Section 56(2)(x) Cannot Apply to Pre-2017 Property Transactions — ITAT Mumbai Grants Relief on Mistaken Tax Payment

Overview of the Ruling

The Mumbai Bench of the Income Tax Appellate Tribunal delivered a significant ruling clarifying the temporal applicability of Section 56(2)(x) of the Income Tax Act, 1961 in the context of immovable property transactions. The Tribunal held that where a property purchase agreement was executed and the full sale consideration was remitted in the financial year 2009-10, the relevant date for determining taxability must be the date of the agreement — not the date on which the sale deed was subsequently registered. Since Section 56(2)(x) came into force only with effect from 1st April 2017, the provision simply could not be invoked against a transaction concluded nearly eight years before its insertion into the statute.

The Tribunal further reinforced the settled legal position that an assessee who has offered an amount to tax under a mistaken understanding of the law does not forfeit the right to seek refund of the excess tax so paid. The matter was remanded to the Assessing Officer for fresh consideration in accordance with these principles.

Case Details

Background Facts

The assessee, Ms. Sheetal Santosh Shetye, entered into an agreement for the purchase of an immovable property from a seller named Shri Rabindra Athmaram Kali during the financial year 2009-10. The entire sale consideration of Rs. 15,00,000/- was remitted through cheque on 10th November 2009, and physical possession of the property was also handed over to the assessee in that very financial year. However, due to certain technical complications, the formal registration of the sale deed could not be completed at that time and was deferred to a considerably later date.

When the matter came to the attention of the revenue authorities, it was observed that the stamp duty valuation of the property for the relevant financial year under consideration stood at Rs. 1,06,84,500/- — substantially higher than the consideration paid. This triggered reassessment proceedings under Section 147 of the Act for Assessment Year 2018-19, given that the registration of the property fell within that year.

The Assessee's Mistaken Computation

During the course of reassessment proceedings, the assessee, under a mistaken belief that Section 56(2)(x) was applicable to her transaction, voluntarily commissioned a valuation exercise. A registered valuer, M/s RAM LAKHANI (Architects-Town Planner's Interior Designer-Valuers of Rajshree Shahu Maharaj Cross Road, Andheri West, Mumbai-400069), determined the fair market value of the property at Rs. 34,70,760/- as on the financial year 2009-10.

The assessee then computed her income from other sources at Rs. 19,70,760/- — being the difference between the registered valuer's assessed value of Rs. 34,70,760/- and the actual consideration paid of Rs. 15,00,000/- — and offered this amount to taxation. The corresponding tax liability was duly discharged. The Assessing Officer accepted this revised computation and completed the reassessment on that basis.

The Core Legal Dispute

Assessee's Subsequent Realization

After the reassessment was finalised, the assessee recognised that her earlier computation had been premised on a fundamental legal error. Section 56(2)(x) of the Income Tax Act, 1961 — which brings within the tax net any immovable property received for a consideration lower than its stamp duty value or fair market value by a prescribed threshold — applies only to transactions entered into on or after 1st April 2017.