherwise than by the actual delivery or transfer of the commodity or scraps. The clause (e) to the said proviso provides that trading in commodity derivatives carried out in a recognised stock exchange, which is chargeable to commodity transaction tax is a non-speculative transaction.
Commodity transaction tax (CTT) was introduced vide Finance Act’2013 to bring transactions relating to non-agricultural commodity derivatives under the tax net while keeping the agricultural commodity derivatives exempt from CTT. Since no CTT is paid, the benefit of clause (e) of the proviso to clause (5) of the section 43 is not available to transaction in respect of trading of agricultural commodity derivatives and accordingly, such transactions are held to be speculative transactions.
In order to encourage participation in trading of agricultural commodity derivatives, it is proposed to amend the provisions of clause (5) of section 43 to provide that a transaction in respect of trading of agricultural commodity derivatives, which is not chargeable to CTT, in a registered stock exchange or registered association, will be treated as non-speculative transaction.
These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to assessment year 2019-20 and subsequent assessment years.[Clause 12]

7. Widening Scope of Dividend
Ammendment :
“Explanation 2A.–– In the case of an amalgamated company, the accumulated profits, whether capitalised or not, or loss, as the case may be, shall be increased by the accumulated profits, whether capitalised or not, of the amalgamating company on the date of amalgamation.”
Explanation
 Widening of scope of Accumulated profits for the purposes of Dividend
Section 2 of the Act defines various terms used in the Act. Clause (22) of the said section defines “dividend” to include distribution of accumulated profits (whether capitalized or not) to its shareholders by a company, whether it is in the nature of,—

(a) release of all or any of its assets,

(b) Issue of debentures in any form (with or without interest) or distribution of bonus to its preference shareholders,

(c) distribution of proceeds on liquidation,

(d) on the reduction of capital, or

(e) in the case of an unlisted company, any loan or advance given to a shareholder having shareholding of 10% or above, or to a concern in which such shareholder holds substantial interest (exceeding 20% of shareholding or interest) or any payment by such company on behalf of or for the individual benefit of such shareholder.

Explanation 2 to the said clause provides the definition of the term ‘accumulated profits’ for the purposes of the said clause, as all profits of the company up to the date of distribution or payment or liquidation, subject to certain conditions.

Instances have come to light whereby companies are resorting to abusive arrangements in order to escape liability of paying tax on distributed profits. Under such arrangements, companies with large accumulated profits adopt the amalgamation route to reduce capital and circumvent the provisions of sub-clause (d) of clause (22) of section 2 of the Act. With a view to preventing such abusive arrangements and similar other abusive arrangements, it is proposed to insert a new Explanation 2A in clause (22) of section 2 of the Act to widen the scope of the term ‘accumulated profits’ so as to provide that in the case of an amalgamated company, accumulated profits, whether capitalised or not, or losses as the case may be, shall be increased by the accumulated profits of the amalgamating company, whether capitalized or not, on the date of amalgamation.

3.4 Applicability: This amendment will take effect from 1st April, 2018 and will accordingly apply in relation to assessment year 2018-19 and subsequent assessment years.

8. 115-O. : Application of Dividend Distribution Tax to Deemed Dividend
4.1 Present Section:
1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003, whether out of current or accumulated profits shall be charged to additional income-tax (hereafter referred to as tax on distributed profits) at the rate of fifteen per cent.
Added vide Finance Act, 2018
Provided that in respect of dividend referred to in sub-clause (e) of clause (22) of section 2, this sub-section shall have effect as if for the words “fifteen per cent.”, the words  thirty per cent.” Had been substituted;
(1B) For the purposes of determining the tax on distributed profits payable in accordance with this section, any amount by way of dividends referred to in sub-section (1) as reduced by the amount referred to in sub-section (1A) [hereafter referred to as net distributed profits], shall be increased to such amount as would, after reduction of the tax on such increased amount at the rate specified in sub-section (1), be equal to the net distributed profits.
Added vide Finance Act, 2018
Provided that this sub-section shall not apply in respect of dividend referred to in sub-clause (e) of clause (22) of section 2.”.
After section 115Q of the Income-tax Act, the Explanation shall be omitted
3.2 Explanation
At present dividend distributed by a domestic company is subject to dividend distribution tax payable by such company. However, deemed dividend under sub-clause (e) of clause (22) of section of 2 the Act is taxed in the hands of the recipient at the applicable marginal rate. The taxability of deemed dividend in the hands of recipient has posed serious problem of the collection of the tax liability and has also been the subject matter of extensive litigation.
With a view to bringing clarity and certainty in the taxation of deemed dividends, it is proposed to delete the Explanation to Chapter XII-D occurring after section 115Q of the Act so as to bring deemed dividends also under the scope of dividend distribution tax under section 115-O. Further, such deemed dividend is proposed to be taxed at the rate of 30 per cent. (without grossing up) in order to prevent camouflaging dividend in various ways such as loans and advances.
This amendment relating to imposition of dividend distribution tax on deemed dividend will apply to transactions referred to in sub-clause (e) of clause (22) of section 2 of the Act undertaken on or after 1st April, 2018.
9. New regime for taxation of long-term capital gains on sale of equity shares etc. [Clause 5 & 31]
• Amendment
in clause (38), after the third proviso, the following proviso shall be inserted, namely:—
“Provided also that nothing contained in this clause shall apply to any income arising from the transfer of long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust, made on or after the 1st day of April, 2018”
• Insertion of New Section 112A
After section 112 of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2019, namely:—
‘112A.
(1) Notwithstanding anything contained in section 112, the tax payable by an assessee on his total income shall be determined in accordance with the provisions of sub-section
(2), if—
(i) the total income includes any income chargeable under the head “Capital gains”;
(ii) the capital gains arise from the transfer of a long-term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust;
(iii) securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004 has,—
(a) in a case where the long-term capital asset is in the nature of an equity share in a company,
been paid on acquisition and transfer of such capital asset; or
(b) in a case where the long-term capital asset is in the nature of a unit of an equity oriented
fund or a unit of a business trust, been paid on transfer of such capital asset.
(2) The tax payable by the assessee on the total income referred to in sub-section (1) shall be the aggregate of—
(i) the amount of income-tax calculated on such long-term capital gains exceeding one lakh rupees at the rate of ten per cent.; and
(ii) the amount of income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee:
Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, the long-term capital gains, for the purposes of clause
(i), shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax

• Explanation
Under the existing regime, long term capital gains arising from transfer of long term capital assets, being equity shares of a company or an unit of equity oriented fund or an unit of business trusts , is exempt from income-tax under clause (38) of section 10 of the Act. However, transactions in such long term capital assets carried out on a recognized stock exchange are liable to securities transaction tax (STT). Consequently, this regime is inherently biased against manufacturing and has encouraged diversion of investment in financial assets. It has also led to significant erosion in the tax base resulting in revenue loss. The problem has been further compounded by abusive use of tax arbitrage opportunities created by these exemptions.
In order to minimize economic distortions and curb erosion of tax base, it is proposed to withdraw the exemption under clause (38) of section 10 and to introduce a new section 112A in the Act to provide that long term capital gains arising from transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust shall be taxed at 10 per cent. of such capital gains exceeding one lakh rupees .
This concessional rate of 10 per cent. will be applicable to such long term capital gains, if—
i) in a case where long term capital asset is in the nature of an equity share in a company , securities transaction tax has been paid on both acquisition and transfer of such capital asset; and

ii) in a case where long term capital asset is in the nature of a unit of an equity oriented fund or a unit of a business trust, securities transaction tax has been paid on transfer of such capital asset.

Further, sub-section (4) of the new section 112A empowers the Central Government to specify by notification the nature of acquisitions in respect of which the requirement of payment of securities transaction tax shall not apply in the case of equity share in a company. Similarly, the requirement of payment of STT at the time of transfer of long term capital asset, being a unit of equity oriented fund or a unit of business trust, shall not apply if the transfer is undertaken on recognized stock exchange located in any International Financial Services Centre( IFSC) and the consideration of such transfer is received or receivable in foreign currency.
Further, the new provision of section 112A also proposes to provide the following:—
i) The long term capital gains will be computed without giving effect to the first and second provisos to section 48, i.e. inflation indexation in respect of cost of acquisitions and cost of improvement, if any, and the benefit of computation of capital gains in foreign currency in the case of a non-resident, will not be allowed.
ii) The cost of acquisitions in respect of the long term capital asset acquired by the assessee before the 1st day of February, 2018 , shall be deemed to be the higher of –
a) the actual cost of acquisition of such asset; and
b) the lower of –
(I) the fair market value of such asset; and
(II) the full value of consideration received or accruing as a result of the transfer of the capital asset.
iii) “equity oriented fund” has been defined to mean a fund set up under a scheme of a mutual fund specified under clause (23D) of section 10 and,-
a) In a case where the fund invests in the units of another fund which is traded on a recognized stock exchange,-
(I) A minimum of 90 per cent. of the total proceeds of such funds is invested in the units of such other fund ; and
(II) such other fund also invests a minimum of 90 per cent. of its total proceeds in the equity shares of domestic companies listed on recognized stock exchange; and
b) in any other case, a minimum of 65 per cent. of the total proceeds of such fund is invested in the equity shares of domestic companies listed on recognized stock exchange.
iv) Fair market value has been defined to mean –
a) in a case where the capital asset is listed on any recognized stock exchange, the highest price of the capital asset quoted on such exchange on the 31st day of January, 2018. However, where there is no trading in such asset on such exchange on the 31st day of January, 2018 , the highest price of such asset on such exchange on a date immediately preceding the 31st day of January, 2018 when such asset was traded on such exchange shall be the fair market value; and

b) in a case where the capital asset is a unit and is not listed on recognized stock exchange, the net asset value of such asset as on the the 31st day of January, 2018.
v) The benefit of deduction under chapter VIA shall be allowed from the gross total income as reduced by such capital gains. Similarly, the rebate under section 87A shall be allowed from the income tax on the total income as reduced by tax payable on such capital gains.
• Applicability: These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the Assessment Year 2019-20 and subsequent assessment years.

10. Standard deduction
• Amendment in Section 16 which was omitted by Finance Act, 2005 following clause shall be inserted
In section 16 of the Income-tax Act, after clause (i) [as omitted by section 6 of the Finance Act, 2005], the following clause shall be inserted with effect from the 1st day of April, 2019, namely:––
“(ia) a deduction of forty thousand rupees or the amount of the salary, whichever is less;

• Explanation
Section 16, inter-alia, provides for certain deduction in computing income chargeable under the head “Salaries”. it is proposed to allow a standard deduction upto Rs 40,000/- or the amount of salary received, whichever is less. Consequently the present exemption in respect of Transport Allowance (except in case of differently abled persons) and reimbursement of medical expenses is proposed to be withdrawn. These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.

11. Taxability of compensation in connection to business or employment
• Amendment in S.28
(I) in clause (ii), after sub-clause (d), the following sub-clause shall be inserted, namely:—
“(e) any person, by whatever name called, at or in connection with the termination or the modification of the terms and conditions, of any contract relating to his business;

• Explanation :
Under the existing provisions of the Act, certain types of compensation receipts are taxable as business income under section 28. However, the existing provisions of clause (ii) of section 28 is restrictive in its scope as far as taxation of compensation is concerned; a large segment of compensation receipts in connection with business and  mployment is out of the purview of taxation leading to base erosion and revenue loss. Therefore, it is proposed to amend section 28 of the Act to provide that any compensation received or receivable, whether revenue or capital, in connection with the termination or the modification of the terms and conditions of any contract relating to its business shall be taxable as business income. It is further proposed that any compensation received or receivable, whether in the nature of revenue or capital, in connection with the termination or the modification of the terms and conditions of any contract relating to its employment shall be taxable under section 56 of the Act.

• Applicability : These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to assessment year 2019-20 and subsequent assessment years.

12. Conversion of Stock in Trade to Capital Asset.
• Amendment in Section 2 (24) : Income
(A) after sub-clause (xii), the following sub-clause shall be inserted, namely:––
“(xiia) the fair market value of inventory referred to in clause (via) of section 28;”
• Amendment in S.28
(via) the fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset determined in the prescribed manner;
• Amendment in S.49 :-
In section 49 of the Income-tax Act, after sub-section (8), the following sub-section shall be inserted with effect from the 1st day of April, 2019, namely:––
“(9) Where the capital gain arises from the transfer of a capital asset referred to in clause (via) of section 28, the cost of acquisition of such asset shall be deemed to be the fair market value which has been taken into account for the purposes of the said clause.”
• Fair Market Value has been defined in S. 2(22B) which are as under :-
"fair market value"28, in relation to a capital asset, means—
(i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date ; and
where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act ;] {Rule 11UA}
• Memorandum Explaining the provisions
Section 45 of the Act, inter alia, provides that capital gains arising from a conversion of capital asset into stock-in-trade shall be chargeable to tax. However, in cases where the stock in trade is converted into, or treated as, capital asset, the existing law does not provide for its taxability.
In order to provide symmetrical treatment and discourage the practice of deferring the tax payment by converting the inventory into capital asset, it is proposed to amend the provisions of —
(i) section 28 so as to provide that any profit or gains arising from conversion of inventory into capital asset or its treatment as capital asset shall be charged to tax as business income. It is also proposed to provide that the fair market value of the inventory on the date of conversion or treatment determined in the prescribed manner, shall be deemed to be the full value of the consideration received or accruing as a result of such conversion or treatment;
(ii) clause (24) of section 2 so as to include such fair market value in the definition of income;
(iii) section 49 so as to provide that for the purposes of computation of capital gains arising on transfer of such capital assets, the fair market value on the date of conversion shall be the cost of acquisition;
(iv) clause (42A) of section 2 so as to provide that the period of holding of such capital asset shall be reckoned from the date of conversion or treatment.

• Applicability : These amendments will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.

13. Tax deduction at source and manner of payment in respect of certain exempt entities :
The third proviso to clause (23C) of section 10 of the Act provides for exemption in respect of income of the entities referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of said clause in a case where such income is applied or accumulated during the previous year for certain purposes in accordance with the relevant provisions. Section 11 of the Act also contains provisions relating to income from property held for charitable or religious purposes.
At present, there are no restrictions on payments made in cash by charitable or religious trusts or institutions. There are also no checks on whether such trusts or institutions follow the provisions of deduction of tax at source under Chapter XVII-B of the Act. This has led to lack of an audit trail for verification of application of income.
In order to encourage a less cash economy and to reduce the generation and circulation of black money, it is proposed to insert a new Explanation to the section 11 to provide that for the purposes of determining the application of income under the provisions of sub-section (1) of the said section, the provisions of sub-clause (ia) of clause (a) of section 40, and of sub-sections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.
It is also proposed to insert a similar proviso in clause (23C) of section 10 so as to provide similar restriction as above on the entities exempt under sub-clauses (iv), (v), (vi) or (via) of said clause in respect of application of income.
These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent years.

14. Presumptive income under section 44AE in case of goods carriage
Section 44AE, inter alia provides that, the profits and gains shall be deemed to be an amount equal to seven thousand five hundred rupees per month or part of a month for each goods carriage or the amount claimed to be actually earned by the assessee, whichever is higher. The current presumptive income scheme is applicable uniformly to all classes of goods carriages irrespective of their tonnage capacity. The only condition which needs to be fulfilled is that the assessee should not have owned more than 10 goods carriages at any time during the previous year. Accordingly, the transporters who owns (less than 10) large capacity/ size goods carriages are also availing the benefit of section 44AE.
It is necessary to mention here that the legislative intent of introducing this provision was to give benefit to small transporters in order to reduce their compliance burden. Even though the profit margins of large capacity goods carriages are higher than small capacity goods carriages, the tax consequences are similar which is against the principle of tax equity.
In view of the above, it is proposed to amend the section 44AE of the Act to provide that, in the case of heavy goods vehicle (more than 12MT gross vehicle weight), the income would deemed to be an amount equal to one thousand rupees per ton of gross vehicle weight or unladen weight, as the case may be, per month or part of a month for each goods vehicle or the amount claimed to be actually earned by the assessee, whichever is higher. The vehicles other than heavy goods vehicle will continue to be taxed as per the existing rates.
These amendments will take effect 1st April, 2019 and will, accordingly, apply in relation to Assessment Year 2019-20 and subsequent assessment years.

15. Extending the benefit of tax-free withdrawal from NPS to non-employee subscribers: Under the existing provisions of the clause (12A) of section 10 of the Act, an employee contributing to the NPS is allowed an exemption in respect of 40% of the total amount payable to him on closure of his account or on his opting out. This exemption is not available to non-employee subscribers. In order to provide a level playing field, it is proposed to amend clause (12A) of section 10 of the Act to extend the said benefit to all subscribers. This amendment will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.[Clause 5].
16. Senior Citizens
 Deductions available to senior citizens in respect of health insurance premium and medical treatment
 Enhanced deduction to senior citizens for medical treatment of specified diseases
 Enhanced deduction to senior citizens for medical treatment of specified diseases
Deductions available to senior citizens in respect of health insurance premium and medical treatment
Section 80D, inter-alia, provides that a deduction upto Rs 30,000/- shall be allowed to an assessee, being an individual or a Hindu undivided family, in respect of payments towards annual premium on health insurance policy, or preventive health check-up, of a senior citizen, or medical expenditure in respect of very senior citzen. It is proposed to amend section 80D so as to raise this monetary limit of deduction from Rs 30,000/- to Rs 50,000/-. In case of single premium health insurance policies having cover of more than one year, it is proposed that the deduction shall be allowed on proportionate basis for the number of years for which health insurance cover is provided, subject to the specified monetary limit. These amendments will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
Enhanced deduction to senior citizens for medical treatment of specified diseases
Section 80DDB of the Act, inter-alia, provide that a deduction is available to an individual and Hindu undivided family with regard to amount paid for medical treatment of specified diseases in respect of very senior citizen upto Rs 80,000/- and in case of senior citizens upto Rs 60,000/- subject to specified conditions. It is proposed to amend the provisions of section 80DDB of the Act so as to raise this monetary limit of deduction to Rs 1,00,000/- for both senior citizens and very senior citizens.
This amendment will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.[Clause 25]
Deduction in respect of interest income to senior citizen
At present, a deduction upto Rs 10,000/- is allowed under section 80TTA to an assessee in respect of interest income from savings account. It is proposed to insert a new section 80TTB so as to allow a deduction upto Rs 50,000/- in respect of interest income from deposits held by senior citizens. However, no deduction under section 80TTA shall be allowed in these cases.
This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
It is also proposed to amend section 194A so as to raise the threshold for deduction of tax at source on interest income for senior citizens from Rs 10,000/- to Rs 50,000/-. This amendment will take effect, from 1st April, 2018.[Clause 29, 30 & 47].
17. Rationalisation of section 276CC relating to prosecution for failure to furnish return : Section 276CC of the Act provides that if a person willfully fails to furnish in due time the return of income which he is required to furnish, he shall be punishable with imprisonment for a term, as specified therein, with fine. The sub-clause (b) of clause (ii) of proviso to the section 276CC further provides that a person shall not be proceeded against under the said section for failure to furnish return for any assessment year commencing on or after the 1st day of April, 1975, if the tax payable by him on the total income determined on regular assessment as reduced by the advance tax, if any, paid and any tax deducted at source, does not exceed three thousand rupees.In order to prevent abuse of the said proviso by shell companies or by companies holding Benami properties, it is proposed to amend the provisions of the said sub-clause so as to provide that the said sub-clause shall not apply in respect of a company. This amendment will take effect from 1st April, 2018.
18. Rationalisation of prima-facie adjustments during processing of return of income : Sub-section (1) of the section 143 provides for processing of return of income made under section 139, or in response to a notice under sub-section (1) of section 142. Clause (a) of the said sub-section provides that at the time of processing of return, the total income or loss shall be computed after making the adjustments specified in sub-clauses (i) to (vi) thereof. Sub-clause (vi) of the said clause provides for adjustment in respect of addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return.  With a view to restrict the scope of adjustments, it is proposed to insert a new proviso to the said clause to provide that no adjustment under sub-clause (vi) of the said clause shall be made in respect of any return furnished on or after the assessment year commencing on the first day of April, 2018. This amendment will take effect from lst April, 2018 and will, accordingly, apply in relation to the assessment years 2018-2019 and subsequent years.[Clause 44]
19. Deductions in respect of certain incomes not to be allowed unless return is filed by the due date : The existing provisions contained in the section 80AC of the Act provide that no deduction would be admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, unless the return of income by the assessee is furnished on or before the due date specified under sub-section (1) of section 139 of the Act. This burden is not cast upon assesses claiming deductions under several other similar provisions. In view of the above, it is proposed to extend the scope of section 80AC to provide that the benefit of deduction under the entire class of deductions under the heading “C.—Deductions in respect of certain incomes” in Chapter VIA shall not be allowed unless the return of income is filed by the due date. This amendment will take effect, from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years.[clause 23]
20. Rationalization of section 43CA, section 50C and section 56. At present, while taxing income from capital gains (section 50C), business profits (section 43CA) and other sources (section arising out of transactions in immovable property, the sale consideration or stamp duty value, whichever is higher is adopted. It has been pointed out that this variation can occur in respect of similar properties in the same area because of a variety of factors, including shape of the plot or location. In order to minimize hardship in case of genuine transactions in the real estate sector, it is proposed to provide that no adjustments shall be made in a case where the variation between stamp duty value and the sale consideration is not more than five percent of the sale consideration. These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.[Clause 14, 19 & 21]
21. Tax neutral transfers : Section 47 provides for certain tax neutral transfers. Section 56 also excludes income arising out of certain tax neutral transfers from its ambit. However, the transfers referred to in clause (iv) and clause (v) of section 47 have not been excluded from the scope of section 56. In order to further facilitate the transaction of money or property between a wholly owned subsidiary company and its holding company, it is proposed to amend the section 56 so as to exclude such transfer from its scope. This amendment will take effect, from 1st April, 2018 and shall accordingly, apply in relation to the transaction made on or after 1st April, 2018. [Clause 21].
22. Rationalization of the provisions of section 54EC : Section 54EC of the Act provides that capital gain, arising from the transfer of a long-term capital asset, invested in the long-term specified asset at any time within a period of six months after the date of such transfer, shall not be charged to tax subject to certain conditions specified in the said section. The section also provides that “long-term specified asset” for making any investment under the section on or after the 1st day of April, 2007 means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 by the National Highways Authority of India or by the Rural Electrification Corporation Limited; or any other bond notified by the Central Government in this behalf. In order to rationalise the provisions of section 54EC of the Act and to restrict the scope of the section only to capital gains arising from long-term capital assets, being land or building or both and to make available funds at the disposal of eligible bond issuing company for more than three years, it is proposed to amend the section 54EC so as to provide that capital gain arising from the transfer of a long-term capital asset, being land or building or both, invested in the long-term specified asset at any time within a period of six months after the date of such transfer, the capital gain shall not be charged to tax subject to certain conditions specified in this section. It is also proposed to provide that long-term specified asset, for making any investment under the section on or after the 1st day of April, 2018, shall mean any bond, redeemable after five years and issued on or after 1st day of April, 2018 by the National Highways Authority of India or by the Rural Electrification Corporation Limited or any other bond notified by the Central Government in this behalf. This amendment will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years. [Clause 20]
23. Relief from liability of Minimum Alternate Tax (MAT): Section 115JB of the Act, provides for levy of a minimum alternate tax (MAT) on the “book profits” of a company. In computing the book profit , it provides, inter alia, for a deduction in respect of the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Consequently, where the loss brought forward or unabsorbed depreciation is Nil, no deduction is allowed. This non-deduction is a barrier to rehabilitating companies seeking insolvency resolution. In view of the above, it is proposed to amend section 115JB to provide that the aggregate amount of unabsorbed depreciation and loss brought forward (excluding unabsorbed depreciation) shall be allowed to be reduced from the book profit, if a company’s application for corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 has been admitted by the Adjudicating Authority. Consequently, a company whose application has been admitted would henceforth be entitled to reduce the loss brought forward (excluding unabsorbed depreciation) and unabsorbed depreciation for the purposes of computing book profit under section 115JB. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years. A clarificatory amendment is also proposed in section 115JB of the Act to provide that the provisions of section 115JB of the Act shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, if- its total income comprises solely of profits and gains from business referred to in section 44B or section 44BB or section 44BBA or section 44BBB and such income has been offered to tax at the rates specified in the said sections. This amendment will take effect, retrospectively from 1st April, 2001 and will, accordingly, apply in relation to the assessment year 2001-02 and subsequent assessment years.
24. Benefit of carry forward and set off of losses : Section 79 of Act provides that carry forward and set off of losses in a closely held company shall be allowed only if there is a continuity in the beneficial owner of the shares carrying not less than 51 percent. of the voting power, on the last day of the year or years in which the loss was incurred. In general, the case of a company seeking insolvency resolution under Insolvency and Bankruptcy Code, 2016, involves change in the beneficial owners of shares beyond the permissible limit under section 79. This acts as a hurdle for restructuring and rehabilitation of such companies. In order to address this problem, it is proposed to relax the rigors of section 79 in case of such companies, whose resolution plan has been approved under the Insolvency and Bankruptcy Code, 2016, after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent assessment years. It is also proposed to amend section 140 of the Act so as to provide that during the resolution process under the Insolvency and Bankruptcy Code, 2016, the return shall be verified by an insolvency professional appointed by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016. This amendment will take effect from 1st April, 2018 and will, accordingly apply to return filed on or after the said date.
25. Rationalisation of the provisions of section 115BBE Section 115BBE provides for tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D at a higher rate of sixty percent. Sub-section (2) of said section provides that no deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed to the assessee under any provision of the Act in computing his income referred to in clause (a) of sub-section (1). In order to rationalize the provisions of section 115BBE, it is proposed to amend the said sub-section (2) so as to also include income referred to in clause (b) of sub-section (1). This amendment will take effect retrospectively from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years. [Clause 34].
26. Tax deduction at source on 7.75% GOI Savings (Taxable) Bonds, 2018 : Government of India introduced 8% Savings (Taxable) Bonds, 2003 in 2003. Under the existing law, the interest received by the investor is taxable. Further the payer is liable to deduct tax at source under section 193 of the Act at the time of payment or credit of such interest in excess of rupees ten thousand to a resident. Government has now decided to discontinue the existing 8% Savings (Taxable) Bonds, 2003 with a new 7.75% GOI Savings (Taxable) Bonds, 2018. The interest received under the new bonds will continue to be taxed as in the case of the earlier once. The provisions of section 193 are proposed to be amended to allow for deduction of tax at source at the time of making payment of interest on such bonds to residents. However, no TDS will be deducted if the amount of interest is less than or equal to ten thousand rupees during the financial year. This amendment will take effect from 1st April, 2018. [Clause 46]
27. Permanent Account Number Section 139A inter-alia provides that every person specified therein and who has not been allotted a permanent account number shall apply to the Assessing Officer for allotment of a Permanent Account Number (PAN). In order to use PAN as Unique Entity Number (UEN) for non-individual entities, it is proposed that every person, not being an individual, which enters into a financial transaction of an amount aggregating to two lakh and fifty thousand rupees or more in a financial year shall be required to apply to the Assessing Officer for allotment of PAN. In order to link the financial transactions with the natural persons, it is also proposed that the managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer or office bearer or any person competent to act on behalf of such entities shall also apply to the Assessing Officer for allotment of PAN. This amendment will take effect from lst April, 2018.
28. Laws Applicable for A.Y 2018-19, amended by Finance Act, 2017. (Please refer Circular 2 of 2018.






THANK YOU

Blog # 20. S.53A of the Transfer of Property Act, 1882 and Related Laws

  1. Section 53A of the Transfer of Property Act. 1882 is as under:-

“53A. Part performance. – Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,

and the transferee has, in part performance of the contract, taken possession of the property or any pat thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,

and the transferee has performed or is willing to perform his part of the contract,
then, notwithstanding that [***] where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:
Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.


  • The words ‘the contract, though required to be registered, has not been registered or’ have been omitted by section 10 of the Registration and other Related Laws (Amendment) Act, 2001 (w.e.f. 24 September 2001).


  1. Section 17 (1-A) which was inserted in the Registration Act, 1908 under the Registration and Other Related Laws (Amendment) Act 2001 (w.e.f. 24 September 2001) provides as under:-

“Section 17 (1-A): The documents containing contracts to transfer for consideration, any immovable property for the purpose of Section 53-A of the Transfer of Property Act, 1882, (4 of 1882) shall be registered if they have been executed on or after the commencement of the Registration and Other Related Laws (Amendment) Act, 2001 and if such documents are not registered on or after such commencement then, they shall have no effect for the purposes of the said Section 53-A.”

1



  1. Section 49 of the Registration Act, 1908 as amended by Registration and Other Related Laws (Amendment) Act 2001 (w.e.f. 24 September 2001) provides as under:-

49. Effect of non-registration of documents required to be registered.- No document required by Section 17 or by any provision of the Transfer of Property Act, 1882 (4 of 1882) to be registered shall-

  • affect any immovable property comprised therein, or

  • confer any power to adopt, or

  • be received as evidence of any transaction, affecting such property or conferring such power, unless it has been registered:
Provided that an unregistered document affecting immoveable property and

required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1977 (1 of 1877), [***] or as evidence of any collateral transaction not required to be effected by registered instrument.


  • The words ‘or as evidence of part performance of a contract for the purposes section 53-A of the Transfer of Property Act, 1882,’ omitted by section 6 of the Registration and other Related Laws (Amendment) Act, 2001.


  1. Section 12 of the Registration and other Related Laws (Amendment) Act, 2001 provides as under:-

12. Saving.- Notwithstanding anything contained in section 6 and 10, any-

  • right of transferor or any person claiming under him debarred under section 53A of the Transfer of Property Act, 1882 (4 of 1882) immediately before the commencement of this Act shall remain so debarred as if section 10 had not come into force in respect of such right; and

  • unregistered document relating to the right referred to in clause (a) may be received as evidence of part performance of a contract for the purposes of section 53A of the Transfer of Property Act, 1882 (4 of 1882) as if section 6 had not come into force in respect of such document.”

















2



  1. Section 2(47) (as amended w.e.f. 1 April 1985) of the Income Tax Act, 1961 is as under:-

“transfer”, in relation to a capital asset, includes,

  • the sale, exchange or relinquishment of the asset; or

  • the extinguishment of any rights therein; or

  • the compulsory acquisition thereof under any law; or

  • in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or

(iva)     the maturity or redemption of a zero coupon bond; or

  • (inserted w.e.f. 1 April 1988) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1982); or

  • (inserted w.e.f. 1 April 1988) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring or

enabling enjoyment of, any immoveable property.

Explanation 1: For the purposes of sub-clauses (v) and (vi), ‘immoveable property’ shall have the same meaning as in clause (d) of section 269UA.


Explanation 2: (Inserted Finance Act, 2012 w.e.f. 1 April 1962) For the removal of doubts, it is hereby clarified that “transfer” includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of any agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterized as being effected or dependent upon or flowing from the transfer or a share or shares of a company registered or incorporated outside India.


  1. Section 269UA (d) of the Income Tax Act, 1961 is as under:-

“immovable property” means –

  • any land or any building or part of a building and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also.




3

Explanation- For the purposes of this sub-clause, “land , building, part of a building, machinery, plant, furniture, fittings and other things” include any rights therein;

  • any rights in or with respect to any land or any building or a part of a building (whether or not including any machinery, plant, furniture, fittings or other things therein) which has been constructed or which is to be constructed, accruing or arising from any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement of whatever nature), not being a transaction by way of sale, exchange or lease of such land, building or part of a building.


  • Section 50C of the Income Tax Act, 1961 as amended by the Finance (No.2) Act, 2009, w.e.f. 1st October, 2009 is as under:-

Special provision for full value of consideration in certain case.

50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both is less than the value adopted or assessed or assessable by any authority of a State Government

(hereafter in this section referred to as the “stamp valuation authority”) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted

or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

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

  • 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;

  • 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 Officer and where any such reference is made, the provisions of sub-section (2), (3),

(4), (5) and (6) of section 16A, clause (i) of sub-section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act.

Explanation 1- For the purposes of this section, “Valuation Officer” shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).

Explanation 2- For the purposes of this section, the expression “assessable” means the price which the stamp valuation authority would have, notwithstanding

4

anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.


  • Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed or assessable by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed or assessable by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.


  1. The essential conditions required to be fulfilled for claiming protection of Section 53A of the Transfer of Property Act are as under: [Rambhau Namdeo Gajrav Narayan Bapuji Dhotra (2004) 8 Supreme Court Cases 614]


  • There must be a contract to transfer for consideration any immovable property


  • Section 53A applies to leases and agreement to lease [Maneklal Mansukhbhai V. Hormusji Jamshedji Ginwalla & Sons AIR 1950 SC1] where in an action to eject a lessee on the ground that he had no registered deed of lease executed in his favour the defendant lessee takes the plea of part performance and proves that there was a written and signed contract of lease in his favour and that he had taken possession in accordance with the terms of the agreement and had built a factory on the land and also that he was paying rent to the plaintiffs in accordance with that agreement the defendant is entitled to retain possession in spite of an absence of the registered deed.]. Agreement to lease may be evidenced by correspondence.


  • Section 53A applies to mortgages with possession.


  • If the agreement is void under any law, section 53A will not protect possession. The protection of part performance cannot be availed in respect of a transaction which is null and void. (CIT v. Vithalbhai P. Patel (1999) 236 ITR 1001). Sale ab initio null and void as per order of Collector in view of Section 4 of Gujarat Vacant Lands in Urban Areas (Prohibition of Alienation) Act, 1972. Oorder of Collector was not challenged. No transaction of sale in eye of law. Sale not liable to tax on capital gains.


  • In case of a agreement conditional on compliance with statute, there is an implied term in the contract that transferor will apply for requisite


5

permission and the court will direct him to do so. (Nathulal V. Phoolchand AIR 1970 Supreme Court 546)




  • The contract must be in writing, signed by the transferor, or by someone on his behalf.


  • It is not necessary that there should be a formal agreement.


  • The writing must be in such words from which the terms necessary to construe the transfer can be ascertained.


  • The transferee must in part performance of the contract take possession of the property, or of any part thereof,


  • It is not necessary that the contract must contain a direct covenant regarding transfer of possession.


  • It is only necessary that possession should have been taken (need not be given) in part performance of the contract.


  • Where only temporary possession was given for carrying out construction, it was held that the exclusive possession in the legal sense remained with the Transferor and the Transferee was not entitled to protect his possession under Section 53 A of the TP Act.


  • It is not necessary that the transferee must be in possession of the entire property.


  • It is enough if the transferee continues in possession or takes possession even of a part of the property.


  • The transferee must have done some act in furtherance of the contract.


  • There should be real nexus between the contract and the acts pleaded as in part performance.


  • Continued possession of a tenant in the property after entering into the sale agreement would not by itself amount to a part-performance. There must be some act attributable to the contract for sale and not lease.


6

  • When a person already in possession of the property in some other capacity enters into a contract to purchase the property, to confer the benefit of Section 53A of TP Act, there must be some act consistent with the contract alleged and such as cannot be referred to the preceding title. [AIR 2003 SC 3542].


  • A tenant who continued to be in possession as tenant, cannot take benefit of Section 53A, though subsequently an agreement to sale is entered between the parties.


  • Where the person puts up construction after being put in possession under the contract of sale or takes electricity connection, he can gain protection of Section 53A of the TP Act.


(vi)       The transferee must have performed or be willing to perform his part of the contract.


  • The acts claimed to be in part performance must be unequivocally referable to the pre-existing contract.


  • Section 53A confers no rights on a party who was not willing to perform his part of the contract.


  • Part performance as statutory right is conferred upon the transferee on condition that the transferee continues to be willing to perform his part of the contract.


(vii)The document containing contract for transfer of immoveable property, if executed on or after 24th September, 2001 should be registered.


  • Part performance applies even if specific performance is not otherwise permissible.


The protection under section 53A can be availed of only under a registered agreement. Sukhminder Kaur V. Amarjit Singh AIR 2012 Punjab & Haryana 97 Section 53-A of the T.P. Act before amendment recognized part performance of the contract even though the contract used to be unregistered and the transferee’s rights to remain in possession was protected. By the Amendment Act No.48 of

2001, the words “the contract though required to be registered, has not been registered, or” have been omitted from the provision. The effect of the amendment is that now if any person takes possession in pursuance to a contract which is required to be registered but has not been registered, the transferee has no right to remain in possession of the property. To give effect to this principle, S. 17 (1A) has

7

accordingly been inserted in the Act of 1908 which mandates that such contract is now required to be registered. If such a contract entered into after the amendment is not registered then as per S. 49 of the Act of 1908, the same can neither affect any immovable property comprised therein nor will it be received as evidence of any transaction affecting such property or conferring such power.

  • A person seeking protection of his possession on the basis of unregistered agreement is a different situation and where a person seeks possession of the property by way of specific performance of the agreement which is unregistered is a different eventuality. In the latter class of cases, the agreement to sell is not required to be registered as it does not fail within the ambit of either S.53-A of the T.P. Act or S. 17(1A) of the Act of 1908 and does not require any registration. Such agreement to sell falls under the mischief of S.17(2)(v) of the Act of 1908. It itself does not create, declare, assign, limit or extinguish any right, title or interest in the property. Rather it creates a right to obtain another document which will, when executed, create, declare, assign, limit or extinguish. It is the sale deed which when executed will create right, title and interest in the property. Hence, an agreement to sell is not required to be registered and the same is receivable in evidence in a suit for specific performance.


  • A transferee in-possession satisfying all conditions of the section 53A is protected by the Court, whether he comes as a plaintiff or as a defendant. The court cannot tell the transferee-in-possession if he comes as a plaintiff – ‘go back, use your physical strength and muscle power to resist and repel the attack of the transferor and drive him to come to the court as a plaintiff and then if you are arrayed as a defendant, the court will protect you.” Chetak Construction Ltd. v. Om Prakash AIR 2003 M.P. 145.


  1. Decisions on Section 53A of T.P. Act, 1882 & Section 2(47)(v) of I.T. Act, 1961:-

  1. Chaturbhuj Dwarkadas Kapadia v. Commissioner of Income Tax (2003 260 I.T.R 491(Bombay).

  • 08.1994Agreement for Sale of shares in immoveable property with right to the Builders to develop the property in accordance with Building Control Regulations under which Assessee agreed to execute a limited power authorizing the Builder to deal with the property and obtain permissions and approvals from Urban Ceiling Authority MCGM and CRZ Authorities. The Agreement provided that on the Builder obtaining all  necessary  permissions  and approvals and upon receipt of the no objection


8

certificate under Chapter XXC of the Income
Tax Act, the Assessee shall grant to the Builder
an irrevocable licence to enter upon Assessee’s
share of the property, after which the Builder
was entitled to demolish the buildings on the
subject to the settling the claims of the tenants.
The  Assessee  was  entitled  to  receive
proportionate rent and liable to pay outgoings
till payment of last instalment.  Agreement
provided  for  completion  of  sale  by  the
execution of the conveyance.
2 31st March, The Builder paid the entire sale price except
1996 small amount.
3 15th November, MCGM issued Commencement Certificate upto
1996 plinth level.
4 12th March, Power of Attorney executed by the Assessee in
1999 favour of the Builder, Assessee paid tax on
capital gains in Assessment Year 1999-2000
but assessing officer held that it was payable in
A.Y. 1996-97
Held arrangements confirming privileges of ownership without transfer of title could fall under section 2(47(v). Section 2(47)(v) was introduced in the Act from the assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assesse that no transfer took place till execution of the conveyance. Consequently, the assessees used to enter into agreements for developing properties with the builders and under the arrangement with the builders, they used to confer privileges of ownership without executing conveyance and to plug that loophole, section 2(47)(v) came to be introduced in the Act (Page 499).


Capital gains is taxable in the year in which such transactions are entered into even if the transfer of immoveable property is not effective or complete under the general law (Page 500).


In such cases of development agreements, one cannot go by substantial performance of a contract. In such cases, the year of chargeability is the year in which the contract is executed. This is


9


in view of section 2(47)(v) of the Act (Page 500).


In this case, the agreement is a development agreement and in our view, the test to be applied to decide the year of chargeability is the year in which the transaction was entered into. We have taken this view for the reason that the development agreement does not transfer the interest in the property to the developer in general law and, therefore, section 2(47)(v) has been enacted and in such cases, even entering into such a contract could amount to transfer from the date of the agreement itself (Page 500-501).


If on a bare reading of a contract in its entirely, an Assessing Officer comes to the conclusion that in the guise of the agreement for sale, a development agreement is contemplated, under which the developer applies for permission from various authorities, either under power of attorney or otherwise and in the name of the assesse, then the Assessing Officer is entitled to take the date of the contract as the date of transfer in view of section 2(47)(v) (Page 501).


We do not find merit in the argument of the assesse that the court should go only by the date of actual possession and that in this particular case, the court should go by the date on which irrevocable licence was given. If the contract, read as a whole, indicates passing of or transferring of complete control over the property in favour of the developer, then the date of the contract would be relevant to decide the year of chargeability (Page 501).


  1. Suraj Lamp v. State of Haryana [2012] 340 ITR 1 (SC):


Immovable property can be legally and lawfully transferred or conveyed only by a registered deed of conveyance. Transactions of the nature of general power of attorney sales or sale agreements/general power of attorney/will transfers do not convey title and do not amount to transfer, nor can they be recognized as valid modes of transfer of immovable property. They cannot be recognized as deeds of title, except to the limited extent of Section 53 A of the Transfer of Property Act, 1882.


  1. D. Kasturi v. CIT and Another [2010] 323 ITR 40 (Mad):





10

The subsequent act of the assessee in executing the power of attorney and the sale deeds executed by the power holder on the basis of such power of attorney would not in any way alter the status of the parties to the agreement for applicability of section 53A of the Transfer of Property Act,1882. The single judge rightly held that the assesse could no longer assert possessory rights against the firm to which possession was already given pursuant to the agreement and that too after receiving the full sale consideration.


  1. Jasbir Singh Sarkaria, In re [2007] 294 ITR (AAR):


The applicant and other co-owner of certain agricultural land entered into a collaboration agreement with Santur Developers under which the developers had to obtain a letter of intent from the concerned Government Department for sanction and development of the land for building at its own cost. Under the agreement, the developers would have 84 percent share of the entire built up area and the co-owners 16 percent. The consideration for the agreement was that portion of the built up area which was to be handed over to the owners free of cost. Under clause 18 the ownership was to remain exclusively with the owners till it vested with the parties according to their respective shares on the completion of the project. The steps contemplated in the agreement were : earnest monies of Rs. One crore was to be paid at the time of entering into the agreement; “letter of intent”, viz., the licence to be granted by the Director of Town Planning to develop the land, was to be obtained not later than March 8, 2006, and in case of failure the agreement was to stand terminated; on fulfilment of the requirements of the letter of intent the owners were to execute a power of attorney in favour of the developers authorizing them to book and sell dwelling units and collect money for the same, but sale deed would be executed only after the owners received their share of the constructed area (clause 15); the owners were to grant power to the developers to enable them to transfer rights. On September 15, 2005, a supplementary agreement was entered into the salient feature of which were : apart from the sum of Rs.2 crores paid under the collaboration agreement, the balance of Rs.40 crores was payable by the developers in six instalments starting from March 8, 2006, the last instalment being payable before June 8, 2007; if the payment was not made within the maximum period of extension, the owners were at liberty to terminate the collaboration agreement after giving notice; on receipt of all payments the owners had to grant power to the developers enabling them to transfer and execute deeds in respect of the developers’ share. On these facts the applicant sought the advance ruling of the Authority regarding the year of chargeability to tax of the capital gains arising from the transaction. On the facts stated, the Authority ruled:





11

That under clause 15 it was stipulated that on fulfillment of the requirements laid down in the letter of intent, which was a provisional licence, the owner should execute an irrevocable power of attorney in favour of the developers or their nominees, inter alia, authorizing them to book and sell the dwelling units falling to their share. Thus, it was only after the deposit of the requisite charges with the Urban Development Authorities in accordance with the conditions stipulated in the provisional licence and the developers taking necessary steps pursuant to the provisional licence that the general power of attorney would be executed. Therefore, the crucial event or step that amounted to a “transaction involving the allowing of possession to be taken” within the meaning of section 2(47)(v) of the Income-tax Act, 1961, was the execution of the irrevocable general power of attorney in accordance with clause 15 of the collaboration agreement. Such general power of attorney was executed in favour of the developers on May 8, 2006, i.e. during the financial year subsequent to the year of agreement. The general power of attorney unequivocally granted to the developers a bundle of possessory rights : the acts of management, control and supervision of property being explicitly mentioned. The general power of attorney was not a mere licence to enter the land for doing some preliminary acts in relation to the development work; the power of control of the land, which was an incidence of possession, was conferred to the developers under the general power of attorney. The developers, armed with the general power of attorney, could not be regarded merely as a licensee or an agent; their possession could not be characterized as precarious or of tentative nature. The owners’ limited right to enter the land and oversee the development work was not incompatible with the developers’ right of control over the land which they derived from the general power of attorney. Therefore, the irrevocable power of attorney executed by the owners in favour of the developers had to be regarded as a transaction in the eye of law which allowed possession to be taken in part performance of the contract of transfer. The transfer within the meaning of section 2(47)(v) took place during the financial year 2006-07 corresponding to the assessment year 2007-08 and the entire capital gains including that attributable to the instalment amount remaining unpaid by March 31, 2007, arose during the financial year 2006-07 (assessment year 2007-08).


The actual receipt of the entire sale consideration during the year of “transfer” is not necessary for the purpose of capital gains.


ANURAG JAIN, In re [2005] 277 ITR 1 (AAR) and T.V. Sundaram Iyengar And Sons Ltd. Versus CIT [1959] 37 ITR 26 (Mad) relied on.


The purpose of introducing clause (v) in conjunction with clause (vi) in section 2(47) of the Income-tax Act, 1961, defining “transfer” was to widen the net of

12

taxation of capital gains so as include transactions that closely resembled transfers but were not treated as such under the general law. Avoidance or postponement of tax on capital gains by adopting devices such as the enjoyment of property in pursuance of revocable power of attorney or part performance of a contract of sale was sought to be arrested by introducing the two clauses, clauses (v) and (vi), in section 2(47).


For clause (v) of section 32(47) to be applicable there must be a “transaction” under which the possession of immovable property is allowed to be taken or allowed to be retained. The Legislature advisedly referred to “any transaction” with a view to emphasize that it is not the factum of entering into agreement or formation of contract that matters, but it is the distinct transaction that gives rise to the event of allowing the contractee to enter into possession that matters. That transaction is identifiable by the terms of the agreement itself and it takes place within the framework of the agreement. What is contemplated by section 2(47)(v) is a transaction which has a direct and immediate bearing on allowing possession to be taken in part performance of the contract of transfer. It is at that point of time that the deemed transfer takes place. Though entering into the agreement/contract might be a transaction in a broad sense, yet when the agreement envisages an event or an act on the happening or doing of which alone possession is allowed to be taken in part performance of the contract, the transaction of the nature contemplated by clause (v) cannot be said to have occurred before that date.


“Possession” contemplated by clause (v) of section 2(47) need not necessarily be sole and exclusive possession. So long as the transferee is, by virtue of the possession given, enabled to exercise general control over the property so as to make use of it for the intended purpose, the mere fact that the owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of the agreement does not introduce incompatibility. The concurrent purpose of the owner who can exercise possessory rights to a limited extent and for a limited purpose and that of the buyer/developer who has a general control and custody of the land can very well be reconciled. Clause (v) will have its full play even in such a situation. There is no warrant to postpone the operation of clause (v) and the resultant accrual of capital gains to a point of time when the concurrent possession will become exclusive possession of the developer/transferee after he pays full consideration. Possession given to the developer need not ripen into exclusive possession on payment of the instalments in entirely for the purpose of determining the date of transfer. It is enough if the transferee has, by virtue of that transaction, a right to enter upon and exercise acts of possession effectively pursuant to the covenants in the contract. That amounts to legal possession.

13



  1. CIT v. G. Saroja [2008] 301 ITR 124 (Mad):


It was not disputed that there was no written agreement between the assesse and the builder. A written agreement was a basic requirement for invoking the provision of section 53 A of the Transfer of Property Act, 1882. There was no sale Agreement and no sale consideration was received during the relevant period. The Revenue was also unable to prove that the assessee had put the developer in possession of the property by receiving the consideration partly or in full. There was no sale agreement between the assesse and the builder and the assesse had not received the sale consideration. Hence, the Tribunal was right in holding that there was no transfer of property, as contemplated under section 2(47)(v) of the Act.


  1. CIT v. K. Jeelani Basha 256 ITR 282 (Mad):


Once possession, even of a part of the property was handed over to the transferee, for the purpose of section 2 (47)(v) of the Income –tax Act,1961, read with section 45, the transfer was complete and therefore the Tribunal was justified in calculating the capital gains on the basis of the consideration received in that particular year for that part of the property which was parted with.


  1. Durdana Khatoon v. Assistant CIT 024 [ITR (Trib)] 0055:


“Possession” as contemplated in clause (v) of section 2(47) of the Income –tax Act,1961, need not necessarily be sole and exclusive possession, so long as the transferee is enabled to exercise general control over the property and to make use of it for the intended purpose. In the case of an agreement for development of property, the mere fact that the assesse, as owner, has also the right to enter the property to oversee the development work or to ensure performance of the terms of the agreement, does not restrict the rights of the developer or introduce any incompatibility. Even when there is concurrent possession of both parties, clause (v) has its full role to play. There is no warrant to postpone the operation of clause (v) to that point of time when the concurrent possession would become exclusive possession of the developer.


What is meant in clause (v) is the “transfer” which involves allowing possession so as to allow developer to undertake development work on the site. It is a general control over the property in part performance of the contract. The date of that transaction determines the date of transfer. It is enough if the transfer has, by virtue of the transaction, a right to enter upon and exercise the act of possession effectively

  • such an act amounts to legal possession over the property.

14



  1. Lajwanti Sial v. Commissioner of Income-Tax 1957 32 ITR 526 (Bombay)

The Assessee, who owned coal mines, formed a private company and in consideration of the company paying him a royalty of six annas per ton of coal raised, allowed the use and occupation of the running collieries to the company. HELD that as all that was done was to give the management of a capital asset, there was no transfer, sale or exchange of a capital asset and no capital gain arose out of the transfer of the management of the coal mines.




  1. Under the Maharashtra Stamp Act, 1958, stamp duty is required to be paid on the market value of the property in respect of following instruments:-


  1. Agreement or its records or memorandum of an agreement –


5(ga[i])if relating to giving authority or power to a promoter or a developer, by whatever name called for construction on, development of or sale or transfer (in any manner whatsoever) of, any immovable property;


5(ga[ii])if relating to the purchase of one or more units in any scheme or project by a person from a developer


5(g-d) if relating to transfer of tenancy of immovable property situate within the Municipal limits for the purpose of non-residential use of any nature whatsoever and if relating to transfer of tenancy of residential premises within Municipal limits having area of more than 300 square feet.


  1. Certificate of Sale- granted to the purchaser of any property sold by public auction by Civil or Revenue Court or Collector or other Revenue Officer or any other Officer empowered by law to sell property by public auction.


  1. Conveyance


25(b) relating to immovable property;
25(da) relating to amalgamation of companies;

Article 25 - Agreement to sell an immovable property where possession of any immovable property is transferred or agreed to be transferred to the purchaser before the execution or at the time of execution or after the execution of such




15

agreement. (The words ‘without executing the conveyance in respect thereof’ deleted by Maharashtra Act 38 of 1994 (w.e.f.17-8-1994).


  1. Exchange of property


  1. Further charge – any instrument imposing further charge on mortgaged property when the original mortgage is with possession or if at the time of execution of the instrument of further charge, possession of the property is given.


  1. Gift




  1. Lease – including under-lease or sub-lease and any agreement to let or sub-let or any renewal of the lease or any writing on an application for a lease intended to signify that the application is granted or a decree or final order of any civil court in respect of the lease and hire purchase agreement as under:-



  • for a period not exceeding 5 years;


  • for a period exceeding 5 years , but not exceeding 10 years;


  • for a period exceeding 10 years, but not exceeding 29 years;


  • 10% of the market value




  • 25% of the market value




  • 50% of the market value



(iv)    for a period exceeding 29  -                           90% of the market value

years or in perpetuity or for

any indefinite period;


36A. Leave and License Agreement - for a period exceeding 60 months – stamp duty as leviable on the ‘Lease’ under Article 36.


  1. Mortgage Deed – when possession of the property or any part of the property comprised in such deed, is given by the mortgagor or agreed to be given. A mortgagor who gives to the mortgagee a power of attorney to collect rents or a lease of the property mortgaged or part thereof is deemed to give possession within the meaning of this article. Where any part of the amount sought to be secured is advanced or disbursed to the mortgagor without execution of a mortgage deed, an agreement to mortgage becomes chargeable as Mortgage Deed.

16



  1. Partition


  1. Partnership – where share contribution is brought in by way of property.


Dissolution of partnership or retirement of partner - where any property is taken as his share by a partner other than a partner who brought in that property as his share of contribution in the partnership.


48(f)(i) Power of Attorney – when given for a consideration and authorizing sale of immovable property.


48(f)(ii) Power of attorney authorizing sale or transfer of immovable property given without consideration or without showing any consideration to a person other than father, mother, brother, sister, wife, husband, daughter, grandson, grand-daughter or such other close relative.


48(g) Power of Attorney when given to a promoter or a developer by whatsoever name called for construction on, development of or sale or transfer (in any manner whatsoever) of any immovable property.


  1. Release – whereby a person renounces a claim upon another person or against any specified property (other than Release Deed of an ancestral property or part thereof executed by or in favour of brother or sister or son or daughter or son of predeceased son or daughter of predeceased son or father or mother or spouse of the renouncer or the legal heirs of the above relations.


  1. Settlement– other than settlement made for a religious or charitable


  1. Surrender of Lease – including an agreement for surrender of lease with


  1. Transfer of Lease - by way of assignment.


  1. Trust – Declaration of Trust of concerning any property other than Trust made for a religious or charitable purpose.