Section 50C – Tax Provisions, Assessment, Case Laws

Special provision for full value of Consideration – Section 50C

A. INTRODUCTION (WITH LEGISLATIVE INTENT )

Section 50C was introduced in the Income-tax Act, 1961 by the Finance Act, 2002 with effect from 1-4-2003 for substituting valuation done for Stamp Valuation purposes as full value of consideration in place of apparent consideration shown by the transferor of capital asset, being land or building and, accordingly, calculating capital gains under Section 48.

By the Explanatory notes to the amendment it was clarified that –

(1) Section 50C is a special provision for determining the full value of consideration in cases of transfer of immovable property, being land or building or both;

(2) Section 50C provides 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 the Stamp Valuation Authorities for the purpose of payment of stamp duty in respect of transfer, then value so adopted or assessed by them shall be deemed to be the full value of consideration;

(3) It is also provided that where the assessee claims that the value adopted or assessed for stamp duty purposes is more than the fair market value of the property as on the date of transfer and he has not disputed this value before the appellate authorities or the Court under Stamp Duty Act then the Assessing Officer may refer the valuation of such property under transfer to the Valuation Officer in accordance with Section 55A of the Income-tax Act, 1961. If the fair market value so 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. On the other hand, 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 adopt such fair market value determined by the Stamp Valuation Authorities as full value of consideration and he shall not adopt the valuation done by the Valuation Officer as full value consideration;

(4) The insertion of Section 50C is made effective from 1-4-2003 and, accordingly, would be applicable for the assessment year 2003-04 and the subsequent years.

Earlier there used to be a provision in Section 52 of the Income-tax Act, 1961 which enabled the Assessing Officer to refer the property under transfer to the Valuation Officer for determining market value. However, in K.P. Varghese v.ITO (1981) 131 ITR 597 (Supreme Court), it was held that Section 52(2) cannot be applied to genuine transaction unless there are evidences to show that consideration declared in the sale deed is understated. In other words unless the revenue was able to show that something over and above the sale consideration had passed hands between the transferee and the transferor, Section 52(2) could not be invoked. It became almost a herculean task for the Assessing Officer to collect evidence to show the exchange of additional money for consideration was other than apparent sale consideration. Accordingly, it was considered to insert a deeming provision by way of Section 50C for substituting apparent sale consideration by valuation done by SVA subject to certain conditions.

B. SECTION 50C OF THE I.T. ACT

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 :

Certain Amendments were made to this section by Finance Act, 2016. Two provisos were added to subsection (1) which are as follows:

Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer:

Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer.

Further this section was amended by Finance Act Finance Act, 2018. Third proviso was added to subsection (1) which is :

Provided also that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration.

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 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 or assessable 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 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).

Explanation 2.—For the purposes of this section, the expression “assessable” 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 or assessable by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed or assessable by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.

C. BASIC INGREDIENTS OF THE PROVISIONS

i)    There should be a transfer of capital asset, being land or building or both;

ii) There should be a transfer of such capital asset by way of registration with the Stamp Duty Authorities;

iii)  Stamp duty is sought to be imposed by the Stamp Valuation Authorities at certain value of the capital asset which is different than the sale consideration shown in the documents of transfer sought to be registered;

iv)  Where valuation done by the Stamp Valuation Authorities for levying Stamp duty is less than the sale consideration shown by the assessee in the sale deed Section 50C cannot be invoked;

v) Where valuation done by the Stamp Valuation Authorities for levying stamp duty is more than the sale consideration shown by the transferor in the sale deed then such higher valuation will be considered as full value of consideration and, accordingly, such full value of consideration being valuation done by the Stamp Valuation Authorities will be substituted for apparent consideration;

vi) The capital gains under Section 48 shall be computed accordingly on the basis of such higher full value of consideration and not on the basis of apparent consideration shown in the sale deed;

vii) If the assessee, being transferor, claims before the Assessing Officer that fair market value of the property under transfer is less than the valuation done by the Stamp Valuation Authorities then the Assessing Officer may refer the property to the Valuation Officer for determining its fair market value as on the date of the transfer;

viii) Such reference would be made in accordance with Section 55A;

ix) On receipt of valuation report from the Valuation Officer, the Assessing Officer has to compare the fair market value as determined by the Valuation Officer with the valuation done by the Stamp Valuation Authorities under the Stamp Duty Act and with the apparent sale consideration shown by the assessee in the sale deed;

x) Where valuation done by the Valuation Officer is more than the valuation done by the Stamp Valuation Authorities (SVA) then valuation done by the SVA would be taken as full value of consideration and capital gains will be calculated accordingly;

xi) If valuation done by the Valuation Officer is less than the valuation done by the SVA then valuation done by the Valuation Officer would be adopted as full value of consideration as against the apparent consideration shown by the assessee or the valuation done by the SVA and capital gains be calculated accordingly;

xii)  If valuation done by the Valuation Officer is less than the valuation done by the SVA as well as sale consideration shown by the assessee in the sale deed then apparent consideration shown in the sale deed would alone be accepted as full value of consideration and capital gains be calculated accordingly, i.e. as shown by the assessee;

xiii) With effect from 1.10.2009, applicable for the assessment year 2010-11 the Finance Act, 2009 (No.2) has enabled the assessing officer to find out Stamp Duty Value assessable by the SVA in cases where agreements to sale were executed, consideration changed hands and possession of the property was handed over to the buyer but without getting the transfer registered with the SVA. In such situation the stamp duty valuation assessable would also be treated as full value of consideration;

xiv) Use of the word ‘shall’ in Section 50C makes it mandatory for the assessing Officer to adopt the valuation done by the SVA in place of apparent consideration, if necessary conditions under Section 50C are satisfied. The Assessing Officer has no discretion.

D. INTERPRETATION OF SECTION AS PER COURTS / TRIBUNAL

1. WHAT IS ‘FULL VALUE’

The phrase ‘full value’ has been explained by the Hon’ble Supreme Court in CIT v. George Anderson & Co. Ltd.(CIT v. George Anderson & Co. Ltd. [1967] 66 ITR 622 (SC)). It is held therein that full value of consideration is the full sale price actually paid. The expression ‘full value’ means the whole price without any reduction whatsoever and it cannot be referred to the adequacy or inadequacy of the price bargained. It also does not have the reference to the market value of the capital asset which is the subject-matter of the transfer. However, Section 50C creates a fiction and, therefore, it is a departure from the established principles.

2. SUBMISSION OF INSTRUMENTS OF TRANSFER BEFORE STAMP VALUATION AUTHORITIES –Under Section 53A of the Transfer of Property Act an immovable property can be taken as transferred if consideration is passed on between the parties and possession of the property is handed over, even though there is no registration of the instrument of transfer. However, for the purpose of invoking Section 50C it is necessary that transfer of property is registered with the SVA, meaning thereby that Section 50C cannot be invoked in respect of unregistered documents (Navneet Kumar Thakkar V. ITO [2008] 110 ITD 525 (SMC) (Jodh.)., ITO V. Ms. Kumudini Venugopal [2010] 5 ITR(Trib.) 145 (Chennai).).

3. SECTION 50C IS CONSTITUTIONALLY VALID It has been held that classification for preventing evasion of tax and undervaluation of transaction by substituting apparent sale consideration are neither unreasonable nor discriminatory. Section 50C pertains to a class of capital asset being land or building and its object is to bring the income arising from the capital gains. The charge of income is levied by virtue of Sections 4 & 5 and not by Section SOC. Therefore, insertion of Section 50C is within the legislative competence and is not violative of Article 14 of the Constitution of India. (Bhatia Nagar Premises Co-operative Society Ltd. v. Union of India [2011] 334 ITR 145/ 197 Taxman 249 / [2010] 6 taxmann. com120 (Bom.), K.R. Palanisamy V. Union of India [2008] 306 ITR 61 /[2009] 180 Taxman 253 (Mad.).)

4. REFERENCE TO VALUATION OFFICER

Recourse to Section 55A can be taken only when conditions laid down under Section 50C are satisfied and not otherwise. There is no discretion available to the Assessing Officer to make reference under Section 55A at his own sweet will without showing that conditions for making reference are satisfied. (ITO v. Chandrakant R. Patel [2011] 11 taxmann.com 180/131 ITD 1 (Ahd.))

The conditions for making reference to the Valuation Officer under Section 55A are that (1) valuation done by the SVA is more than apparent sale consideration, (2) the assessee makes a claim before the Assessing Officer that fair market value of the property under transfer is less than the valuation done by the SVA. If these two conditions are satisfied the Assessing Officer is bound to make a reference to the Valuation Officer for determining fair market value of the property under transfer but where no such claim is made by the assessee before the Assessing Officer or he has not made any claim even before the SVA that valuation done by them is higher than fair market value of the property then the Assessing Officer is not bound at his own to make reference to the Valuation Officer. (Sharad Dinesh Photographer v. ITO[2011] 43 SOT 452 (Mum.)

The claim for reference to the Valuation Officer has to be justified by the assessee with prima facie material. Unless justified, the Assessing Officer may not make such reference. On the other hand, once a claim for reference is made, the Assessing Officer is statutorily required to refer the property to the DVO, unless he proves that materials submitted by the assessee in this regard are false or it cannot lead to the inference what the assessee wanted to him to draw.(Md. Shoib v. Dy. CIT [2010] 1 ITR (Trib.) 452 (Luck.).

In this regard it may be mentioned that provision of Section 50C(1) is mandatory whereby there is no option to the Assessing Officer but to adopt the valuation done by the SVA in place of apparent consideration shown by the assessee. It has been held that where there was material on record that valuation done by the SVA was more than apparent sale consideration and the Assessing Officer did not adopt the valuation done by the SVA as full value of consideration the order of the Assessing Officer would be erroneous and could be revised by the Commissioner under Section 263 (A.K.G. Consultants (P.).

Once reference is made to the DVO the Assessing Officer is duty bound to wait for report from the DVO before finalizing the assessment. Without waiting for report of the DVO if assessment is completed then he has to rectify the assessment by invoking Section 155(15). Otherwise order of the Assessing Officer would be invalid (N. Menakshi v. Asstt. CIT[2010] 326 ITR 229 (Mad.).

Where a claim is made by the assessee for a reference to the DVO and he does not accede to his request and completes the assessment by adopting the valuation done by the SVA as full value of consideration then the action of the Assessing Officer is not justified. B.N. Properties Holding (P.) Ltd. v. Asstt. CIT[2010] 6 ITR (Trib.) 1 (Chennai).

5. SECTION 50C CAN BE INVOKED ONLY IN THE CASE OF TRANSFEROR AND NOT IN THE CASE OF TRANSFEREE –

Since Section 50C modifies sale consideration and that too for the purpose of computation of capital gains, it cannot be extended to operate in respect of computation of income under other heads for other purposes. Therefore, difference between apparent consideration and valuation done by the SVA cannot be treated as undisclosed investment in the hands of transferee. Operation of legal fiction is confined to sale consideration only. The Assessing Officer has to independently show that transferee has paid something over and above the apparent purchase consideration in the sale deed. This has to be proved independent of application of Section 50C which cannot he resorted to for any assistance for presuming that something over and above has exchanged hands and, therefore, there would be an undisclosed investment taxable under Section 69 or under Section 69B (ITO v.Venu Proteins Industries (2010) 4 ITR (Trib)602/195 Taxman 14 (Ahd) (Mag) , CIT v.Chandni Bhuchar (2010) 323 ITR 510 / 191 Taxman 142 (Punj & Har.) , IO.V.Harle Street Pharmaceuticals Ltd. (2010) 38 SOT 486 (Ahd.).

6.SECTION 50C IS A LEGAL FICTION –Since Section 50C is a legal fiction its area and scope are confined to what is stated in the provision. Therefore, this provision can be invoked only when there is a transfer of land or building or both. Its operation cannot be extended to the other assessees or to other properties or to other circumstances than what is stated therein. It has also been held that Section 50C can be invoked if development rights are transferred along with the transfer of the land. What is to be seen is that there is a registered transfer deed. The additional rights given would not make any difference. So long as condition laid down under Section 50C. i.e. instrument of transfer is registered in respect of the immovable property other events or additional transfer or rights or liabilities would be in consequential (Arif Akhatar Hussain v. ITO (2011) 45 SOY 257/9 Taxmann. com. 90(Mum)

7. SECTION 50C CANNOT BE APPLIED TO OTHER ASSETS OR FOR OTHER PURPOSES –Where a property is treated as stock-in-trade or business asset it would not be a capital asset and, therefore, provisions of Section 50C cannot be invoked (CIT v.Thiruvengadam Investments (P)Ltd. (2010) 320 ITR 345 (Mad.), Thiruvengadam Investments (P)Ltd. ‘s case . Where flats were sold as business assets and were held in the books as stock-in-trade then Section 50C could not be invoked for computing business income by substituting valuation done by the SVA as real sale consideration as against actual sale price received by the assessee (Inderlok Hotels (P)Ltd. v.ITO(2009) 32 SOT 419 (Mum), Asst.CIT v.Excellent Land Develoeprs (P)Ltd. (2010) 1 ITR (Trib) 563 (Delhi). Similarly, it has been held that Section 50C cannot be made applicable to transfer of leasehold rights in land (Atul G Puranik v. ITO (2011) 11 Taxmann.com 92(Mum) or to ascertain FMV of the property as on 1-4-1981 which is, in fact, the cost of acquisition of the property at the discretion of the assessee (Shri Pyare Mohan Mathur HUF v. ITO (2011) 12 taxmann.com 170 (Agra).

8. ONUS AND ITS DISCHARGE –Under Section 50C when stamp duty valuation of a property is higher than apparent sale consideration shown in the instrument of transfer then onus to prove that fair market value of the property is lower than such valuation by the SVA is on the assessee who can reasonably discharge this onus by submitting necessary material before the Assessing Officer, such as valuation by an approved valuer. Thereafter onus shifts to the Assessing Officer to show that material submitted by the assessee about fair market value of the property is false or not reliable.(Ravi Kant v.ITO(2007)110 TTJ Delhi 297).

9. EXEMPTION AND SECTION 50C –When valuation done by the SVA is adopted as full valuation of consideration under Section 50C then such value adopted will result in larger capital gain for the assessee as compared to what is disclosed by him. For the purpose of getting benefit under Section 54F the assessee cannot be expected to invest more than actual amount of capital gains accrued to him on the basis of sale consideration as per instrument of transfer. The legal fiction created by Section 50C in determining the capital gains cannot be extended to Section 54F or other provisions allowing exemption from capital gains as deeming Section can be applied only for the definite and limited purposes for which it is created. Therefore, capital gains and net consideration mentioned in exemption provisions such as Section 54F can be worked out on the basis of apparent sale consideration without imposing fiction created under Section 50C (Gouli Mahadevappa v. ITO (2011) 128 ITD 503/(2010) 8 taxmann.com15 (Bang).

10. OTHER EXAMPLES –

Section 50C can be invoked in respect of transfer of depreciable asset also, Section 50 providing for cost of acquisition as stated in Section 48 and Section 49 in respect of depreciable assets does not affect other provisions. One fiction cannot be imposed on another fiction or one supposition of law on other supposition of law. There is nothing in these two provisions to prohibit the applicability of these two fictions independently and simultaneously for two independent purposes. (ITO v.Ms.Kumudini Venugopal (2010) 5 ITR (Trib) 145 (Chennai), ITO vs United Marine Academy (2011)138 TTJ 129(Mum)(SB).

Where agreement to sell was entered prior to introduction of Section 50C but there was a delay in submission of instrument of transfer before the Stamp Valuation Authorities for genuine reason, it was held that Section 50C would not be applicable

Similarly. Section 50C cannot be used to ascertain undisclosed investment in the case of purchaser on the basis of valuation done by the Stamp Valuation Authorities (CIT v.Chandni Bhuchar (2010) 323 ITR 510/191 Taxman 142 (Punj. & Har.).

If apparent sale consideration by the assessee is accepted by the Stamp Valuation Officer then provisions of Section 50C will not be applicable .(Punjab Poly Jute Corpn. V.Asstt.CIT (2009) 120 ITD 233 (Asr.)

Where valuation done by the Valuation Officer is higher than valuation adopted by the Stamp Valuation Authorities then valuation done by the Stamp Valuation Officer has to be taken as full value of consideration .(Jitendra Mohan Saxena v. ITO 2008) 305 ITR (AT)62 ITAT (Luck).

E. IMPORTANT FACTUAL AREAS FOR COLLECTION & INVESTIGATION BY A.O.

(1) This being deeming provisions, these provisions cannot be extended beyond its objective for which the same is promulgated.

(2) In the case of co-owners, proceedings in all the co-owners be examined and consistent stand has to be taken.

(3) While making reference to DVO, the objective of reference be very clear. The appellant has to be provided an opportunity to rebut the valuation of DVO though as per this Section the same is mandatorily be adopted.

(4) The reference to DVO is invariably in the case of dispute of full value of consideration and stamp valuation authorities whether on the instance of A.O. or assessee.

(5) ‘Cost of acquisition’ is different than ‘full value of sale consideration’ hence reference for determination of cost of acquisition is separate than reference to DVO under section 50C.

F. PRECAUTION IN DRAFTING ASSESSMENT ORDER

(1) Clearly mention the facts to demonstrate that Section 50C is applicable.

(2) Discuss clearly with date and term of reference in assessment order as far as reference to DVO. The valuation report can be made part of order for ready reference.

(3 ) Discuss clearly the opportunity given to appellant after receipt of DVO’s report, disposing technical objection if there.

(4) In the case of co-ownership of land or building, details of treatment by department in all such cases if available be mentioned and if required, necessary action for reopening or revision be initiated, if, required.

Note: Certain provisos were added to sub-section (1) of section 50C by Finance Act 2016 and 2018. Readers should consider those provisos while referring above judgements.

Author – Alok Johri, CIT(Appeals)-XV, Ahmedabad

(Republished With Amendments)