Case where the Guidance Value of Land/Building is to be considered

Case Details: PCIT v. Smt. Sarojini M. Kushe P.V.S. Beedies (P.) Ltd. - [2022] 135 taxmann.com 365 (Karnataka)

Judiciary and Counsel Details

• • Mrs. S. Sujatha and Hanchate Sanjeevkumar, JJ.
  • K.V. Aravind, Adv. for the Appellant. 
  • A. Shankar, Sr. Counsel and A. Mahesh Chowdhary, Adv. for the Respondent.

Facts of the Case

The assessee entered into a Joint Development Agreement (JDA) with TCPL to develop 84 cents of land. Assessing Officer (AO) had brought to tax Rs. 5.68 crores as capital gains by adopting construction cost as sale consideration based on JDA between the assessee and TCPL

On appeal, the CIT(A) allowed the assessee’s appeal and directed the AO to adopt fair market value based on the Government records as deemed consideration for calculating capital gain. ITAT justified the action of CIT(A). AO filed the instant appeal before the High Court.

High Court Held

The High Court held that the basis for determining the full value of consideration by the AO based on the developer’s letter could not be appropriate. The AO had adopted the rate of Rs. 1600 per square feet is merely based on the developer’s letter, which is not supported with any particulars. The possibility of the developer offering an inflated figure to suit his requirements cannot be ruled out to gain minimum tax on his profits by inflating his costs.

No doubt at the relevant period, no provision was available in cases where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable. Section 50D inserted by Finance Act, 2012 with effect from 1-4-2013 would throw some light on the said issue. Even in terms of this provision, construction cost would not be the appropriate method to arrive at the full market value of consideration.

Thus, the guidance value of the land or the guidance value of the building would be an appropriate mode to determine the full value of consideration in the case of a transfer where consideration for the transfer of a capital asset is not attributable or determinable. Hence, the guidance value adopted by the Tribunal couldn’t be faulted with.

Case Review

• • Order passed by ITAT, Bangalore Bench ‘A’, Bengaluru in IT Appeal No. 989/Bang/2014, dated 27-4-2016 (para 16) affirmed.
  • ITO v. N.S.Nagaraj [2014] 52 taxmann.com 511/[2015] 152 ITD 262 (Bang.-Trib.) (para 16) distinguished.

List of Cases Referred to

• • Asstt. CIT v. Shankar Vittal Motor Co. Ltd. [IT Appeal No. 35 (Bang.) of 2015, dated 18-3-2016] (para 5)
  • CIT v. B.C. Srinivasa Setty [1981] 5 Taxman 1/128 ITR 294 (SC) (para 7)
  • CIT v. Podar Cement (P.) Ltd. [1997] 92 Taxman 541/226 ITR 625 (SC) (para 7)
  • CIT v. Vatika Township (P.) Ltd. [2014] 49 taxmann.com 249/227 Taxman 121/367 ITR 466 (SC) (para 7)
  • CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622 (SC) (para 11)
  • CIT v. Excel Industries Ltd. [2013] 38 taxmann.com 100/219 Taxman 379/358 ITR 295 (SC) (para 12)
  • CIT v. Bilahari Investment (P.) Ltd. [2008] 168 Taxman 95 (SC) (para 12)
  • Seshasayee Steels (P.) Ltd. v. Asstt. CIT [2020] 115 taxmann.com 5/275 Taxman 187/421 ITR 46 (SC) (para 14)
  • ITO v. N.S. Nagaraj [2014] 52 taxmann.com 511/[2015] 152 ITD 262 (Bang. – Trib.) (para 16).