Stamp Duty Value on Agreement Date Holds Precedence: ITAT Mumbai Ruling

The Income Tax Appellate Tribunal (ITAT) Mumbai has issued a significant ruling that emphasizes the importance of the stamp duty value as of the agreement date for the purpose of Section 56(2)(vii)(b) of the Income Tax Act. This decision provides much-needed clarity for taxpayers dealing with
property transactions and valuation under income tax laws.

Understanding Section 56(2)(vii)(b) of the Income Tax Act
Section 56(2)(vii)(b) of the Income Tax Act is a critical provision that deals with the taxation of
immovable property received for inadequate consideration. Under this clause, if the stamp duty
value of a property exceeds the actual consideration paid by the buyer, the differential amount is
treated as income in the hands of the buyer.

Case Overview: Poonam Ramesh Sahajwani vs. ITO (ITAT Mumbai)
In the case of Ms. Poonam Ramesh Sahajwani, the taxpayer booked a residential property, and the
primary issue was whether the stamp duty value at the time of agreement or at the time of
registration should be considered for taxation under Section 56(2)(vii)(b).
The tax authorities initially contended that the stamp duty value on the date of property registration should be used for taxation purposes. However, the taxpayer argued that the agreement date’s stamp duty value should be taken into account, as the payment arrangements and transaction terms were finalized at that time.

ITAT Mumbai’s Verdict
After reviewing the facts and arguments, ITAT Mumbai ruled in favor of the taxpayer, holding that:
 The stamp duty value applicable on the date of agreement should be considered for the
purpose of Section 56(2)(vii)(b).
 The decision aligns with previous judgments that prioritize the agreement date over the
registration date if consideration has been paid in part or full before registration.
 This ruling provides consistency in property taxation and prevents unnecessary tax burdens
due to stamp duty fluctuations over time.

Impact of the Ruling

• Relief for Property Buyers: Buyers can now rely on the agreement date’s stamp duty value,
  reducing uncertainty and avoiding inflated tax liabilities due to later property value hikes.
• Legal Clarity: The ruling reinforces the principle that transaction terms agreed upon should
  dictate tax treatment rather than subsequent market fluctuations.
• Improved Compliance: Taxpayers can plan transactions better, ensuring compliance with IT
  laws while optimizing financial obligations

Conclusion
The ITAT Mumbai’s decision in the case of Poonam Ramesh Sahajwani vs. ITO provides crucial legal
clarity regarding the applicability of stamp duty valuation under Section 56(2)(vii)(b). By affirming
that the agreement date’s value holds precedence, this ruling benefits taxpayers and strengthens legal certainty in property taxation. Property buyers and investors must consider this precedent while structuring their agreements to ensure compliance and minimize tax liabilities.