[2010] 3 taxmann.com 56 (Ahd. - ITAT)

 

Provisions of section 50C are applicable only for computation of capital gains in real estate transaction in respect to seller only and not for purchaser

 

ITAT, AHMEDABAD BENCH B AHMEDABAD

ITO

v.

Harley Street Pharmaceuticals Ltd.

ITA No. 2492/Ahd/2007

March 16, 2010

RELEVANT EXTRACTS:

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4. We have heard the rival contentions and gone through the facts and circumstances of the case. We have also perused the case records including the assessment order as well as the order of CIT(A). Now the only issue in this appeal of the Revenue is that, whether the provision of Section 50C of the Act applies to purchaser or not. For this, we have to go to the relevant provision of Section 50C of the Act as introduced by Section 24 of the finance Act, 2002 with effect from 1-4-2003, for and from assessment year 2003-04 inamely:-

"S.50C. Special provision for full value of consideration in certain cases, - (1 Where the consideration received o 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 by any authority of a State Government (hereinafter 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 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 -

(a) the assessee claimed before any Assessing Officer that the value adopted or assessed by the stamp valuation authority under subsection (1) exceeds the fair market value of the property as on the date of transfer;

(b) the value so adopted or assessed by the stamp valuation authority under sub-section (i) has not been disputed in any appeal or revision or no reference has been mad^%efore any other authority, court or the High Courtjhe 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-sections (2), (30, (4), (5) and (6) of section 16A, clause (i) of sub-section {1) and subsections (6) and (7) of section 23A+ sub-section (5) of section 24, section 34 A A. section 35 and section 37 of the Wealth-tax, Act, 1967 {27 of I957)t shatt. with necessary modifications, apply* in relation to such reference as they apply in relation to a reference made by the Assessing Officer under subsection (1) of section 16A of that Act.

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

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

5. The relevant provision of Section 50C of the Act was explained and elaborated in the following portion of the Departmental Circular No.8 of 2002 dated 27-08-2002, as under:- .

"37. Computation of capital gains In real estate transactions, - 37.1 The Finance Act, 2002 has inserted a new section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property.

37.2 It provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration, and capital gains shall be computed accordingly under section 48 of the Income-tax Act.

37.3 It is further provided that where the assessee claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer, and he has not disputed the value so adopted or assessed in any appeal or revision or reference before any authority or Court, the Assessing Officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with section 55A of the Income-tax Act. If the fair market valusdetermined by the Valuation Officer is less than the value adopted for stamp duty purposes, the Assessing Officer may take such fair market valu9e to be the full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes the Assessing Officer shall not adopted such fair market value and shall take the full value of consideration to be the value adopted or assessed for stamp duty purposes.

37.4 This amendment will take effect from 1* April, 2003, and will, . accordingly, apply in relation to the assessment year 2003-04 and subsequent . years [Section 4]".

6. We further find that this provision was elaborated in the Notes on clauses and Memo. Explaining Provisions in the Finance Bill, 2002 as under:-

Notes on Clauses:- :

'Clause 24 seeks to insert a new section SOC in the Income-tax Act to provide for a special provision for full value of consideration in certain cases.

The proposed sub-section (1) of the said section seeks to provide that 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 by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.

The proposed sub-section (2) of the $&d section seeks to provide that where the assessee claims before any Assessing Officer that the value adopted or assessed by the authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer and the value so adopted or assessed by the 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 a 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-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A. sub-section (5) of section 24, section 34AA,'section 35 and section 37 of the Wealth-tax Act, 1957, shall, with the 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. The Valuation Officer shall be the Valuation Officer as defined in clause of section of the Wealth-tax Act, 19S7.

The proposed sub-section (3) provides that where the value ascertained under sub-section (2) exceeds the value adopted or assessed by the authority referred to in sub-section (1), the value so adopted or assessed by the authority shall be taken as the full ^a%te of the consideration received or accruing as a result of the transfer. %z$

This amendment will take effect from 1st April, 2003, and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years."

Memorandum Explaining Provisions of Section 50C in the Finance Bill, 2002, as under:- J.

" The Bill proposes to insert a new section 50C in the Income-tax Act to. make a special provision for determining the full value of consideration in cases of transfer of immovable property.

It is proposed to provide that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less then the value adopted or assessed by any authority of a sate Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration, and capital gains shall be computed accordingly under section 48 of the Income-tax Act

It is further proposed to provide that where the as claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the ate of transfer, and he has not dispute the value so adopted or assessed in any appeal or revision or reference before any authority or Court, the Assessing Officer ma refer the valuation of the relevant asset to a Valuation Officer in accordance with section 55A of the Income-tax Act. If the fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes, the Assessing Officer shall not adopt such fair market value and will take the full value of consideration to be the value adopted or assessed for stamp duty purposes.

It is also proposed to provide that if the value adopted or assessed for stamp duty purposes is revised in any appeal, revision or reference, the stamp duty purposes is revised in any appeal, revision or reference, the assessment made shall be amended to re-compute the capital gains by taking the revised value as the full value of consideration.

These amendments will take effect from 1st April, 2003, and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years. [Clauses 24 and 59]"

7. In view of the above provision and explaining the provision, we are of the view that the law u/s. 50C had been provided adequate protection to the tax-payers against adoption of arbitrary values for the computation of capital gains and the following precautionary are provided:-

(i) The value which is considered as the proper value of the property as fixed by the authority for registration for stamp duty purposes is presumed to be the fair market value for the purposes of computation of capital gains on the sale of property.

(ii) It is open to the taxpayer to plead that such stamp value is abnormal and contest the same in appeal under the stamp law requiring adoption of reduced value. If such value is reduced in appeal under the provisions of the relevant stamp law, such reduced value would alone be adopted.

(iii) Where such stamp value is not disputed, H is open to the assessee to require the Assessing Officer to refer the valuation to the Valuation Officer, who shall fix the valuation by adoption of the procedure prescribed under section 16A of the Wealth-tax Act. It is such value, which will be adopted by the Assessing Officer. We further find from the Memorandum Explaining the provision of Section 50C in the Finance Bill, 2002, which clearly states that where the consideration declared to be received or accruing as a result of transfer of land or building or both is less than the value adopted or assessed by any authority of a Sate Govt, for the purposes of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration and capital gains shall be computed accordingly u/s.48 of the Act. In case the value adopted or assessed for stamp duty purposes is revised in any appeal, revision or reference, the assessment made shall be amended to re-compute the capital gains by taking the revised value as the full value of consideration. Accordingly, we are of the view that the provisions of section 50C are applicable only for the computation of capital gains in real estate transaction in respect to seller only and not for the purchaser. We find from Section 50C of the Act that it creates a legal fiction thereby apparent consideration is substituted by valuation done by Stamp Valuation Authorities and capital gains are calculated accordingly. Legal fiction cannot be extended any further and has to be limited to the area for which it is created, Hon'ble Andhra Pradesh High Court in the case of Addl. CIT v. Durgamma P. (1987) 167 1TR 776 (AP) held that it is not possible to extend the fiction beyond the field legitimately intended by the statute. The Hon'ble court was dealing with the provisions of sec. 171(1) of the I.T.Act in the context of which it was held that joint family shall be deemed to continue for the limited purpose of assessing cases of joint families which have been hitherto assessed as such. It Is not possible to extend that fiction to other cases. Similar view was taken by the Hon'ble Keria High Court in CIT v. Kar Valves Ltd. (1987) 168 ITR 416 (Ker.) wherein it is held that legal fiction is limited to the purpose for which they are created and could not be extended beyond that legitimate frame, Hon'ble Kerala High Court was dealing with the case where assessee sought to take advantage o? sec.41(2) by submitting that if liabilities are not liquidated and outstanding are not collected, then business could be deemed to continue. The Hon'ble Allahabad High Court in the case of Controller of estate Krishna Kumar Devi (1988) 173 ITR 561 (All) held that in interpreting the legal fiction the court should ascertain the purpose for which it was created 2nd after doing so assume all facts logical to give effect to the fiction, Hon'ble Supreme Court in CIT v. Mother India Refrigeration Pvt. Ltd. (1985) 155 ITGR 711 (SC) held that legal fictions are created only for some definite purpose and they must be limited to that purpose and should not be extended beyond that legitimate field. In CIT v, Bharani Pictures (1981) 129 ITR 244 (Mad,) it is held that legal fictions are for a definite purpose and are limited to the purpose for which they are created and should not be extended beyond its legitimate field. The statutory fiction introduced in one enactment cannot be incorporated in another enactment. The point that legal fiction cannot be extended to a new field was highlighted by Hon'ble Madras High Court in CIT v. Rajam T.S, (1988) 125 ITR 207(Mad,) wherein it is held that section 41(2) creates a legal fiction under which the balancing charge is treated as business income chargeable to tax but when this amount is distributed to shareholders then it would not become deemed dividend and it would be only a capital receipt and not distribution of accumulated profits. Thus, a legal fiction was invoked in the hands of the assessee company and was not extend. In the hands of the shareholders. In the present case, section 50C creates a legal fiction for taxing capital gains in the hands of the seller and it cannot be extended for taxing the difference between apparent consideration and valuation done by Stamp Valuation Authorities as undisclosed investment U/s 69. In fact, section 69 itself is a legal fiction whereby investment into an asset is treated as income if it is not disclosed in the regular books of account. No further legal fiction from elsewhere in the statute can be borrowed to extend the field of section 69. It is for the legislature to introduce legal fiction to overcome difficulty in taxing certain receipts or expenditure which otherwise was not possible under normal provisions of the Act. It is with this purpose that when it was found difficult to prevent tax evasion by understating apparent sale consideration as compared to the valuation made by Stamp Valuation Authorities for the purposes of levying stamp duty then it was thought necessary to Introduce section 50C for substituting apparent sale consideration by valuation done by Stamp Valuation Authorities, This fiction cannot be extended any further and, therefore, cannot be invoked by Assessing Officer to tax the difference in the hands of the purchaser. Hon'ble Madras High Court in CGT v, R. Damodaran (2001) 247 ITR 698 held that Stamp Valuation Authorities have their own method of evaluating the property. Merely because for the purpose of stamp duty, property is valued at higher cost, it cannot be said that assesses has made more payment than what is stated facts the sale deed. The Hon'ble Allahabad High Court In Dinesh Kumar Mittal v. ITO {1992)193 ITR 770 (All.) quashed the order of authorities below, wherein half of the difference between the amount paid and the value for purposes of stamp duty was added as income of the assessee by the Assessing Officer. It is held that there is no rule of law to the effect that the value determined for the purposes of stamp duty is the actual consideration passed between the parties to the sale. In the present case the Assessing Officer has applied this provision of Section 50C for the computation of unexplained investment ;j/s.69B of the Act and which is not permissible under the Act. Apart from the stamp duty valuation, there is nothing on record which suggests that the Revenue has proved that the assessee has accepted over and above, what has been recorded as purchase consideration of the land in the instrument i.e. the sale deed. We are in full agreement with the arguments of the assessee that Section 50C is not applicable in the case of purchaser and this provision being a deeming provision will apply for determining the full value of consideration as a result of transfer of capital assets for the purposes of computation of capital gains u/s.48 of the Act. We further find that there is no evidence on record to show that the consideration over and above, what has been recorded in the sale deed, has been made by the assessee and in the absence of the same, no addition of undisclosed investment can be made by invoking the provision of Section 69B of the Act. Accordingly, we confirm the order of CIT(A) deleting the addition and this issue of the Revenue's appeal is dismissed.

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