Case Law Details
Brief : Capital gains-Scope of section 50C- Extension of section 50C to purchaser-Section 50C creates a legal fiction for taxing capital gains in the hands of the seller and it cannot be extended for taxing the difference between apparent consideration and valuation done by Stamp Valuation Authorities as undisclosed investment under section 69. This fiction cannot be extended any further and, therefore, cannot be invoked by AO to tax the difference in the hands of the purchaser.
Citation : ITO Vs. Harley Street Pharmaceuticals Ltd. – (2010) 35 (II) ITCL 128 (Ahd `B’-Trib)
Court : ITAT Ahmedabad
ORDER
This appeal by the revenue is arising out of the order of Commissioner (Appeals)-VII, Ahmedabad in appeal No. Commissioner (Appeals)-VII/Income Tax Officer/4(3)/203/06-07, dated 02-03-2007. The assessment was framed by the Income Tax Officer, Ward-4(3), Ahmedabad under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as `the Act) vide his order dated 13-11-2006 for the assessment year 2004-05.
2. The only issue in this appeal of the revenue is against the order of Commissioner (Appeals)in deleting the addition made by assessing officer under section 69B of the Act. For this, revenue has raised the effective ground No. 1 as under:—
“1. The Ld. Commissioner (Appeals) erred in law and on the facts of the case in directing the assessing officer to delete the addition of Rs. 31,04,100 made in the Assessment order, on account of investment in GIDC plot not fully disclosed in the books of account under section 69B of the Income Tax Act.”
3. During the course of assessment proceedings, the assessing officer found that the assessee has purchased land along with building on 22-12-2003 from Select Plot No. 30/4, Phase-III, GIDC Industrial Estate, Naroda, Ahmedabad amounting to Rs. 18.90 lakhs, through deed of assignment and stamp duty of Rs. 2,11,700 was paid thereon. The assessing officer noted from the Sale Deed that the Sub-Registrar, Ahmedabad-6 (Naroda) had registered the document vide Registration No. 3758/2003 and had collected additional stamp duty of Rs. 3,47,337 vide Receipt No. 2398371, dated 29-12-2003. According to assessing officer, the Sub-Registrar has assessed the value of property at Rs. 49,91,400 at the prevalent market value as per the `Jantri’ and additional stamp duty at the rate of 10.8 percent was collected from the assessee. The assessee has declared the purchase consideration in books of account at Rs. 18.90 lakhs only as against the value determined by the revenue authorities at Rs. 41,91,400. Accordingly, assessee has not disclosed the undisclosed investment of Rs. 31,01,400 in its books of account and treated by the assessing officer as unaccounted investment by under section 69B of the Act by stating as under:—
“Thus, section 50C determines the value of sales consideration of property in transaction where value shown in document/ books is less than value determined by the land revenue authorities. Once the sales consideration is determined, it cannot be said that it is applicable only to seller. The amount paid by purchaser cannot be different then what is the sales consideration for the seller. Thus, the sales consideration determined by stamp valuation authority undoubtedly becomes the purchases price paid by the buyer. It cannot happen that sales consideration of Rs. 49,91,400 on which stamp duty is paid, remains sales consideration of Rs. 49,91,400 for seller but it becomes purchase price of Rs. 18,90,000 for purchaser ignoring the value determined. In view of this the purchase price paid by assessee is taken at Rs. 49,91,400. Since the purchase price recorded in books is only Rs. 18,90,000 die difference of Rs. 31,01,400 is treated as investment not fully disclosed in the books and Rs. 31,01,400 is, therefore, added under section 69B of the Act.”
Aggrieved, the assessee preferred appeal before Commissioner (Appeals). The Commissioner (Appeals) deleted the addition vide para-3.3 of his appellate order as under :—
“3.3 I have carefully perused the assessment order as well as examined the various arguments and submissions of the appellant. In this case, the assessing officer has treated seller and the buyer on the same footing in making addition referring to higher value taken for stamp duty purpose. It is the contention of the appellant that they did not pay anything more than that stated in the purchase/ sale deed. They also referred to the allotment price of plots in industrial estate as decided by GIDC on an annual basis. There is no evidence to the effect that the appellant paid more than what was stated in the deed of conveyance. Reliance placed on the decisions cited above is justifiable and section 50C cannot be said to be governed under section 69B as well. A provision operating as a legal fiction for determining the capital gains may not have the same force in the hands of the buyer. A legal fiction cannot be extended beyond its logical conclusion and it is only by presumption that the addition was made in the hands of the buyer equating the deemed sale consideration for the purchase consideration. The assessing officer has not found that the appellant had paid more than recorded in the books of account. Admittedly, the appellant paid extra stamp duty as determined by the Registration Officials. But that alone is not conclusive or reasonable proof that there was any excess investment. In that view of the matter, the decisions relied on by the appellant shall be of assistance to the appellant’s claim and, accordingly, I hold that the addition made by assessing officer is purely on notional basis not supported by either facts or a legal basis but only on presumption. In that view of the matter, the addition made under section 69B is directed to be deleted.”
Aggrieved, revenue came in appeal before us.
4. We have heard the rival contentions and gone through the facts and circumstances of the case. We have also perused the case records including the assessment order as well as the order of Commissioner (Appeals). Now the only issue in this appeal of the revenue is that, whether the provision of section 50C of the Act applies to purchaser or not. For this, we have to go to the relevant provision of section 50C of the Act as introduced by section 24 of the Finance Act, 2002 with effect from 1-4-2003, for and from assessment year 2003-04, namely :—
“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 by any authority of a State Government (hereinafter 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 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.
(2) Without prejudice to the provisions of sub-section (1), where—
(a) the assessee claimed before any assessing officer that the value adopted or assessed by the stamp valuation authority under subsection (1) exceeds the fair market value of the property as on the date of transfer;
(b) the value so adopted or assessed by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the Assessing officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth Tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the assessing officer under sub-section (1) of section 16A of that Act.
Explanation.—For the purposes of this section “Valuation Officer” shall have the same meaning as in clause (c) of section 2 of the Wealth Tax Act, 1957 (27 of 1957).
(3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.”
5. The relevant provision of section 50C of the Act was explained and elaborated in the following portion of the departmental Circular No. 8 of 2002, dated 27-8-2002, as under :—
“37. Computation of capital gains in real estate transactions,—
37.1 The Finance Act, 2002 has inserted a new section 50C in the Income Tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property.
37.2 It provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration, and capital gains shall be computed, accordingly, under section 48 of the Income Tax Act.
37.3 It is further provided that where the assessee claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer, and he has not disputed the value so adopted or assessed in any appeal or revision or reference before any authority or Court, the assessing officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with section 55A of the Income Tax Act. If the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purposes, the assessing officer may take such fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes, the assessing officer shall not adopt such fair market value and shall take the full value of consideration to be the value adopted or assessed for stamp duty purposes.
37.4 This amendment will take effect from 1-4-2003, and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years (Section 4)”.
6. We further find that this provision was elaborated in the Notes on clauses and Memo. Explaining provisions in the Finance Bill, 2002 as under:—
Notes on Clauses :—
“Clause 24 seeks to insert a new section 50C in the Income Tax Act to provide for a special provision for full value of consideration in certain cases.
The proposed sub- section (1) of the said section seeks to provide that 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 by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.
The proposed sub-section (2) of the said section seeks to provide that where the assessee claims before any assessing officer that the value adopted or assessed by the authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer and the value so adopted or assessed by the authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or a High Court, the assessing officer may refer the valuation of the capital asset to a Valuation Officer, and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub- sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth Tax Act 1957, shall with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the assessing officer under sub-section (1) of section 16A of that Act. The Valuation Officer shall be the Valuation Officer as defined in clause (c) of section 2 of the Wealth Tax Act, 1957.
The proposed sub-section (3) provides that where the value ascertained under sub-section (2) exceeds the value adopted or assessed by the authority referred to in sub-section (1), the value so adopted or assessed by the authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.
This amendment will take effect from 01-04-2003, and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years.”
Memorandum Explaining Provisions of section 50C in the Finance Bill, 2002, as under:—
“The Bill proposes to insert a new section 50C in the Income Tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property.
It is proposed to provide that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration, and capital gains shall be computed, accordingly, under section 48 of the Income Tax Act.
It is further proposed to provide that where the as claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer, and he has not disputed the value so adopted or assessed in any appeal or revision or reference before any authority or Court, the assessing officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with section 55A of the Income Tax Act. If the fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes, the assessing officer shall not adopt such fair market value and will take the full value of consideration to be the value adopted or assessed for stamp duty purposes.
It is also proposed to provide that if the value adopted or assessed for stamp duty purposes is revised in any appeal, revision or reference, the stamp duty purposes is revised in any appeal, revision or reference, the assessment made shall be amended to re-compute the capital gains by taking the revised value as the full value of consideration.
These amendments will take effect from 1-4-2003, and will, accordingly, apply in relation to the assessment year 2003- 04 and subsequent years. (Clauses 24 and 59)”
7. In view of the above provision and explaining the provision, we are of the view that the law under section 50C had been provided adequate protection to the taxpayers against adoption of arbitrary values for the computation of capital gains and the following precautionary are provided :—
(i) The value which is considered as the proper value of the property as fixed by the authority for registration for stamp duty purposes is presumed to be the fair market value for the purposes of computation of capital gains on the sale of property.
(ii) It is open to the taxpayer to plead that such stamp value is abnormal and contest the same in appeal under the stamp law requiring adoption of reduced value. If such value is reduced in appeal under the provisions of the relevant stamp law, such reduced value would alone be adopted.
(iii) Where such stamp value is not disputed, it is open to the assessee to require the assessing officer to refer the valuation to the Valuation Officer, who shall fix the valuation by adoption of the procedure prescribed under section 16A of the Wealth Tax Act. It is such value, which will be adopted by the assessing officer.
We further find from the Memorandum Explaining the provision of section 50C in the Finance Bill, 2002, which clearly states that where the consideration declared to be received or accruing as a result of transfer of land or building or both is less than the value adopted or assessed by any authority of a State Government for the purposes of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration and capital gains shall be computed, accordingly, under section 48 of the Act. In case the value adopted or assessed for stamp duty purposes is revised in any appeal, revision or reference, the assessment made shall be amended to recompute the capital gains by taking the revised value as the full value of consideration. Accordingly, we are of the view that the provisions of section 50C are applicable only for the computation of capital gains in real estate transaction in respect to seller only and not for the purchaser. We find from section 50C of the Act that it creates a legal fiction thereby apparent consideration is substituted by valuation done by Stamp Valuation Authorities and capital gains are calculated, accordingly. Legal fiction cannot be extended any further and has to be limited to the area for which it is created. Honorable Andhra Pradesh High Court in the case of Addl CIT Vs. Durgamma (1987) 166 ITR 776′(AP) held that it is not possible to extend the fiction beyond the field legitimately intended by the statute. The Honorable Court was dealing with the provisions of section 171 (1) of the Income Tax Act in the context of which it was held that joint family shall be deemed to continue for the limited purpose of assessing cases of joint families which have been hitherto assessed as such. It is not possible to extend that fiction to other cases. Similar view was taken by the Honorable Kerala High Court in CIT v. Kar Valves Ltd. (1987) 168 ITR 416(Ker), wherein it is held that legal fiction is limited to the purpose for which they are created and could not be extended beyond that legitimate frame, Honorable Kerala High Court was dealing with the case where assessee sought to take advantage of section 41(2) by submitting that if liabilities are not liquidated and outstanding are not collected, then business could be deemed to continue. The Honorable Allahabad High Court in the case of CED Vs. Smt. Krishna Kumari Devi (1988) 173 ITR 561(All) held that in interpreting the legal fiction the court should ascertain the purpose for which it was created and after doing so assume all facts which are logical to give effect to the fiction, Honorable Supreme Court in CIT v. Mother India Refrigeration Industries (P.) Ltd. (1985) 155 ITR 711(SC) held that legal fictions are created only for some definite purpose and they must be limited to that purpose and should not be extended beyond that legitimate field. In CIT Vs. Bharani Pictures (1981) 129 ITR 244 (Mad), it is held that legal fictions are for a definite purpose and are limited to the purpose for which they are created and should not be extended beyond its legitimate field. The statutory fiction introduced in one enactment cannot be incorporated in another enactment. The point that legal fiction cannot be extended to a new field was highlighted by Honorable Madras High Court in CIT Vs. T.S. Rajam (1980) 125 ITR 207 wherein it is held that section 41(2) creates a legal fiction under which the balancing charge is treated as business income chargeable to tax but when this amount is distributed to shareholders then it would not become deemed dividend and it would be only a capital receipt and not distribution of accumulated profits. Thus, a legal fiction was invoked in the hands of the assessee- company and was not extended in the hands of the shareholders. In the present case, section 50C creates a legal fiction for taxing capital gains in the hands of the seller and it cannot be extended for taxing the difference between apparent consideration and valuation done by Stamp Valuation Authorities as undisclosed investment under section 69. In fact, section 69 itself is a legal fiction whereby investment into an asset is treated as income if it is not disclosed in the regular books of account. No further legal fiction from elsewhere in the statute can be borrowed to extend the field of section 69. It is for the Legislature to introduce legal fiction to overcome difficulty in taxing certain receipts or expenditure which otherwise was not possible under normal provisions of the Act. It is with this purpose that when it was found difficult to prevent tax evasion by understating apparent sale consideration as compared to the valuation made by Stamp Valuation Authorities for the purposes of levying stamp duty then it was thought necessary to introduce section 50C for substituting apparent sale consideration by valuation done by Stamp Valuation Authorities. This fiction cannot be extended any further and, therefore, cannot be invoked by assessing officer to tax the difference in the hands of the purchaser. Honorable Madras High Court in CGT v. R. Damodaran (2001) 247 ITR 698 (Mad) held that stamp valuation authorities have their own method of evaluating the property. Merely because for the purpose of stamp duty, property is valued at higher cost, it cannot be said that assessee has made more payment than what is stated in the sale deed. The Honorable Allahabad High Court in Dinesh Kumar Mittal Vs. ITO (1992) 193 ITR 770 (All) quashed the order of authorities below, wherein half of the difference between the amount paid and the value for purposes of stamp duty was added as income of the assessee by the assessing officer. It is held that there is no rule of law to the effect that the value determined for the purposes of stamp duty is the actual consideration passed between the parties to the sale. In the present case, the assessing officer has applied this provision of section 50C for the computation of unexplained investment under section 69B of the Act and which is not permissible under the Act. Apart from the stamp duty valuation, there is nothing on record which suggests that the revenue has proved that the assessee has accepted over and above, what has been recorded as purchase consideration of the land in the instrument, i.e., the sale deed. We are in full agreement with the arguments of the assessee that section 50C is not applicable in the case of purchaser and this provision being a deeming provision will apply for determining the full value of consideration as a result of transfer of capital assets for the purposes of computation of capital gains under section 48 of the Act. We further find that there is no evidence on record to show that the consideration over and above, what has been recorded in the sale deed, has been made by the assessee and in the absence of the same, no addition of undisclosed investment can be made by invoking the provision of section 69B of the Act. Accordingly, we confirm the order of Commissioner (Appeals) deleting the addition and this issue of the revenue’s appeal is dismissed.
8. In the result, revenue’s appeal is dismissed.
