The taxation of immovable property transactions in India has always been a fine balancing act between real income taxation and anti-abuse safeguards. One such provision, Section 56(2)(x) of the Income-tax Act, 1961, brings within the tax net any transfer of immovable property where the stamp duty value (SDV) exceeds the consideration declared by the buyer.
A recent decision of the ITAT Chennai in SPL Shelters Pvt. Ltd. v. DCIT (2025) has once again sharpened the debate on whether stamp duty registration charges and incidental costs form part of “consideration” or “stamp duty value” for the purpose of Section 56(2)(x). This ruling is significant because it reshapes both buyer-side compliance and seller-side tax planning.
The Law at a Glance
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Section 56(2)(x): If an immovable property is received for consideration, and the consideration is less than the stamp duty value by more than ₹50,000, the difference is taxable as “Income from Other Sources” in the hands of the buyer.
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Proviso (safe harbour): Relief is provided where the difference is within 10% (now 5% in certain cases) of the consideration.
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Section 50C: For the seller, where the sale consideration declared is lower than the SDV, capital gains are computed with SDV as deemed consideration.
The SPL Shelters Ruling – Key Takeaways
The ITAT held that:
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Stamp duty registration charges and incidental expenses borne by the buyer cannot be treated as part of “consideration” under Section 56(2)(x).
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Consideration means the price agreed between the parties for transfer of the property, not the statutory or incidental costs attached to registration.
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Hence, stamp duty value cannot be inflated by including such charges.
This interpretation provides much-needed clarity but also opens fresh challenges, particularly where buyers attempt to artificially suppress sale consideration while absorbing registration charges to bridge the gap.
Judicial Support & Interpretative Trends
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CIT v. K.P. Varghese (SC, 1981): Taxing unreal or notional gains goes against the scheme of capital gains tax. A purposive interpretation must prevail.
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K.R. Palanisamy (Madras HC, 2017): SDV is a deeming fiction to curb evasion, but adjustments must align with fair market realities.
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SPL Shelters (ITAT Chennai, 2025): Registration expenses are not part of consideration.
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Dharmashibhai Sonani (Guj HC, 2016): Buyer cannot be taxed where differential value is only due to valuation disputes.
These rulings show a consistent judicial thread: protect revenue from suppression but avoid punishing genuine transactions.
Buyer’s Perspective
Compliance Points:
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Only the agreed purchase price is “consideration”. Registration charges, stamp duty, and incidental costs are separately borne and excluded.
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Do not under-declare sale price assuming registration charges will plug the gap — this amounts to misuse and invites scrutiny.
Misuse in Practice:
Some buyers misreport by:
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Paying a lower recorded sale price but bearing inflated registration charges outside the deed.
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Splitting consideration into “on-record” and “off-record” components.
Such practices expose buyers to additions under Section 56(2)(x) and even penalty under Section 270A for misreporting.
Seller’s Perspective
Tax Impact:
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Section 50C will apply only on the declared consideration vs. SDV. Seller cannot shift the incidence by pointing to buyer-borne registration charges.
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If challenged, seller must substantiate fair value through valuation reports under Section 50C(2).
Caution:
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Sellers often accept a reduced sale deed price on the understanding that buyers will bear heavy registration fees. This arrangement is risky — the seller’s capital gains may still be recomputed using SDV, leading to double jeopardy (for both seller under 50C and buyer under 56(2)(x)).
Scenarios at Play
| Scenario | Buyer’s Tax Position | Seller’s Tax Position | Caution Point |
|---|---|---|---|
| Sale price < SDV, buyer pays heavy stamp duty | Difference taxed u/s 56(2)(x) | Gains taxed u/s 50C on SDV | Misuse if price deliberately suppressed |
| Sale price ≈ SDV within 10% tolerance | No addition | Gains taxed on actual price | Ensure proper valuation evidence |
| Sale price < SDV due to litigation/lease restrictions | Relief possible with valuation officer report | 50C adjustment can be avoided | Must invoke Sec 50C(2) timely |
| Genuine distress sale (auction, liquidation) | Relief possible (judicial precedents) | 50C may not apply in forced sales | Document distress circumstances |
Tax Planning & Compliance Safeguards
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Pre-Transaction Valuation: Obtain a registered valuer’s report to justify consideration if lower than SDV.
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Transparent Documentation: Ensure all payments are reflected in the sale deed; avoid side arrangements.
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Safe Harbour Utilisation: Use the 10%/5% tolerance margin wisely in structuring deals.
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Cross-Verification: Both parties should cross-verify AIS/TIS to avoid CPC mismatch notices.
The SPL Shelters ruling is a welcome clarity for taxpayers, but it also reminds us that anti-abuse provisions cannot be side-stepped by cosmetic adjustments like loading buyers with registration costs.
For buyers, the message is clear: pay fair value, record true consideration, and do not misuse incidental charges as a shield. For sellers, prudence lies in valuation substantiation and full disclosure.
Ultimately, Section 56(2)(x) and Section 50C operate as twin safeguards — one from the buyer’s side and the other from the seller’s — and both must be respected for a transaction to pass legal scrutiny.
