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Case Law Details

Case Name : Shri Sarrangan Ashok Vs ITO (ITAT Chennai)
Appeal Number : I.T.A.No.544/Chny/2019
Date of Judgement/Order : 19/08/2019
Related Assessment Year : 2015-16
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Shri Sarrangan Ashok Vs ITO (ITAT Chennai)

Then the question that may arise is, can the AO disturb the value of consideration recorded in the books of accounts of the firm. The provision of Section 45(3) of the Act are exhaustive and does not confer any power on the AO to adopt consideration different from what is recorded in the books of accounts of the firm. The Hon’ble Jurisdictional High Court in the case of Pr.CIT vs. Dr.D. Ramamurthy, reported in 410 ITR 236 (Madras) held that the value recorded in the books of the firm is conclusive as to the consideration received on transfer of asset by a partner to the firm. Therefore, the Hon’ble Madras High Court further held that the assessment has to be done on the basis of value of asset when the firm was constituted, not on the basis of revalued value of the assets. Applying the ratio to the facts of the present case, the value to be adopted by the AO is only Rs.29,77,300/- lakhs which was recorded in the books of accounts of the firm as on date when the firm was constituted.

Section 50C not overrides provision of Section 45(3) of  Income Tax Act, 1961

Then the issue that may crop up is whether the provision of Section 50C of the Act are applicable to the case covered by the Section 45(3) of the Act. We had already discussed the rationale behind the introduction of Section 45(3) of the Act. The provisions of Section 50C of the Act, provides that for the purpose of computing the capital gains U/s. 48 of the Act, the higher of two values i.e., the actual consideration received and the value adopted for stamp duty purpose for the valuation of the property shall be deemed to be consideration received. From the mere reading of the provisions of Section 50C of the Act, it would suggest that the provisions are applicable in the cases where there is actual receipt of consideration. The term “actual receipt” implies that there should be physical flow of money. Therefore the provisions of Section 50C cannot be applied to the case of deeming the value of consideration like cases covered by provisions of 45(3). Therefore it is clear that provisions of Section 45(3) and 50C of the Act operates in different spheres. There is no overlapping. Further if we were to hold that the provisions of Section 50C of the Act overrides the provisions of Section 45(3) of the Act, it would result in a situation where the provisions of Section 45(3) of the Act would become otiose. It is a settled principle of interpretation of statute that one should avoid an interpretation which renders a provision otiose. Further had it been the intention of the legislature to make Section 50C of the Act, applicable even to the transaction of the contribution of immovable property by a partner into the firm, the Parliament could have either repelled the Section 45(3) of the Act, taxguru.in while introducing the provisions of Section 50C of the Act, but however the Parliament in its wisdom had retained the Section 45(3) of the Act which shows that the Parliament intended to keep the provisions of Section 45(3) of the Act. Further the provisions of Section 45(3) of the Act, are special provisions as it deems value of consideration which otherwise is not computable under general law and it is applicable to the specific situations of introduction of capital by partner to the firm and whereas the provisions of Section 50C of the Act are general in nature applicable whether consideration is known and determinate. It is a rule of construction that the special provisions prevail over general provisions as per Latin Maxim. The Hon’ble Supreme Court in the case of D.R. Yadhav v. R.K. Singh [2003] 7 SCC 110 held, that when there are two conflicting provisions of law in operation in the same field, the rule that specifically operates in that field would apply over the general rule. Therefore, when there is a specific provision in the statute to deal with a particular kind of transaction then it would be squarely applied. Thus having regard to the principles enunciated above, it cannot be said that provision of Section 50C of the Act overrides the provision of Section 45(3) of the Act.

FULL TEXT OF THE ITAT JUDGEMENT

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