Case Law Details

Case Name : Gouli Mahadevappa Vs Income Tax Officer (Karnataka High Court)
Appeal Number : ITA No. 5067/2010
Date of Judgement/Order : 06/01/2012
Related Assessment Year : 2005-2006

Equivalent Citations : (2012) 80 CCH 372 KarHC (2013), 215 TAXMAN 145 (Karnataka) , (2013) 259 CTR (Kar) 579 , (2013) 356 ITR,  90 (Karn) (2013) 88 DTR (Kar) 59

The appellant-assessee sold a house plot in RMV II Stage, Bangalore, for Rs.20,00,000/- under registered sale deed dated05.06.2004. The Assessing Authority found that the registration value of the property fixed under the Karnataka Stamp Act is Rs.36,00,000/-. The assessee, however, had reinvested Rs.24,00,000/-for construction of residential house at Gangavathi and sought exemption from the payment of capital gain tax under Section 54F of the Income Tax Act (for short ‘the IT Act’).

The Assessing Authority found that under Section 50C of the IT Act the value of the property is Rs.36,00,000/-, The cost price of site paid by the assessee at Rs.1,93,506/- was deducted and the net income chargeable to tax under Capital Gains was assessed at Rs. 34,06,494/-, further, the Assessing Authority given deduction of Rs.20,00,000/- towards investment in construction of residential house at Gangavathi and assessed the long term Capital Gain at Rs.14,06,494/- and the tax payable is assessed at Rs.4,96,989/-. The assesses filed an appeal before the Commissioner of income Tax (Appeals) who confirmed the order of the Assessing Officer. The assessee filed an appeal before the Income Tax Appellate Tribunal, Bangalore. The Appellate Tribunal upheld the order of the Assessing Authority and dismissed the appeal The assessee, aggrieved by the said order of the Appellate Tribunal, has filed this appeal.

After considering the arguments of the appellant and the Revenue, the following substantial questions of law would arise for consideration in this appeal: Whether the registration value fixed by the State authorities under the Stamp Act would constitute full consideration value for the purpose of levy of long-term capital gains’? Whether the assessee is entitled to contend that the sale consideration shown in the sale deed is the fair market value? Whether the long-term capital gain has to be assessed on the value stated in the sale deed?

Section 50C(1) is a deeming provision wherein the registration value fixed by the State Government under the Stamp Act is deemed to be considered as the full value consideration. Section 50C(2), however, permits the assessee to contend before the Assessing Authority that the registration value fixed by the State under the Stamp Act is excessive and does not correspond with the fair market value of the property as on the date of the transfer and that the assessee should not have challenged the levy of stamp duty under the Stamp Act as being excessive and disproportionate to the fair market value of the property before the authorities under the Stamp Act or file any appeal, revision or reference to any Court or High Court against such order, in which event the Assessing Authority would refer the matter to the Valuation Officer to assess the fair market value of the property, keeping in view all the relevant consideration including the registration value fixed by the State, Sub-section 3 provides that if the fair market value fixed by the Valuation Officer is in excess of the registration value, then the registration value should be considered for levy of the capital gains tax. If the Valuation Officer finds that the value of the property is less than the registration value, then, accordingly, the Assessing Authority should levy capital gains tax on the basis of market value stated by the Valuation Officer,

In the instant case, it is to be noticed that the assessee has not availed the opportunity to question the correctness of the registration value fixed by the State Government, if he had done so, then the Assessing Authority would have invoked the power of appointing Valuation Officer for assessing the fair market value. When the registration value is not the disputed question, now, at this stage, it is not permissible for the assessee to contend that the registration value is excessive and disproportionate to the market value of the property. In the absence of contra material, the deemed full value of consideration as stated in Section 50C  of the IT Act would come into effect.

The assessee before the Assessing Authority had stated that he has invested Rs.20,00,000/- out of the sale consideration and further investment of Rs.4,00,000/- of agricultural income towards construction of the house at Gangavathi. The total amount shown to be invested for construction of house at Gangavathi is Rs.24,00,000/-. The Assessing Authority has disallowed the benefit of exemption of Rs. 4,00,000/-.  That part of the order of the Assessing Authority and the Appellate Authority does not appear to be sound and proper. The ultimate object and purpose of Section 50C of the IT Act is to see that the undisclosed income of capital gains received by the assessees should be taxed and the law should not encourage and permit the assessee to peg down the market value at their whims and fancy to avoid tax. In other words, the ultimate object is to curb the growth of black money. When the capital gain is assessed on notional basis, whatever amount invested in new residential house within the prescribed period, under Section 54F of IT Act the entire amount invested, should get the benefit of deduction irrespective of the fact that the funds from other sources are utilized for new residential house. In that context, whatever total amount actually invested by the assessee for construction of house at Gangavathy should be deducted irrespective of the fact that part of the funds invested are from other sources and not from the capital gain that view or the matter, the amount assessable towards net capital gain should be Rs.10 33.404/

The counsel for the appellant submits that levy of interest is harsh, no provisions 50C of the IT Act was the latest introduced provision. The assessee was not aware of the said provision. It is further submitted that assessee is a resident of Gangavathi, the plot at Bangalore was allotted to him as he was a freedom fighter and he was not aware of the actual market value of the properly at Bangalore, he was guided by the real estate agent the plot at Bangalore was unproductive, not yielding any icome,  he was urgently in need of money for construction of the house at Gangavathi and therefore, the appellant-assessee sold the plot at Bangalore, bonafidely for a sum of Rs.24.00, 000/- and there is no attempt on his part to conceal the income to evade tax. The submission made at the Bar may be good for avoiding penalty, but however Section 234A & 234B mandates levy of interest at 12 percent per annum which the assessee cannot avoid and the Court has no jurisdiction to interfere with the same.

In that view of the matter, the appeal is partly allowed. The net capital gain should be assessed at Rs.10.06,494/- with proportionate interest as assessed by the Assessing Authority.

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  • Manish J. Sheth

    With due respect to the ITAT order, I am of the opinion that judgment is not good as the assessee is asked to invest full notional value if he want to take full benefit of section 54. If a person has not received the extra consideration but for some reason the stamp duty value is excessive, how can one invest in section 54 for additional amount. The case is also not properly argued by assesses counsel in this regards.