Clarifications for Section 56(2)(x)

Background

The Mumbai Bench of the Income Tax Appellate Tribunal has delivered an important ruling clarifying the application of Section 56(2)(x) of the Income Tax Act in cases involving delayed property registrations following earlier allotment agreements. The case concerned Pramod Salvi, an individual taxpayer who had purchased two residential flats in Mumbai for ₹2.04 crore each. While the agreements for sale were registered in March 2018, the flats had originally been booked much earlier in 2007, with substantial payments made through banking channels over several years. At the time of registration, the stamp duty authority valued each flat higher, resulting in a differential of ₹45.03 lakh, which the Assessing Officer taxed as income from other sources under Section 56(2)(x). The taxpayer argued that the allotment letters issued by the builder in 2010, along with part payments made well before registration, constituted an “agreement to sell” for the purposes of the provisos to Section 56(2)(x). Accordingly, the relevant stamp duty value should be taken as on the date of allotment rather than the later registration date.

Outcome

Agreeing with this position, the Tribunal relied on earlier coordinate bench rulings which recognised allotment letters as valid agreements fixing consideration where parties had acted upon them. Since the assessee had paid instalments through non-cash modes prior to registration, the statutory conditions under the provisos stood satisfied. The Tribunal held that the stamp duty valuation as on the allotment date must govern the tax treatment, not the inflated value at the time of registration. The matter was remanded to the Assessing Officer solely to verify the stamp value prevailing in 2010 and recompute the addition accordingly.