Applicability of Section 50C on Transfer of property through transfer of shares in company

ACIT Vs Santosh Kumar Garg (ITAT Delhi)

ection 50C could be invoked only if the sale consideration received is less than the value adopted by Stamp Valuation Authority of the State Government for the purpose of payment of stamp duty. However, there is no evidence that any stamp duty has been paid towards transfer of the plot of land as held by the assessing officer and that the Stamp Valuation Authority adopted any particular value as sale consideration for payment of stamp duty in the present transaction. In fact, in this case there is a mere transfer of shares of a company and no stamp duty appears to be payable towards plot of land. In the assessment order also it is nowhere stated that any state government authority has adopted a particular value at the time of payment of stamp duty by the parties to the said share purchase agreement. We further find that section 50C has undergone amendment with effect from 1-10-2009. The word ‘assessed or assessable’ has been inserted in place of ‘assessed’ appearing before that date. If the transaction were to have taken place after 1-10-2009, it would have been possible to take the value which could have been assessable by the stamp valuation authority even in cases where such value has not be assessed or adopted. Since the transaction has taken place on 6-11-2008, the said amendment is not applicable for the current assessment year and therefore the assessing officer cannot adopt on his own the circle rates. The procedure adopted by the assessing officer in determining the capital gain from the said transaction is not tenable under the law as it stood applicable for the current assessment year. We are of the view that section 2(47)(vi) is applicable in the cases where the asset in question is like a group of houses owned by a company and each shareholder is allotted a house for his personal enjoyment similar to what is prevalent in housing cooperative societies. However, there is no necessity to adjudicate on this issue as even if t is assumed that transfer of shares of the said company amounted to transfer of plot of land, in the absence of any evidence of extra amount having been exchanged, no addition can be made invoking section 50C as noted in the previous paragraph. Therefore, addition made by the assessing officer was rightly deleted by the learned Commissioner (Appeals), which does not need any interference on our part, hence, we uphold the action of the learned Commissioner (Appeals) and reject the ground raised by the Revenue.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

The Revenue has filed this Appeal against the impugned Order dated 19-2-2013 of the learned Commissioner (Appeals)-XXXI, New Delhi relevant to assessment year 2009-10.

2. The grounds raised in this Appeal read as under: —

“1. The order of learned Commissioner (Appeals) is not correct in law and facts.

2. On the facts and circumstanced of the case, the learned Commissioner (Appeals) has erred in law in deleting the addition of Rs. 2,21,09,600 holding that the provision of section 50C of the Income Tax Act, 1961 cannot be invoked in this case when there was a transfer of immovable property in view of the provisions of section 2(47)(vi) of the Income Tax Act, 1961?

3. On the facts and circumstances of the case, the learned Commissioner (Appeals) has erred in law in not considering the fact that the choice of the assessee in selecting a particular mode of transfer of such assets will not alter or determine the nature or character of the asset.

4. The appellant craves leave to ad, amend any/ all the grounds of appeal before or during the course of hearing of the appeal.”

3. The brief facts of the case are that assessee filed his return of income on 30-9-2008 declaring income of Rs. 19,18,630. Subsequently, first notice under section 143(2) of the Income Tax Act, 1961 (hereinafter referred as the Act) was issued on 16-7-2010 and duly served upon the assessee. After that, a questionnaire alongwith notice under section 143(2) of the Act was issued on 9-8-2010 and required the part details. In response thereto, the Authorised Representative of the assessee filed the details/documents from time to time, which have been examined by the assessing officer. After the search operation, vide his letter dated 26-9-2008, the assessee surrendered an amount of Rs. 2,50,00,000 as his additional income for assessment year 2009-10 on account of cash receivable as on 31-7-2008 and on account of house hold items and expenses amounting to Rs. 25,00,000. The assessing officer observed that assessee has included the surrendered amount of Rs. 2,50,00,000 as undisclosed income and the same has been declared under income from other sources. Assessing officer on perusing the Income Tax return of the assessee has observed that no capital gain was declared by the assessee in the assessment year 2008-09 on transfer of immovable properties. However, in the next assessment year i.e. assessment year 2009-10, the assessee has declared a long-term capital loss of Rs. 5,58,792 on transfer of Shares of M/s Raj Refullers and Fire Safety Equipment Private Limited. Since no capital gain was shown by the assessee in assessment year 2008-09, enquiries were made from the purchasers. The summons under section 131 of Income Tax Act were issued to Sh. Mahesh Mehta (purchaser) who informed that the said deal did not mature and the amount of Rs. 2,18,00,000 paid to Sh. Rakesh Kumar Garg and Sh. Santosh Kumar Garg were returned back. It was further observed that another “Share Purchase Agreement” dated 6-11-2008 was entered into between Sh. Rakesh Kumar Garg & Sh. Santosh Kumar Garg (Sellers) and Mrs. Deepti Arora & Sh. Ramesh Kumar (Purchasers) for transferring the entire Shareholding to purchasers for a consideration of Rs. 2,18,00,000. This time the deal matured and the capital gains (loss) on the transfer of shares have been declared by the assessee in assessment year 2009-10. However, the sequence of above events clearly suggest that the purpose of transfer of entire share holding of M/s Raj Refullers and Fire Safety Equipment Private Limited to Mrs. Deepti Arora & Sh. Ramesh Kumar was only for transferring the land belonging to M/s Raj Refullers and Fire Safety Equipment Private Limited. The transfer of shares of Raj Refullers and Fire Safety Equipment Private Limited is merely the mode or the vehicle to transfer the land. Further, the section 2(47)(vi) of the Income Tax Act, 1961 provides that ‘transfer’ in relation to the capital asset includes: —

Any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

3.1 Accordingly vide letter dated 1-12-2010, the assessee was requested to show cause as to why his claim of capital gains (loss) computed on the basis of sale consideration of shares of M/s Raj Refullers and Fire Safety Equipment Private limited should not be rejected and why capital gains should not be computed by adopting the fair market value of the Land & building as on 6-11-2008, as sale consideration for the property No. 115, Phase 1. Udyog Vihar, Gurgaon. In response to this, vide letter dated 23-12-2010, the assessee has submitted that the assessee was only a shareholder and not the owner of the property owned by the company. Therefore. it cannot be said that the assessee has transferred the land. Assessing officer further observed that in the present case, the transaction was actually for transferring the land and shares were only means of controlling the ownership of the land. Accordingly the Income under the head Capital Gains is chargeable for transfer of land and not for transfer of shares as declared by the assessee. He further noted that it is also a well settled law that corporate veil can be lifted if it is used for avoiding the payment of due taxes. As per the assessing officer, the present case is covered by section 2(47)(vi) of the Income Tax Act. 1961 as sale of the shares of the company has the effect of transferring or enabling the enjoyment of the immovable property. In view of above. it was held by the assessing officer that the Capital gains shall be chargeable as if the land was transferred and not shares. As per provisions of section SOC. in cases where the sale consideration is less than the value at which stamp duty is chargeable by the Sub- Registrar, the capital gains is to be computed by taking the value at which stamp duty is chargeable. To ascertain the fair market value of the property, matter was referred to DVO, Jaipur by the CIT CC- 12 which has not been received. Hence, he decided the sale consideration as per the circle rate prevailing at the time. In one related case of the same group, the circle rate were gathered from the office of Tehsildar, Gurgaon for the Financial Year 2005-06. He has forwarded the chart of circle rates as per which the prevailing circle in the Financial Year 2005-06 for industrial plot at Maruti Industrial Area, Udyog Vihar, Gurgaon was at minimum of Rs. 12,000 per square yards and the said plot was transferred in the Financial Year 2008-09, therefore, an indexation of 15% is estimated. Hence, for the year under consideration, the circle rate was calculated at minimum of Rs, 13,800 per square yard. The area of the plot is 4000 square meter. Thus, the fair market value of the said plot was computed to minimum of Rs. 6,60,19,200. The assessee had the ownership of 50% of this land, therefore, the sale consideration for the purpose of computation of capital gain in the case of the assessee comes to Rs. 3,30,09,600. Since, the assessee has already shown an amount of Rs. 1,09,00,000 on account of this transaction, therefore, the difference amount i.e. Rs. 2,21,09,600 was being added in the hands of the assessee as long term capital gain, subjective to report of the District Valuation Officer and assessed the income of the assessee at Rs. 2,40,28,230 vide order dated 30-12-2010 passed under section 143(3) of the Income Tax Act, 1961. Against the aforesaid assessment order, assessee appealed before the learned Commissioner (Appeals)-XXVI, New Delhi, who vide his impugned order dated 19-2-2013 has allowed the appeal of the assessee. Aggrieved with the order of the learned Commissioner (Appeals), the Revenue is in appeal before the Tribunal.

4. Learned Department Representative relied upon the Order of the assessing officer and reiterated the contentions raised in the grounds of appeal.

5. On the contrary, learned Counsel of the assessee relied upon the order of the learned Commissioner (Appeals).

6. We have heard both the parties and perused the relevant records, especially the impugned order. We find that during the course of the search, a “share purchase agreement” was found. The sale consideration accounted by the assessee in his R/I, is same as that was mentioned in the said agreement. No evidences have been found either during the search, or thereafter, about any extra amount changing hands. In the absence of any such evidence, the assessing officer has attempted to bring to tax capital gain on the basis of the fair market value of the plot of land as per section 50C of the Income Tax Act. We find that section 50C cannot be invoked in the instant case. The relevant portion of section 50C as is applicable to the present assessment year is as under: —

“SECTION 50C

Special provision for full value of consideration in certain cases.

(1) 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 or assessable by any authority of a State Government (hereafter 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 or assessable) 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.”

6.1 On perusing the above, it is observed that this the section is applicable for transfer of land or building which is registered with the registering authority by paying stamp duty. section 50C could be invoked only if the sale consideration received is less than the value adopted by Stamp Valuation Authority of the State Government for the purpose of payment of stamp duty. However, there is no evidence that any stamp duty has been paid towards transfer of the plot of land as held by the assessing officer and that the Stamp Valuation Authority adopted any particular value as sale consideration for payment of stamp duty in the present transaction. In fact, in this case there is a mere transfer of shares of a company and no stamp duty appears to be payable towards plot of land. In the assessment order also it is nowhere stated that any state government authority has adopted a particular value at the time of payment of stamp duty by the parties to the said share purchase agreement. We further find that section 50C has undergone amendment with effect from 1-10-2009. The word ‘assessed or assessable’ has been inserted in place of ‘assessed’ appearing before that date. If the transaction were to have taken place after 1-10-2009, it would have been possible to take the value which could have been assessable by the stamp valuation authority even in cases where such value has not be assessed or adopted. Since the transaction has taken place on 6-11-2008, the said amendment is not applicable for the current assessment year and therefore the assessing officer cannot adopt on his own the circle rates. The procedure adopted by the assessing officer in determining the capital gain from the said transaction is not tenable under the law as it stood applicable for the current assessment year. We are of the view that section 2(47)(vi) is applicable in the cases where the asset in question is like a group of houses owned by a company and each shareholder is allotted a house for his personal enjoyment similar to what is prevalent in housing cooperative societies. However, there is no necessity to adjudicate on this issue as even if t is assumed that transfer of shares of the said company amounted to transfer of plot of land, in the absence of any evidence of extra amount having been exchanged, no addition can be made invoking section 50C as noted in the previous paragraph. Therefore, addition made by the assessing officer was rightly deleted by the learned Commissioner (Appeals), which does not need any interference on our part, hence, we uphold the action of the learned Commissioner (Appeals) and reject the ground raised by the Revenue.

7. In the result, the appeal filed by the Department stands dismissed.