Brief of the Case
ITAT Hyderabad held in the case of Gulf Oil Corporation Ltd. vs. ACIT that section 50C will get attracted only when there exists difference on the sale consideration and assessed value for the purpose of stamp duty by the authority of a state government. Where there is no material evidence that the assessee had received more than the fixed component from the developer, the value agreed to be exchanged for transfer of land was determined on the basis of development agreement, it becomes the final sale consideration unless contrary is produced by the revenue. In the present case, revenue has not brought any evidence to show that the assessee had received more than the agreed value as in the developmental agreement. So, the same has to be adopted as sale consideration. Since there is no evidence for receipt of higher consideration and it is bonafide transaction, section 50C has no jurisdiction over this transaction.
Facts of the Case
The Assessee is a company engaged in the business of manufacturing of Lubricant Oil. The Assessee filed its return of income for the AY 2005-06 on 30.10.2006, admitting loss from Business Rs.274,03,615/- and Long term capital gain on sale of Land at Rs. 16,56,29,605/-. The book profit under section 115JB was declared at Rs. 17,77,38,422/-. The case was selected for scrutiny and AO completed the assessment u/s 143(3), determined the total income at Rs. 48,96,74,233/-.
The Assessee had total land of 29015.77 sq. meters and out of which it sold 14507.885 sq.mts on 28.06.2003, which was identified as ‘A’ and Balance of land as ‘B’. The balance land was sold again in two parts, which was identified as ‘B1’ – 10012.483 sq.mts and ‘B2’ – 4495.372 sq.mts. During the current year under consideration, Assessee had sold and registered only 7551.2 sq.mts for the consideration of Rs. 18.50 crores and balance of B1 land was sold and registered following year. Assessee offered as sales consideration for computing capital gain for AY 2005-06 Rs. 18.50 crores and in AY 2006-07 Rs. 6.03 crores accordingly after completing the due process of registration of documents . Whereas the AO observed from the sale agreement that all the land identified as ‘B’ i.e., both B1 and B2, agreed to sell by the Assessee to the developer but process of document registration was completed subsequently. Since the agreement to sell was entered for whole land, it amounts to transfer even though the registration was completed later after the agreement date. AO also observed that the possession was handed over as part performance of the agreement. According to AO, It is immaterial when the consideration received or registration process completed. Accordingly AO brought to assessment the whole land comprising of B1 and B2.
AO observed that as per sec 50C, market value as per Stamp valuation Authorities was required to be adopted as full value of consideration. AO sought the information from SRO and based on the information, AO adopted Rs. 3400/- per sft for commercial area and Rs. 2800/- per sft for residential area. Based on the plan of development, which was acquired by AO from SRO office, in the ratio of 80:20 for commercial area and residential area development respectively. AO calculated the average rate of Rs.3280/- per sft as market value under section 50C. Accordingly calculated the income under Capital Gains for the AY 2005-06 taking the above rate as fair market value.
Contention of the Assessee
The ld counsel of the assessee submitted that the assessee owned land admeasuring 29015.770 sq.mts. , which was transferred and there was no sale deed as such but merely agreements were entered into. The sale proceeds were received upon transfer of the land from time to time. He further submitted that sale consideration for B1 (part II) lands were received in the financial year 2005-06 relevant to asst. year 2006-07. The possession of B 1 (Part II) lands was handed over on 16/9/2005, when the first instalment of 4.5 crores was received, which falls in the asst. year 2006-07.The assessee company has also declared the capital gain for asst. year 2006-07 and was taxed. As regards B2 land admeasuring 4,495.402 sq.mts. Ld.AR submitted that the relevant agreement with M/s Hinduja Realty Ventures Ltd. was dated. 31/3/2008. The entire amount of Rs.11,50,00,000 was received on 31st March, 2008 .The possession of the property was delivered on 31st March, 2008. The capital gain was declared and was assessed in A.Y.2008-09.
Contention of the Revenue
The ld counsel of the revenue submitted that Agreement for sale was made together to sell the whole land identified as B1 and B2, the lands were also handed over to the developer and registration as well as the payments were received subsequently. The consideration for whole land must be considered for calculation of capital gain.
Held by CIT (A)
CIT (A) agreed with the argument of the Assessee and directed the AO to consider the sale of land only to the extent of the land which was transferred and registered during the year under consideration i.e., to the extent of 7551.2 sq.mts but directed the AO to consider the SRO value as adopted by him under section 50C in the assessment order.
Held by ITAT
ITAT held that the assessee had made merely supplementary agreement to sell on 15.10.2004. Wherein it had agreed to split the land identified as B into two parts as B1 and B2 and accepted the revised payment schedule from the developer. The actual registration for sale was made only after receipt of funds as per schedule agreed with the developer. In the current year under consideration, it had received payments only for B1 part I of the land and accordingly made arrangement to register the sale deed. Accordingly it had offered the same for capital gains. It was not disputed by the revenue. The other portions in the above said agreement were in dispute. The original development agreement was made on 28.06.2003. We cannot follow the line of argument of the revenue that since the agreement was made on 15.10.2004; the whole part of B should be considered as agreement to sale and considered for calculation of capital gains. We are inclined to question ourselves, what happens when the parties cancels the agreement subsequently in case of any disputes arises in the later period. In the real estate development, subsequent to the agreement for development, the developer will take the possession of the land and precede with the development activities. It doesn’t mean that the ownership had passed, it is only part performance. As and when the payment and development activities are completed by mutual consent, the ownership passed on to the developer by completing the formalities by making the actual sale registration.
In the present case, the development activities and payments were received only to the extent of land identified as B1 part I. The same was rightly offered for tax by the Assessee in the AY 2005-06. The same was confirmed by the ld CIT (A) and we do not infer to modify the findings of the ld CIT (A) and dismiss the grounds of the revenue.
Applicability of Sec.50 on unregistered documents on the date of agreement to sell
ITAT held that the section 50C will get attracted only when there exist difference on the sale consideration and assessed value for the purpose of stamp duty by the authority of a state government. In the present case under consideration, the assessee entered into developmental agreement with M/s Abhishek Developers on 28/06/2003 for development of land of 29015.77 sq.mts. The assessee agreed to develop this land with sale consideration as set out in the development agreement dtd. 28/06/2003.
From the above, it can be seen that the assessee receives sale consideration in two parts. First part as fixed components towards cost of land and as variable components in the form of developmental rights. There is no dispute that the assessee had offered to tax the fixed component for capital gains tax. There is no material evidence that the assessee had received more than the fixed component from the developer. Since the value agreed to be exchanged for transfer of land was determined on the basis of development agreement, it becomes the final sale consideration unless contrary is produced by the revenue. In the present case, revenue has not brought any evidence to show that the assessee had received more than the agreed value as in the developmental agreement.
The Hon’ble Punjab & Harayana High Court in CIT Vs. Chandini Bhuchar reported in 323 ITR 510 has held as under: “In the absence of any admissible evidence, valuation done by stamp duty authorities could not be taken as actual sale consideration and the value shown in the sale deed had to be accepted.” It is clear that there has to be excess money should have passed on to the seller or the value cannot be determined, then only the section 50C will get attracted. In absence of such variation or finding, section 50C will have no jurisdiction.
In our considered view, the assessee had received only the sale consideration what is agreed with the developer and offered the same. There is no material evidence, which shows that the assessee had received more than the value agreed as per the development agreement. The same has to be adopted as sale consideration and since there is no evidence for receipt of higher consideration and it is bonafide transaction, section 50C has no jurisdiction over this transaction.
Accordingly appeal of the revenue dismissed.