Case Law Details
CIT Vs. Satya Dev Sharma (Rajasthan High Court)
Assessee entered into a purchase agreement for purchase of a land and later transferred all the rights acquired under the power of attorney for certain consideration, AO applied section 50C and enhanced short-term capital gains of assessee which was not justified since section 50C was not applicable in this scenario as there was no stamp valuation.
FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:-
By way of this appeal, the assessee has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department and allowed the appeal of assessee.
2. While admitting the matter on 14-7-2016, the Court framed the following substantial questions of law: —
“1. Whether on the facts and in circumstances of the case, the ITAT was justified in law in holding that the municipal limits existing on the date of issue of Notification No. 9447, date 6-1-1994 under section 2(14)(iii)(b) should be considered for the purpose of determination of agricultural land instead of the municipal limits existing on the date of sale/transfer.
2. Whether on the facts and circumstances of the case, the ITAT was justified in law in holding that agriculture land sold by the assessee is not a capital asset under section 2(14) (iii)(b) as it was situated beyond 8 Kms. from the municipal limits on the date of issue of Notification No. 9447 date 6-1-1994 despite the fact that the land was undisputedly situated within 8 Kms from the municipal limit on the date of sale.”
3. Following decision was passed on 24-7-2017, in D.B. Income Tax Appeal No. 328/2011, CIT v. Sher Singh Sunda by this Court which reads as under:–
‘1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the tribunal has dismissed the appeal of the department and the C.O. of the assessee is partly allowed.
2. While admitting the appeal, this court on 13-4-2012 framed the following substantial question of law:–
“Whether the Honorable ITAT was right in law in deleting the addition of Rs. 65.00 lacs made under section 50C after having held that the transaction was transfer under section 2(47) of Income Tax Act read with section 50(c) and where the value of the property was assessed for the purpose of Stamp Duty payment and the transaction was covered by explanation 2 to section 50C of the Income Tax Act, 1961?”
3. For the sake of convenience, section 50(C) Explanation 2 which is strongly relied upon by the appellant and section 2(47) of the Income Tax Act is reproduced as under:–
50C. (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 86[or asses sable) 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 86(or asses sable) 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 claims before any assessing officer that the value adopted or assessed 86(or assessable) by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer;
(b) the value so adopted or assessed 86 (or asses sable) 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. 87
(Explanation 1. For the purposes of this section, “Valuation Officer” shall have the same meaning as in clause (r) of section 2 of the Wealth-Tax Act, 1957 (27 of 1957). 88
(Explanation 2.For the purposes of this section, the expression “asses sable” means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.
(3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed 88(or asses sable) by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed 88 (or asses sable) by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.
Section 2(47) Transfer Under section 2(47) of Income-Tax Act 1961, the term ‘transfer’ has been defined as Transfer in relation to a capital asset includes: —
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under any law; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as stock-in-trade of a business carried on by him, such conversion or treatment; or
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882; or
(vi) any transaction (whether by way of becoming a member of, a 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.
(vii) maturity or redemption of a zero coupon bond.
4. He and contended that the tribunal has seriously committed an error in dismissing the appeal of the department in as much as the grounds raised by the revenue in para 2.1 reads as under:–
2.1 The ground of appeal raised by the Revenue is as under:–
“On the facts and in the circumstances of the case, the Learned Commissioner (Appeals) has erred in law in holding that the provisions of section 50C of the Income Tax Act, 1961 are not applicable in the case of the assessee and thereby deleting the addition of Rs. 65.00 lacs made by the assessing officer under section 50C of the Income Tax Act, 1961.”
The contentions raised by the assessee are as under:–
“2.2 The assessee has shown the long term capital gains of Rs. 7,29,025 on sale of agriculture land at Jaipur. The assessee was asked to file the Registered Sale Deed and the assessee filed the copy of the sale agreement and power of attorney issued in favor of assessee by Smt. Pushpa Devi and Smt. Gulab Devi. The power of attorney was registered in the office of Sub- Registrar, Sanganer-1, Jaipur. As per registered power of attorney, the value of sold property was determined at Rs.1.35 Crores under section 54 of the Stamp Duty Act. The assessee was asked to explain as to why the sale consideration of the property be not adopted at Rs. 1.35 crores as provided under section 50C of the Act. In response to show-cause notice issued by the assessing officer, the assessee filed the reply and the same is reproduced by the assessing officer at page 2 of the assessment order. The contentions of the assessee are summarized as under: —
1. The power of attorney was executed in favor of the assessee by Smt. Pushpa Kedia and the assessee made payment of Rs. 62,70,975 to Smt. Pushpa Kedia on execution of power of attorney in his favor. The power of attorney was duly registered before the Sub-Registrar and the Sub-Registrar has assessed the value for registration of power of attorney at Rs. 1.35 crores.
2. The assessee executed an agreement in favor of M/s. Rising Build Estate Ltd. and transferred all the right acquired under the power of attorney on consideration of Rs. 70.00 lacs. This Registration was presented for registration before the Stamp Duty authority.
3. The assessee has not transferred any immovable property but has transferred the right of purchase of immovable property. The assessee neither received the possession of property nor has any control been acquired on the property.
4. Section 50C is applicable in respect of transfer of capital asset being land or building or both while in the instant case the assessee has neither transferred any land nor transferred any building.
5. The assessee has not presented the agreement executed in favour of M/s. Rising Build Estate Ltd. for registration before the Stamp Duty Authority to assess or adopt any value of the transaction. Hence, section 50C is not applicable.
6. Section 50C is a fiction made in the Act for adoption of value in certain specific cases. The fiction cannot be read in wider sense.
No value is adopted or accepted by Stamp Duty Authority. Therefore, the provisions of section 50C is not applicable. It was further argued that capital gain is not chargeable in case the asset which is transferred has no cost at all.”
5. He has taken to us the observations made by the Tribunal in para 2.6 2.8 and 2.9 which are as under: —
“2.6 We have heard both the parties. The copy of general power of attorney is available at pages 12 to 14 of paper book filed by the learned Authorised Representative As per this general power of attorney, the assessee was given authority to get different actions executed on behalf of the owner. The genera power of attorney was authorized to apply for approval under section 90B and was also given authority to look after the land and to get NOC from JDA and to get the patta issued from JDA. It is true that general power was executed on stamp paper of Rs. 500. The Sub-Registrar registered this power of attorney at Rs. 1,07,800 against stamp duty of Rs. 500. This general power of attorney has been cancelled vide cancellation deed dated 3-1-2007. The copy of this cancellation is available at pages 15 to 20 of the paper book. In the cancellation deed, it is not mentioned that general power of attorney has entered into an agreement for sale of land with M/s. Rising Build Estate Ltd. The copy of sale agreement is available at pages 1 to 4 of the paper book. The agreement has been made on 13-11-2006. In this agreement, it is mentioned that the assessee has sold the land which he has purchased. In this agreement, it is stated that the assessee has purchased the land through agreement and has also obtained the possession. The agreement with M/s. Rising Build Estate Ltd. by the assessee is not in the capacity of general power of attorney holder but has entered into an agreement as a person who has purchased the land through agreement for purchase of land. From these, it is clear that the assessee has transferred the rights in land and building and we are not inclined to accept that the assessee has not transferred the immovable property. Section 50C has been amended by the Finance Act, 2009 and the word ‘asses sable’ has been included with effect from 1-10-2009. The memo explaining provision of Finance (No.2) Bill, 2009 (refer to 314 ITR 214 St.) states that the word ‘asses sable’ has been added so that the transactions which are executed through agreement to sell power of attorney are covered under section 50C of the Act. It will be useful to reproduce the relevant portion from the memo explaining the provisions of Finance (No.2) Bill, 2009.
“The existing provisions of section 50C provide that where the consideration received or accruing as a result of the transfer of a capital asset, being land or building or both, is less than the value adopted or assessed by an authority of a State Government (stamp valuation authority) 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 for computing capital gain. However, the present scope of the provisions does not include transactions which are not registered with stamp duty authority, and executed through agreement to sell or power of attorney.
With a view to preventing the leakage of revenue, it is proposed to amended the section 50C so as to provide that where the consideration received or accruing as a result of transfer of a capital asset, being land or building or both is less than the value adopted or assessed or asses sable by an authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or asses sable shall be deemed to be the full value of the consideration received or accruing as a result of such transfer for computing capital gain.
Further, it is proposed to insert a new Explanation so as to clarify the meaning of the term “asses sable”.
This amendment will take effect from 1-10-2009 and shall accordingly apply in relation to transactions undertaken on or after such date;”
2.8 The Jaipur Bench had occasion to consider the applicability of section 50C in the case of transfer of land which has not registered. The Tribunal vide order dated 8-4-2011 in ITA No. 1356/JP/2010 has held that section 50C will not be applicable when transaction has not been registered with Stamp Duty Authority. It will be useful to reproduce para 2.4 of the Tribunal in the case of ITO v. Shri Shailendra Soni.
2.4 We have heard both the parties. During the course of hearing before us, the Learned Authorized Representative stated that the issue under reference is covered by the order or the Tribunal in ITA No. 42/JP/2010 date 8-6-2010. The Learned Authorized Representative filed the copy of the order. It will be useful to reproduce para 5 of the order dated 8-6-2010 in the case of Shri Dinesh Kumar Khatoria.
“5. We have heard both the parties. Section 50C is applicable when consideration received or accruing is a result of transfer of capital asset being land or building or both. The word capital asset is defined in section 2(14) of the Income Tax Act and according to which capital assets means property of any kind held by an assessee. The assessee entered into purchase agreement for purchase of property. The assessee sold such agreements. Thus what the assessee has transferred is his right to purchase plots as per agreement. Section 50C is applicable when consideration received or accruing is as per result of transfer of capital asset being land or building or both. Section 50C is a deeming provision which incorporates a legal fiction to adopt the stamp duty value as full consideration for transfer of capital asset being and building. The legal fiction cannot extend beyond the purpose for which it is enacted. Hence the legal fiction created in section 50C cannot be applied in respect of transfer of capital asset other than land or building including the rights in land and building just like tenancy right. In the instant case, the assessee has not received consideration on account of transfer of land and building but has received consideration in respect of transfer of purchase agreements. The Jaipur Bench in the case of Vijay Luxmi Dhadia, 20 DTR 365 held that section 50C will not apply if the transfer document is not stamped. The plots are still to be registered with Stamp Valuation authorities. The Learned Commissioner (Appeals) has clearly observed that the word ‘asses sable’ has been inserted in section 50C of the Income Tax Act by the Finance (No. 2) Act, 2009 with effect form 1-10-2009. The consideration as adopted by the stamp valuation authority can be taken as full consideration if the value adopted by the stamp valuation authority is asses sable with effect from 1-10-2009. The assessment year under reference is 2006-07 and therefore, the amended provisions of section 50C is not applicable. In the memo explaining the provisions of Finance (No.2) Act, 2009, it was mentioned as under for making the amendment in section 50C of the Income Tax Act.
“The existing provisions of section 50C provide that where the consideration received or accruing as a result of the transfer of a capital asset, being land or building or both, is less than the value adopted or assessed by an authority of a State Government (Stamp valuation authority) 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 for computing capital gain. However the present scope of the provisions does not include transactions which are not registered with stamp duty authority, and executed through agreement to sell or power of attorney.
With a view to preventing the leakage of revenue, it is proposed to amend the Section 50C so as to provide that where the consideration received or accruing as a result of transfer of a capital asset, being land or building or both is less than the value adopted or assessed or asses sable by an authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or asses sable shall be deemed to be the full value of the consideration received or accruing as a result of such transfer for computing capital gain.
Further, it is proposed to insert a new Explanation so as to clarify the meaning of the term “assessable”. This amendment will take effect from 1-10-2009 as shall accordingly apply in relation to transactions undertaken on or after such date.”
Hence in the instant case, the assessing officer was not justified in applying the provisions of section 50C of the Income Tax Act for increasing the short terms capital gain. The learned Commissioner (Appeals) was justified in deleting the increase in the value of short term capital gain. It is not the case of the Revenue that the assessee has received more consideration as shown in the agreement. In case there was any evidence to show that the consideration received by the assessee was more than the consideration mentioned in the agreement then the Revenue could have increased the short term capital gain. On the basis of section 50C of the Act, the assessing officer was not justified in enhancing the short term capital gain. We therefore, hold that the learned Commissioner (Appeals) was justified in deleting the enhancement in the quantum of short term capital gain and accordingly the appeal of the Revenue is dismissed.”
2.9 The assessee has raised the cross objection. In the C.O., it is mentioned that the learned Commissioner (Appeals) is not justified in holding that transaction is regarded as transfer attracting section 50C of the Act. We had already discussed this issue. We had already held that it is case of transfer of land. Section 50C of the Act is not applicable because the substituted word “asses sable” is applicable in respect of transfer of transaction after 1-10- 2009. Thus the C.O. of the assessee is partly allowed.”
6. He contended that the Tribunal has committed serious error in interpreting section 50(C) and has traveled beyond the observations which are made by the Commissioner (Appeals) in para 2.3. Same reads thus: —
“2.3 I have carefully considered the facts of the case and submissions of Learned Authorized Representative. However, on perusal of the relevant material on record, In find that the contentions/submissions/arguments of the Learned Authorized Representative, raised in support of this ground of appeal, are not fully acceptable. In this regard, the following observations are made.
(i) As far as the claim of Learned Authorized Representative that the purchase and sale of agricultural land, in question, by the appellant is only in the nature of a finance arrangement, not involving real purchase and sale, is concerned, I find that the said claim of Learned Authorized Representative is contrary to the facts on record. In this regard, it is seen that the appellant purchased agricultural land, measuring 1.80 Hectares (located at village Murlipura, Tehsil Sanganer), Jaipur, from Smt. Pushpa Kedia and Smt. Gulab Devi (sellers), for 62,70,975, and also passed on the sale consideration to the said sellers, as well as, obtained possession of that property. The fact that the appellant had actually purchased the aforesaid property from Smt. Pushpa Devi Kedia and Smt. Gulab Devi is evident from the contents of para 2 on page 2 of the sale agreement dated 13-11-2006, entered into between the appellant and M/s Rising Build Estate Pvt. Ltd., Jaipur, wherein the appellant has confirmed to have purchased, and also to have taken possession, of the aforesaid property from Smt. Pushpa Kedia and Smt. Gulab Devi. Therefore, the said transaction has to be treated as “transfer” in terms of the provisions of section 2(47) of the Income Tax Act. Thus, the aforesaid transaction was found to be in the nature of purchase of land and, hence, the contention of Learned Authorized Representative that the said transaction was only a part of a financial arrangement, and not actual purchase, is rejected. However, it is observed that at the time of the registration of the aforesaid transaction of agricultural land (purchase by the appellant/sale by Smt. Pushpa Kedia and Smt. Gulab Devi), the value the property was taken by the Sub Registrar at Rs. 1,35,00,000 for stamp duty purposes. Therefore, as the appellant was a “buyer” in that transaction, the provisions of section 50C of the Income Tax Act were not applicable in his case. However, as the provisions of section 50C of the Act are applicable in the case of the “seller”, the applicability of section 50C of the Act was required to be considered in the hands of “the sellers”, i.e. Smt. Pushpa Devi Kedia and Smt. Gulab Devi.
(ii) Further, it is observed that the appellant has sold the aforementioned agricultural land, to M/s Rising Build Estates Pvt. Ltd., Jaipur for Rs. 70,00,000, vide agreement for sale deed dated 13-11-2006. On perusal of the said agreement, it is noticed that the appellant had received the entire sale consideration and had also handed over the possession of the said property to the buyer on 13-11-2006. Therefore, the said transaction is also to be treated as “transfer” in terms of the provision of section 2(47) of the Income Tax Act. Hence, the contention of Learned Authorized Representative that the said transaction was merely a part of a financial arrangement, and not actual sale, is rejected. However, it is noted that there is no dispute regarding the fact that the said sale agreement dated 13-11-2006 was not registered and, therefore, the concerned Registering Authority had not determined the value of the sold property for the Stamp Duty purposes, with reference to the aforesaid sale agreement dated 13-11-2006 (wherein the appellant is a “seller”). Hence, there is substance in the argument of Learned Authorized Representative that the provisions of section 50C of the Act were not applicable in such situation, because where the Registering Authority had not determined the value of the sold property, the actual sale amount (as per the sale agreement) cannot be substituted by some other amount. It is observed that the said contention of learned Authorized Representative is supported by the decisions of Honorable ITAT Jaipur Bench in the case of ITO v. Sh. Anurag Mishra, ITA No. 878/JP/2007, date 20-6-2008and of Honorable ITAT Jodhpur Bench, in the case of Navneet Kumar Thakkar v. ITO, 112 TTJ 76. Therefore, it is to be held that Learned assessing officer was not justified in applying the provisions of section 50 of the Income Tax Act in respect of the aforementioned sale of property by the appellant (made vide sale agreement dated 13-11-2006) to M/s Real Build Estates Pvt. Ltd., Jaipur and thereby in substituting the sale value shown at Rs. 70,00,000 in the sale agreement dated 13-11-2006 by Rs. 1,35,00,000.”
7. He contended that the Tribunal has committed serious error in holding that the transaction under section 50(C) was asses sable which has now been incorporated in the amendment Act of 2009 with effect from 1-10-2009 and he has wrongly invoked the same and the benefits are wrongly granted in favor of the assessee.
8. Counsel for the respondent contended that the argument put forward by the department is misconceived, inasmuch as the transaction which is taken place was through power of attorney holder. The property was never transferred. Even before initiating proceeding under section 50(C), the assessee has already paid the short term capital gain to the tune of Rs. 10 lacs and therefore the assessment which was made on complete consideration is without jurisdiction and therefore while interpreting the assessment, Commissioner (Appeals) has rightly observed in para 2.3 which was reproduced herein above and correctly interpreted the provisions while relying on the decision of the Jaipur Bench in the case of ITO v. shri Anurag Mishra (ITA No. 878/JP/2007), date 20-6-2008 and has rightly held the value of the property determined as 1.35 crores.
9. He has further contended that the Tribunal while considering the case of assessee in cross objection has taken into consideration the provisions of section 50(C) and in view of the decision rendered by the Madras High Court (2013) 352 ITR 488 (Madras) has held in para 7,8,9 and 10 which reads as under: —
“7. Learned counsel for the assessee placed a circular in Circular No. 5/2010/(F.No.142/13/2010-SO (TPL), date 3-6-2010 issued by the Board and submitted that as per the circular, it is made clear that the amendment made by the Finance (No.2) Act, 2009 is only prospective in nature and cannot be applied retrospectively.
8. We have perused the above circular. It is stated therein that the scope of the provisions does not include transaction which are not registered with stamp duty valuation authority and executed through agreement to sell or power of attorney. Consequently, it is made clear therein that the amendments have been made applicable with effect from 1-10-2009 and therefore, they will apply only in relation to transaction undertaken on or after such date. The relevant portion of the circular is extracted here under:–
“23.4 Applicability: – These amendments have been made applicable with effect from 1-10-2009 and will accordingly, apply in relation to transactions undertaken on or after such date.”
9. Learned counsel for the Revenue is not disputing about the existence of such circular issued by the Board. If the Board has issued a circular clarifying the applicability of section 50C in pursuance of the amendment made by Amendment Act 2 of 2009, we fail to understand as to how the Revenue can canvass the same issue in this case which in effect is against the circular issued by the Board. Certainly, the Revenue is bound by the circular issued by the Board. At this juncture, it is pertinent to note that in a decision made in the case of State of Tamil Nadu and another v. India Cements Ltd. and another (2011) 40 VST 225 (SC), the Honorable Supreme Court has held that the circulars issued by the Revenue are binding on the Department and therefore, they cannot repudiate that they are inconsistent with the statutory provisions. Relevant paragraphs 21 and 22 are extracted here under: —
“21. It is manifest from the highlighted portion of the circular that as per the clarification issued by the Commissioner of Commercial Taxes, in exercise of the power conferred on him under section 28A of the TNGST Act, the benefit of the sales tax deferral scheme would be available to a dealer from the date of reaching of BPV or BSV, whichever is earlier, as is pleaded on behalf of the first respondent. It is trite law that circulars issued by the Revenue are binding on the departmental authorities and they cannot be permitted to repudiate the same on the plea that it is inconsistent with the statutory provisions or it mitigates the rigour of the law.
22. In Paper Products Ltd. v. Commissioner of Central Excise (2001) 247 ITR 128 SC: (1999) 7 SCC 84), while interpreting section 37B of the Central Excise Act, 1944, which is in pari materia with section 28A of the TNGST Act, this Court had held that the circulars issued by the Central Board of Excise and Customs are binding on the Department and the Department is precluded from challenging the correctness of the said circulars, even on the ground of the same being inconsistent with the statutory provision. It was further held that the Department is precluded from the right to file an appeal against the correctness of the binding nature of the circulars and the Department’s action has to be consistent with the circular which is in force at the relevant point of time.”
10. Before proceeding with the matter, it will not be out of place to mention here that those transactions which are shown as transaction under section 50C (Explanation-2), even if taken into consideration, the transaction which take place as short term capital gain in total consideration of the payment after sale agreement was determined as Rs.1.35 crores and it cannot be assessed. Therefore, both the authorities have committed no error in reaching the conclusion.
11. Neither the stamp authority has assessed the complete charges because transaction has not taken place, and in our considered opinion, the valuation which was determined by the assessing officer is nothing but harassment to the honest tax payers of a transaction which has been rightly reversed by the Commissioner (Appeals) and confirmed by the Tribunal.’
4. In view of above, issue is answered in favor of the assessee and against the department.
