Case Law Details
Surendra Singh Vs ITO (ITAT Jabalpur)
Capital Gains Taxable in Year of Registered Sale Because Unregistered Agreement Did Not Transfer Possession; CIT(A)’s Averaging Method Rejected Because Property Valuation Must Rest on Evidence; Capital Gain Not Shifted to Earlier Year Because Possession Was Delivered Only Through Registered Deed; Benefit of Proviso to Section 50C Available Because Part Consideration Was Received Through Banking Channels
Summary: The ITAT Jabalpur held that capital gains on sale of immovable property are taxable in the year of actual transfer through registered sale deeds and not merely on execution of an unregistered agreement to sell accompanied by part payment. The Tribunal found that possession was not handed over under the 2011 agreement and therefore Section 2(47)(v) read with Section 53A of the Transfer of Property Act was inapplicable. On valuation issues, the Tribunal rejected the CIT(A)’s approach of averaging the assessee’s and DVO’s valuations, holding that it lacked any rational basis, and remanded the matter to the Assessing Officer for fresh determination after considering the assessee’s objections to the DVO’s report. The Tribunal also upheld the assessee’s eligibility to claim the benefit of the proviso to Section 50C where part consideration had been received through banking channels before registration. Further, it held that while the cost of land purchased outside the prescribed period was ineligible under Section 54, construction costs incurred within the statutory period could still qualify for exemption.
Core Issues: (i) Whether capital gains were taxable in AY 2015-16 or AY 2011-12 based on an earlier agreement to sell; (ii) whether the CIT(A) was justified in averaging the assessee’s valuation and DVO valuation for determining cost of acquisition; (iii) whether the proviso to section 50C(1) permitting adoption of stamp duty value as on the date of agreement is retrospective; and (iv) whether exemption under section 54 could be denied merely because the plot on which a residential house was constructed had been purchased earlier.
Facts: The assessee had received two immovable properties by way of gift from his father under a registered gift deed dated 24.10.1962. During the relevant previous year, he sold Property P-1 for ₹10 crore through a registered sale deed dated 31.03.2015 and Property P-2 for ₹6 crore through a registered sale deed dated 14.08.2014. The aggregate sale consideration was ₹16 crore, whereas the aggregate stamp duty valuation was ₹34.69 crore. For computing long-term capital gains, the assessee obtained a valuation report from a registered valuer who adopted the fair market value as on 01.04.1981 at ₹3.30 crore, resulting in an indexed cost of acquisition of ₹33.78 crore. On this basis, the assessee declared nil taxable LTCG after claiming exemption under section 54 amounting to ₹2.59 crore, comprising ₹60.78 lakh invested in a flat and ₹1.99 crore towards construction of another residential house.
AO’s Findings: During scrutiny, the AO found the valuation adopted by the assessee highly excessive. Information obtained from the Sub-Registrar showed substantially lower values as on 01.04.1981. Consequently, the matter was referred to the DVO under section 142A. The DVO valued the properties at ₹33.82 lakh and ₹17.23 lakh respectively, aggregating to ₹51.05 lakh as on 01.04.1981. Based on this valuation, the indexed cost of acquisition was recomputed at ₹5.23 crore. The AO also referred the issue of sale consideration to the DVO under section 50C and adopted the DVO’s fair market valuation as sale consideration. As a result, LTCG was recomputed at ₹14.60 crore. Further, exemption under section 54 was restricted only to the flat purchased for ₹60.78 lakh, and exemption of ₹1.99 crore claimed towards construction of another house was denied. The assessment was completed under section 143(3) by taxing LTCG of ₹13.99 crore.
CIT(A)’s Findings: The CIT(A) partly allowed the appeal. He rejected both the assessee’s valuation and the AO’s valuation and adopted an average of the two for determining the cost of acquisition. For sale consideration, he discarded both the DVO valuation and stamp duty value and adopted the actual consideration mentioned in the registered sale deeds. He also held that the transfer had effectively occurred pursuant to the earlier agreement to sell and therefore treated section 50C as inapplicable. However, he upheld denial of section 54 exemption in respect of the second house on the ground that the investment was outside the prescribed period.
ITAT Findings on Year of Taxability: The assessee contended that transfer had taken place in AY 2011-12 under section 2(47)(v) read with section 53A of the Transfer of Property Act on the basis of an agreement to sell dated 29.03.2011 under which part consideration had been received. The Tribunal rejected this contention. It found that Clause 3 of the agreement specifically provided that vacant possession would be handed over only at the time of execution and registration of the final sale deed. The registered sale deeds executed on 14.08.2014 and 31.03.2015 alone conveyed title and possession. Since possession was not transferred in part performance of the agreement, section 2(47)(v) was not attracted. Accordingly, the transfer occurred only in FY 2014-15 relevant to AY 2015-16 and capital gains were taxable in that year. The Tribunal relied upon Smt. Jeejeebai Shinde vs. CIT and CIT vs. Rohtak Textile Mills Ltd..
ITAT Findings on Cost of Acquisition: The Tribunal held that the CIT(A)’s method of simply averaging the assessee’s valuation and DVO valuation lacked any legal or factual basis. However, it also found merit in the assessee’s grievance that adequate opportunity had not been provided to object to the DVO’s valuation and that the objections raised by the assessee had not been properly considered. Following the principle laid down in Classic Builders & Developers vs. Union of India, the Tribunal set aside the determination of cost and indexed cost of acquisition and restored the matter to the AO for recomputation based on a fresh DVO determination after considering the assessee’s objections.
ITAT Findings on Section 50C: The Tribunal held that the CIT(A) was factually incorrect in treating section 50C as inapplicable. Both the agreement to sell and the registered sale deeds were executed after section 50C had come into force. However, the Tribunal accepted the assessee’s alternative contention that the first proviso to section 50C(1), inserted by the Finance Act, 2016, is curative and retrospective. Since substantial consideration had been received through account payee cheques before registration and those payments were reflected in the sale deeds, the conditions of the proviso stood satisfied. Therefore, the assessee was entitled to adoption of stamp duty valuation as on the date of the agreement rather than the date of registration. For this proposition, the Tribunal relied on CIT vs. Calcutta Export Company, Allied Motors Pvt. Ltd. vs. CIT, CIT vs. Alom Extrusions Ltd. and CIT vs. Vummudi Amarendran.
ITAT Findings on Section 54 Exemption: The Tribunal observed that the AO and CIT(A) had denied exemption on entirely different grounds. The AO questioned the supporting evidence relating to construction, whereas the CIT(A) denied exemption merely because the plot had been acquired earlier. The Tribunal held that although the cost of the plot purchased outside the prescribed period would not qualify for exemption, that fact alone could not disqualify the assessee from claiming exemption in respect of the construction cost incurred within the period prescribed under section 54. Since the assessee’s claim related only to construction cost and not to the cost of land, the denial of exemption on that sole ground was unsustainable. The matter was therefore remanded to the AO for verification of construction expenditure and fresh adjudication.
Case Laws Relied Upon:
1. CIT vs. Calcutta Export Company
2. CIT vs. Alom Extrusions Ltd.
3. Allied Motors Pvt. Ltd. vs. CIT
4. Classic Builders & Developers vs. Union of India
5. Smt. Jeejeebai Shinde vs. CIT
6. CIT vs. Rohtak Textile Mills Ltd.
7. CIT vs. Vummudi Amarendran.
Final Conclusion: The Tribunal held that the transfer of the properties took place in AY 2015-16 and not AY 2011-12. The averaging method adopted by the CIT(A) for determining cost of acquisition was set aside and the issue was remanded for fresh DVO consideration after addressing the assessee’s objections. The assessee was held entitled to the benefit of the retrospective proviso to section 50C(1). The denial of exemption under section 54 in respect of construction of the second residential house was also set aside and remitted to the AO for verification and fresh adjudication. Both appeals were partly allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT JABALPUR
These cross appeals by the assessee and the Revenue are directed against order dt 13/05/2019 passed u/s 250 of the Income Tax Act, 1961 [‘the Act’] by the Commissioner of Income-tax (Appeals)–1, Jabalpur [‘Ld. CIT(A)’] for assessment year 2015-16 [‘AY’].
2. Tersely stated facts of the case are that;
2.1 The assessee is an individual. For the AY 2015-16 the assessee filed his return of income [‘ITR’] on 20/08/2016 declaring taxable income ₹1,22,89,550/-, further declaring therein a NIL long term capital gain [‘LTCG’] earned by him after claiming an exemption u/s 54 of the Act for sum of ₹2,59,54,878/-. The case of the assessee was selected for scrutiny wherein both; (i) cost/indexed cost of acquisition and (ii) consideration for sale/transfer adopted by the assessee for computing long term capital gain on sale/transfer of two immovable properties were rejected by the Ld. AO. Adopting the valuations ascertained/determined by District Valuation Officer [‘DVO’] when referred to it, the Ld. AO recomputed the LTCG at ₹14,60,27,824/- and restricting the exemption u/s 54 of the Act towards purchase of flat to ₹60,78,000/-, the balance LTCG of ₹13,99,49,824/- was added to the total income & was brought to tax accordingly vide an assessment order dt. 02/08/2018 framed u/s 143(3) of the Act
2.2 Aggrieved by the addition and assessment as such the assessee filed first appeal before the Ld. CIT(A) u/s 246A r.w.s. 249 of the Act. The said first appeal was partly allowed by the Ld. CIT(A) wherein; (i) the cost/indexed cost of acquisition of properties were averaged out [X/2] taking into consideration the cost/indexed cost of acquisition of twin properties adopted by the assessee as well as the Ld. AO in terms of DVO’s valuation report and (ii) insofar as the amount of sale consideration on transfer of twin properties is concerned, both the DVO’s valuation as adopted by the Ld. AO and Stamp Duty Value [‘SDV’] as adopted by the assessee were replaced by the Ld. CIT(A) with the amount of sale consideration noted in the registered transfer/sale deed executed by the assessee on 14/08/2014 & 31/03/2015, and (ii) the exemption u/s 54 of the Act as restricted to one property by the Ld. AO was upheld and denial of exemption in respect of construction of house for ₹1,98,76,878/- was confirmed as time barred by investment.
3. Aggrieved by the first appellate order, both rival parties have come in present cross appeals setting their respective ground of agitation as under;
Assessee’s Appeal ITA No 060/JAB/2019
1. The learned Commissioner of Income Tax (Appeal) has erred in upholding the cost of acquisition at Rs.1,90,46,912 against the value adopted by the appellant of Rs.3,29,88,925 without appreciating that the report was prepared by valuation officer by imagination.
2. The learned Commissioner of Income Tax (Appeal) has erred in allowing the deduction under section 54 of the Act at Rs.60,78,000 in respect of flat and denying the claim of deduction of Rs.2,59,54,878 in respect of house property without appreciating that the assessee is entitled to get the exemption in respect of one house of his/her choice.
3. The learned CIT (Appeal) was not justified in directing to tax capital gain in assessment year 2015-16 and not in assessment year 2011-12 on the only ground that claim was made by filing revised computation and not revised return, without appreciating that time to file revised return expired and by ignoring that the agreement to sale took place in assessment year 2011-12 and part amount was received by account payee cheque.
4. The appellant craves for leave to amend, add to or omit any ground up to the time of hearing of the appeal.
Revenue’s Appeal : ITA No 072/JAB/2019
1. That on the facts and in the circumstances of the case, the Ld. CIT(A)-1, Jabalpur erred on facts and in law in holding that the property under consideration was transferred from the assessee during the previous year relevant to the Asst. Year 1996-97, and the provisions of section 50C of the I.T. Act brought on statute w.e.f. 01.01.2003 were not applicable to the facts of the present case, when the stated agreement itself took place during the period relevant for A. Yr. 2011-12.
2. The Ld. CIT(A)-1, Jabalpur erred on facts and in law in preferring the agreement over the registered sale deed and directing for adoption of the fair market value at Rs. 16,00,00,000 for A.Yr. 2011-12 as against the FMV adopted by the Assessing Officer for AYr. 2015-16 at Rs.19,83,02,000/- without considering the fact that the proviso below sec. 50C(1) of the Act inserted under section 50C by the finance Act, 2016 w.e.f. 01.04.2017, i.e. for and from A. Yr. 2017-18 only.
3. The Ld. CIT(A)-1, Jabalpur erred on facts in law in rejecting cost of acquisition of the plot of land as on 01.04.1981 as per the DVO’s report without examining its merit and without giving any opportunity to the Assessing Officer/DVO.
4. That, in any case, the Ld. CIT(A)-1, erred in adopting the cost of acquisition as on 01.04.1981 at Rs. 1,90,46,912/- by taking average of the value adopted by the DVO/AO at Rs. 51,04,900/- and the assessee at Rs.3,29,88,925/-.
5. That the order of the Ld. CIT(A) is contrary to the facts and law.
4. During physical hearing, after taking us through the impugned orders and relevant pages of paper book dt. 30/11/2023, the Ld. AR Usrethe reiterated the assessee’s submission as were laid before the tax authorities below. The sum and substance of such submission are that; (i) the Ld. CIT(A)’s action of averaging the cost/indexed cost of acquisition as adopted by rival parties lacks the rationale & merits, therefore it is to be replaced by the value adopted by the assessee, (ii) the cost of construction incurred within the eligible period qualifies as investment into new house (2nd property) which was denied merely by overlooking the date of purchase of land. Therefore, the denial of exemption towards 2nd house investment u/s 54 of the Act to be set-aside and exemption be directed to be allowed, and (iii) without prejudice, the capital gains permitted to be taxed in the year in which agreement to sell was first entered on 29/03/2011 in place of the year in which it is offered to tax by the assessee.
5. Per contra, adverting to section 50C & 142Aof the Act the Ld. DR submitted that, when assessee failed to substantiate cost/indexed cost of acquisition the Ld. AO rightly referred the matter to DVO u/s 142A of the Act. While filing return, assessee himself adopted SDV as the sale consideration and objected the same only when cost of acquisition adopted by him in view of the Ld. DVO’s report was turned down as exorbitant. In recomputing the LTCG the Ld. AO fairly adopted the Ld. DVO’s valuation for both the ends (a) cost/indexed cost of acquisition over higher cost/value claimed by the assessee as well for (b) lower FMV as sale consideration over higher SDV offered by assessee. Therefore, there is no merit in replacing the DVO’s FMV valuation with averaging method, which the assessee also challenged for equal reasons. Same is the case with sale consideration. Insofar as the denial of exemption towards investment in 2nd house constructed by the assessee is concerned, the Ld. Meena strongly relied the order of tax authorities below as time barred.
6. Heard the rival party’s submission and subject to rule 18 perused the material placed on record and considered the facts in light of settled position of law which are forewarned to the respective parties for their respective rebuttal. We note that, these cross appeals in common sets three issues for adjudication; (A) year of chargeability of capital gain (B) validity of cost of acquisition/indexed cost/indexed of acquisition adopted by the Ld. CIT(A) over the cost/indexed cost of acquisition adopted by the Ld. AO, and validity of cost of value of sale consideration adopted by the Ld. CIT(A) over sales consideration noted in the registered agreement, (C) exemption entitlement u/s 54 of the Act for investment made by way of incurring construction of into 2nd house property.
7. We note that,
7.1 the assessee vide registered Gift Deed dt. 24/10/1962 was in receipt of gift of certain piece/parcel of land/immovable properties from his father. During the year under consideration, the assessee sold two immovable properties for sum of ₹1600 Lakhs viz; (1) House No 2682 to 2685 at Napier Town admeasuring an area of 52747sq.ft. with 4270.50sq.ft built-up [‘P1’] was vide registered agreement dt. 31/03/2015 sold for a consideration of ₹1,000Lakhs. The stamp duty value [‘SDV’] of the property P1 as adopted for such register transfer by the Sub-registrar and for computing capital gain by the assessee was ₹2,260.81Lakhs (2) House No 2682 to 2685 at Napier Town admeasuring area of 28428sq.ft. with 1765sq.ft built-up [‘P2’] was vide registered agreement dt. 10/09/2014 sold for a consideration of ₹600Lakhs. The SDV of P2 adopted for such transfer and for computing capital gain by the assessee was ₹1,208.61Lakhs. For computation of LTCG, the valuation of properties as at 01/04/1981 was obtained by the assessee from his registered valuer (Mr RK Motwani) who vide his report dt. 21/07/2015 valued both the properties together [‘Capital asset’] at ₹3,29,88,925/- wherein total areas of land was valued by applying per sq. ft. rate of ₹380/- and built-up area was valued ₹350/- per sq. ft.
7.2 On the basis of said valuation report, the assessee first arrived at indexed cost of acquisition of ₹33,78,06,592/-(₹3,29,88,925/100*1024, where 1024 is cost inflation index/multiplier declared for the year under consideration.) For the purpose of computation of LTCG, the assessee adopted the sum of SDV ₹34,69,42,000/- as adopted by the Sub-registrar in registering transfer of capital asset P1 & P2, as the full value of sale consideration over actual consideration of ₹1600Lakhs received by him. The assessee accordingly computed the LTCG chargeable to tax subject to exemption at ₹9,13,54,08/- being excess of adopted SDV as full value of sale consideration over computed indexed cost of acquisition. Thereagainst, the assessee claimed exemption u/s 54 of the Act for ₹2,59,54,878/-towards; (i) investment into flat purchased for sum of ₹60,78,000/- and (ii) ₹1,98,76,878/- investment into 2nd house property by way of cost incurred toward construction of house on a plot purchased by him on 17/03/2011.
7.3 In the course of assessment proceedings, the composite cost of acquisition so adopted ₹3,29,88,925/- for P1 & P2 as on 01/04/1981 were found exorbitant and excessive. Therefore the Ld. AO called upon the assessee to explain & substantiate the same separately. In the event of assessee’s failure to substantiate the cost so adopted, the Ld. AO u/s 133(6) called an information from the Sub-Registrar, Jabalpur [‘SRJ’] and asked to furnish assessable value of capital assets for financial year 1981-82. The assessable value for P1 ₹71,736/-and of P2 ₹38,663/- as at 01/04/1981 as certified by the Sub-Registrar vide its letter/report dt. 28/11/2017 was compared with the assessee’s valuation report submitted by the assessee.
7.4 Owning to disproportionate difference in the valuation of registered valuer of the assessee and the valuation informed by the Ld. SRJ, on the concern of the assessee, the Ld. AO referred the matter u/s 142A of the Act to District Valuation Officer [‘DVO’] to ascertain fair market value [‘FMV’] of twin properties as on 01/04/1981. The valuation estimated by the DVO vide letter dt. 20/02/2018 was forwarded to the assessee and objections were called thereagainst. In the event of no objection forthcoming from the assessee, the Ld. DVO finalised the valuation and forwarded his report dt 12/03/2018 whereby FMV of the twin properties as on 01/04/1981 was ascertained & determined as; P1 at ₹33,81,850/- & P2 at ₹17,23,050/-. The Ld. AO forwarded the copies of said valuation report to the assessee through speed post vide letter dt. 19/03/2018 and by email as well by making available a copy thereof to the authorised counsel. The assessee objected the DVO’s FMV valuation as the cost/indexed cost of acquisition. The Ld. AO commented but gave no credit or consideration to the assessee’s belated objection so raised on 02/07/2018, and proceeded to compute indexed cost of acquisition of twin properties out on the basis of Ld. DVO’s FMV to ₹5,22,74,176/-(₹51,04,900/100*1024) and before framing assessment confronted the same to the assessee.
7.5 Upon such rejection of objection raised by the assessee against the FMV as cost of acquisition adoption, the assessee then challenged the sale consideration adopted in terms of his declaration/computation as made in the return of income filed by him. In view of change in cost of acquisition/ indexed cost of acquisition, the assessee without revising his ITR objected self-adopted SDV as the sale consideration in place of actual consideration received under registered sale-deed. Since the difference between the SDV adopted by Ld. SRJ for registration and sale consideration actually received by the assessee, was significant. Therefore the Ld. AO accepting concern of the assessee and invoking the provisions of section 50C of the Act referred the matter to Ld. DVO u/s 142A of the Act for ascertaining FMV as on date of transfer. Vide letter dt. 02/07/2018, the Ld. DVO forwarded a copy of FMV valuation report dt. 28/06/2018 separately to both, the assessee as well the Ld. AO. The objection raised thereagainst by the assessee before the Ld. Add. CIT, Jabalpur, came to be dismissed.
7.6 Finally, the long-term capital gain on transfer of twin properties i.e. P1 & P2 came to be re-computed by the Ld. AO by the adopting DVO’s FMV valuation in terms of section 142A r.w.s. 50C of the Act at both ends i.e. ends (a) FMV of property as at 01/04/1981 as cost of acquisition and (b) FMV of the property as on date of sale as the sale consideration chargeable for the purpose of capital gain u/c IV-E of the Act.
7.7 When the aforestated issue travelled in appeal, the Ld. CIT(A) interfered the computation of LTCG; (i) by adopting value of sale consideration as per the registered sale-deed executed by the assessee in place of FMV adopted by the Ld. AO and ignoring assessee’s SDV adoption in the return of income and (ii) by averaging out the cost of acquisition adopted by the assessee on the basis of valuation report issued by Mr Motwani and FMV adopted by the Ld. AO on the basis of valuation report issued by DVO on reference to it u/s 142A of the Act. The rival parties aggrieved by part relief granted to assessee have set these cross appeals.
8. We also note that,
8.1 The assessee claimed exemption u/s 54 of the Act in relation to re-investment into two house properties viz; (i) flat purchased and (ii) construction of house on an open plot. Both the Ld. tax authorities allowed the exemption in relation to reinvestment into flat as being invested within a period of one year before or two years of sale date. Insofar as the investment into 2nd house property claimed to have been re-invested by the assessee by construction is concerned, it is observed that the both the Ld. Tax authorities denied the exemption holding that, re-investment was beyond the time limit as the construction of said house was completed beyond the period of three years after the plot was purchased.
9. Now coming to the adjudication as to year of chargeability; we note that, vide agreement to sell executed on 29/03/2011 non-judicial stamp paper of ₹100/- the assessee claimed to have accepted a part consideration and transferred the possession [Pg 15 to 19 of PB]. A bare reading of clause 3 thereof, clearly reveals that, the assessee agreed to part with vacant possession of contracted property at the time of execution & registration of final sale deed. We also note that the clause 4 prematurely confirms the execution of sale deed on or before 48 months from such agreement. The assessee ultimately transferred/sold capital assets viz; P1 & P2 vide separate registered sale-deed dt. 31/03/2015 & 14/08/2014 respectively [Pg 20 to 37 of PB] and thereby parted with their possession in favour of the purchaser. Thus, the transfer of property/capital asset under consideration in part performance of agreement entered on non-judicial (not even notarised) stamp paper never took in terms of section 2(47) of the Act r.w.s. 53A of Transfer of Property Act [‘TPA’]. The title and the possession of the capital asset by registered sale-deed was conveyed on the date of registration of respective capital assets. Thus transfer for capital asset us 2(47) of the Act r.w.s. 53A of TPA took place in FY 2014-15 relevant to assessment year under consideration.
10. Without reproducing the loose-stock-barrel of section 45 of the Act, it shall suffice to state that, irrespective of receipt of part or full sale consideration for transfer of any capital asset in any year other than year of its actual transfer, profits & gains arising therefrom shall be chargeable to tax in the year of transfer. That is to say, factor deciding the year of chargeability of profits & gains u/c IV-E of the Act, shall be the year in which the transfer of immovable property takes place. The part receipt or full receipt of sale consideration in any year other than the year of actual transfer of immovable property would hardly be determinative to decide the year of chargeability of gains arising therefrom.
11. What is important is the transfer of capital asset including possession thereof. A capital asset being immovable properties exceeding celling, transfer was to be by registration. The consideration whether ascertained or not, paid or payable, in view of the actual transfer of title by registered sale-deed executed by which possession is also transferred only determinative to decide the year of chargeability. This proposition finds fortified in the decision of the case of ‘CIT Vs Rohtak Textile Mills Ltd.’ [1982, 138 ITR 195 (Del)].
12. Insofar as the present assessee and facts & circumstance of his case is concerned, the issue of chargeability of profits & gains arising from transfer of a capital asset is no more res-integra. The Hon’ble jurisdictional High Court in the case of ‘Jeojabai Shinde Vs CIT’ [1983, 144 ITR 693 (MP)] had decided the impugned issue wherein their Hon’ble Lordships upheld the decision of Tribunal by holding that;
‘the date when the consideration for transfer was received or accrued is not relevant for the purpose of determining the year of chargeability on account of the fiction introduced by section 45 of the Act. Whatever may be the date of receipt or accrual of consideration as a result of the transfer of a capital asset, the accrual or receipt of consideration would have to be attributed, by statutory mandate, to the year of transfer. Hence, an enquiry into the question as to when the right to receive the compensation amount accrues to a person, in the case of compulsory acquisition of his property under the provisions of the M.P. Town Improvement Trust Act, 1961, though interesting, would not be relevant for the purpose of determining the year of chargeability of the capital gains because the relevant year is, by virtue of the deeming provisions of section 45 of the (Income-tax) Act, 1961, the year when the transfer took place.’
(Emphasis supplied)
13. The assessee in the present case however pressed into service the provision of clause (v) to section 2(24) of the Act and claimed that the agreement to sell entered, part consideration received pursuant thereto and the possession handed over thereby is hit the provisions of section 53A TPA, therefore the capital gain was chargeable to tax in the year AY 2011-12 when agreement to sale was entered.
14. In this context we note that, w.e.f. 01/04/1988 the Finance Act, 1987 introduced sub-clause (v) whereby the statute provided that, the transfer in part performance of contract as provided in section 53A of the Transfer of Property Act was made applicable to transfers of capital asset for capital gains tax purposes. With the introduction of this clause, the ratio laid in ‘Alapati Venkataramaiah Vs CIT’ [1963, 57 ITR 185 (SC)] wherein their Hon’ble Lordships held that transfer means effective conveyance of the capital asset, was nullified. Consequently, the gains made are exigible to taxation in the year in which actual possession in part performance of agreement to sell entered is parted with.
15. In the present as we have already noted from clause 3 of agreement to sell entered on 29/03/2011 (Pg 17 to 18 of PB) that, the assessee did not part with the possession in part performance. On the contrary, from clause 3 of (Pg 24 of PB) of registered sale-deed we observed that, the actual possession of impugned property P1 was handed over to the purchaser by registered sale deed executed on 14/08/2014. It is needful to also mention that, by clause 5 (Pg-25 of PB) thereof the assessee confirmed to have not transferred, alienated, mortgaged, gifted or released the property P1 to any person prior to execution of registered sale-deed. So is the case with property P2. The respective clauses of registered sale-deed executed in relation to transfer of property P2 were found worded in verbatim as placed on pages 35 & 36 of the paper book. In view of former clinching facts and categorical findings, in our considered view the clause (v) of section 2(47) r.w.s. 53A of the TPA could hardly make out the case for relief.
16. Much after insertion of clause (v), before the Hon’ble Bombay High Court the controversy came for reconsideration in case of ‘CIT Vs Dr Arvind Phadke’ [2018, 164 DTR 77 (Bom)], wherein registered development agreement executed with a specific clause that handing over of possession of the property is subject to receipt of entire consideration. Negating the argument of the Revenue over date of execution of Development Agreement should be considered as date of transfer, the date of receipt of entire consideration for passing over physical possession was considered was date of transfer. It was held therein by the Hon’ble Lordships that, since the physical possession of the property was passed on to the Developer only upon receipt of entire consideration, hence, the date of transfer was taken as handing over of possession.
17. The assessee could hardly bring to our notice any decision warranting deviation from aforestated judicial precedents. Faced with the situation, in view of the aforestated discussion and judicial precedents(supra), we find no merits in the contention of the assessee and any merit in ground number 3 raised in his appeal, as the assessee parted possession through registered sale-deed. In consequence, the Revenue’s contentions stands accepted and the ground number 3 of assessee’s appeal stands dismissed.
18. Next comes to cost of acquisition and sale consideration for the purpose of computing capital gains u/s 45 of the Act;
18.1 First this first, the cost of acquisition of transfer
a. The cost of acquisition for inherited property is generally deemed to be the cost at which the previous owner acquired the asset. This principle also applies to gifted property covered by section 49. As per section 49(1) of the Act, when a capital asset becomes the property of an assessee through any of the specified modes such as gift, will, inheritance, etc., the cost of acquisition of that asset shall be deemed to be the cost at which the previous owner acquired it.
b. In the present case, the assessee inherited the capital asset from his father through gift, therefore actual price/cost at which the capital asset were acquired should have been the cost of acquisition in the hands of assessee. Since the capital asset was acquired prior to 1981, the assessee for the purpose of the computation of gain u/c IV-E obtained the FM valuation of the property as of April 1, 1981 from registered valuer.
c. We note that, in the course of assessment the Ld. AO found that, the FM valuation obtained by the assessee were very higher & excessive and thus not commensurating with value date. The Ld. AO therefore called information of actual transaction during such period for similar properties from Ld. SRJ u/s 133(6) of the Act. Comparing both FM Valuation submitted by the assessee and report of Ld. Sub-registrar, the Ld. AO referred the matter to the Ld. DVO and FMV so ascertained was founded as basis for cost of acquisition qua The dispute thus in the present case primarily relates to FMV of the land as on 01/04/1981 as adopted by the Ld. AO against the FMV adopted by the assessee.
d. Ostensibly, the Ld. AO, not being a technical expert in valuation matters, after placing information on record about sale of similar properties in 1981 from Ld. SRJ, for an expert opinion a valuation from the Ld. DVO was sought proceeded with the FMV so ascertained. At the same time, it is viewed that, the value of ₹380 per sq.ft. as at 01/04/1981 for land and ₹350 per sq.ft. for built-up arrived by the private registered Valuer when compared with the valuations of sale instances reported by the Ld. Sub-registrar not only found unreasonable but vexatious. It is viewed that such subjective valuation of capital asset was not determined separately for twin properties in first place. Further it was not been supported by any documentary proof, sale-instances etc., therefore could not be relied upon, especially when the Ld. AO obtained direct evidence from both the Sub-Registrar’s Office regarding actual sale instances of similar properties and valuation from the Ld. DVO.
e. Having noted forestated fact, the Ld. CIT(A) ceased the dispute or the assailed issue simply by adopting average valuation wherein both the valuations were aggregated and dividing by two. This adjudication in our considered view lacked the rationale and thus merits. Therefore, such determination & adjudication is hereby set-aside.
f. Insofar as Ld. the DVO’s valuation is concerned, we note that, endorsing the copy of NS-6 to the assessee the Ld. DVO vide letter dt. 20/02/2018 called for objection by 27/02/2018. The period provided for raising objection suggests to have to ensure paper compliance and not in true sense, as it allowed less than a reasonable period of fifteen days. The assessee however raised the objection on 02/07/2018 for the reasons that, effective communication of such letter was received from his authorised representative to him a copy thereof was physically handed over on 13/06/2018 by the Ld. AO. Thus, the objection raised against DVO’s FMV valuation not been dealt with.
g. We are mindful to a fact that a similar issue came for consideration before the Hon’ble Jurisdictional High Court, in ‘Classic Builders & Developers Vs UOI’ [2001, 115 Taxman 393 (MP)] wherein for the want to of disposal/non consideration of objection raised by an assessee against the FMV ascertained by the district valuation officer, their Hon’ble lordship have set-aside the assessment for framing a fresh assessment on the basis of final valuation report from authority concerned after deciding objection so raised by an assessee.
h. In view of the aforestated clinching fact, placing reliance on former judicial precedents (supra), in the larger interest of justice, adopting the same reasoning, we set-aside the determination of cost/indexed cost of acquisition adopted for computing LTCG by the Ld. AO (on this limited score) with a direction to recompute the LTCG considering the cost/indexed cost of acquisition to be adopted on the basis of FMV to be decided by Ld. DVO at the earliest but after considering the objection raised by the assessee.
i. The first ground of the assessee’s appeal and ground number 3 & 4 raised by the Revenue accordingly stands partly allowed for statistical purposes.
18.2 Sale consideration for transfer of capital asset;
a. We note that, the assessee having offered the LTCG on the basis of SDV in terms of sale-deed executed for transfer of both properties P1 & P2, when failed make his case on for cost of acquisition on the basis of registered valuer’s report, the assessee retreated from offering SDV as sale consideration for the purpose of computing LTCG and vide letter dt. 20/07/2018 claimed to have revising the computation. Thus, the assessee challenged the adoption of SDV for the purpose of computing LTCG. Admittedly, in fact, there was no return revising the computation was filed on record in the course of proceedings before the Ld. Tax Authorities.
b. In view thereof, the Ld. AO invoked the provisions of section 50C of the Act and made the reference to Ld. DVO. The FMV ascertained by the Ld. DVO was taken as sale consideration and LTCG was arrived accordingly. The assessee objected the applicability of section 50C before the Ld. JCIT which was rejected. While doing so, for various defects including a fact that it was unregistered, and possession of the property was not changed the hands, the agreement to sell entered by the assessee on 29/03/2011 was for the purpose of section 53A of TPA, was treated as invalid. In view of thereof, FMV determined by the Ld. DVO was adopted as ‘sale consideration’ in computing the LTCG and the assessment in terms of direction as per the provisions of section 50C(3) r.w.s. 142A(7) was completed u/s 143(3) of the Act.
c. In first appeal, the assessee challenged the of FMV as the full value of sale-consideration in computing the LTCG, which was allowed in tandem. The Ld. CIT(A) in view of the unregistered agreement to sell entered by the assessee held that the property/capital asset by virtue of section 2(47) r.w.s. 53A of TRA stands transferred in the AY 1996-97, hence the provisions of section 50C which came into statute in AY 200304 are inapplicable.
d. At the outset, we note that, agreement to sell was entered on 29/03/2011 whereas the registered sale-deed executed in the year under consideration. Thus, both these agreements came into existence after the provisions of section 50C came into statute. Therefore, the basis founded in adjudicating the first ground raised in Form 35 in first appellate proceedings was devoid of factual position, so is the decision of the Ld. CIT(A). For the reason, at the threshold we set-aside the adjudication and thus allow the first ground of the Revenue.
e. Now coming to the question of applicability of amended provision of section 50C of the Act which came into effect w.e.f. 01/04/2017 and case law relied in support thereof. There is no dispute the by virtue of proviso inserted to s/s 1 of section 50C of the Act 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. The former benefit comes with a rider that, it applies to cases 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 transfer agreement.
f. Insofar as the retrospective application of former proviso to the present case in hand is concerned, we note that, the Hon’ble Supreme Court in ‘CIT Vs Calcutta Export Co.’ [2018, 404 ITR 654 (SC)], taking into account its earlier decisions on the same issue in ‘Allied Motors (P.) Ltd. Vs CIT’ [1997, 91 Taxman 205 (SC)], ‘Whirlpool of India Ltd. Vs CIT’ [2000, 245 ITR 3 (SC)], ‘CIT Vs Amrit Banaspati Co. Ltd.’ [2002, 123 Taxman 74 (SC)] and ‘CIT Vs Alom Enterprises’ [2009, 319 ITR 306 (SC)] their Hon’ble lordship have held that, the new proviso should be given retrospective effect from insertion on the ground that such proviso was added to remedy unintended consequences and supply an obvious omission. The proviso ensured reasonable interpretation and retrospective effect would serve object behind the enactment.
g. Following the said ratio, the Hon’ble High Court in ‘CIT Vs Vummudi Amarendran’ [2020, 429 ITR 97 (Mad)], and various Ld. Co-ordinate benches in ‘Dharamshibhai Sonani Vs ACIT’ [2016, 75 taxmann.com 141], ‘ITO Vs Modipon Ltd.’ [2017, 57 taxmann.com 360], ‘Amit Bansal Vs ACIT’ [2018, 100 taxmann.com 334], ‘ITO Vs Meelendra Deependra Singh’ [2024, 164 taxmann.com 8] approved the retrospective application of proviso to s/s (1) of section 50C of the Act w.e.f. insertion main provision. The Revenue on the other hand hardly agitate the respective applicability of amended proviso to section 50C(1) of the Act.
h. In the present case, although the genuineness of the agreement to sell entered was doubted by the Ld. AO for various defects and for registered sale-deed making no mentioning prior existence of such agreement to sell, it however remained undisputed that, the part consideration as documented in said agreement was received through account payee cheques. The fact was reverified from SBI, Bargi Branch SB a/c 31124676761 statement (Pg 365 to 368 of PB) wherefrom it is clearly evident that, the part consideration paid through a/c payee cheques/draft amounting to ₹25Lakhs on 07/08/2010, ₹50Lakhs on 14/01/2011 and ₹50Lakhs on 23/04/2011 were encashed by the assessee. These details of payment has been travelled to the registered sale-deed executed in relation to transfer of property/capital asset. In view thereof, the said agreement to sell transaction entered to transfer both the properties P1 & P2 is to be considered to have complied fully with the first & second proviso to section 50C(1) of the Act, therefore their applicability. In view of the judicial precedents cited hereinbefore, there remains no material on record to disentitle the assessee from the benefit of retrospective application of first proviso to section 50C of the Act, held accordingly. The Revenue’s ground no. 2 is thus dismissed.
19. Now coming to the exemption u/s 54 of the Act;
19.1 As stated herein before, the Revenue denied the exemption toward cost incurred by the assessee for constructing the house on an open plot purchased by him on 23/09/2011. We note that while denying the exemption against investment into new house property in relation to construction of house, the Ld. AO made a categorical findings that, the claim was not supported by any documentary evidence including (i) details of land purchased on which the assessee claimed to have constructed the new house property, (ii) approved plan, commencement & completion certificate (iii) details of construction expenses incurred along-with their supporting etc., Per contra when matter travelled in appeal, the Ld. CIT(A) founded the denial on a solitary reason that, the time clock condition prescribed for reinvesting by way of construction of house property was failed to fulfil. In view of the Ld. CIT(A) since the open plot on which construction was carried out by the assessee from 21/10/2013 to 30/04/2015 was purchased on 29/03/2011 which is prior to date of sale/transfer of property. Therefore, the assessee’s re-investment int construction is ineligible for exemption.
19.2 At the outset we noted that, the reasons of denial of exemption were divergently set by both the Ld. Tax authorities. The Ld. AO had no benefit of going through the details either in the course of assessment proceedings or in first appellate proceedings by way of remand. On the other hand, without complying the provisions of rule 46A of IT-Rules, 1962 the documents furnished first time were taken into consideration and the issue without confronting to Ld. AO or calling for remand found adjudicated in appeal. Therefore, the adjudication suffered from compliance of provisions of 46A (supra). For the reason we find force in the prayer of the Revenue that, for verification of the details of construction expenses, the issue deserves to be remanded to the file of Ld. AO. The assessee on the other hand could hardly object the Revenue’s plea for verification in above terms.
19.3 It is an undisputed fact that, the open plot on which the house claimed to have been constructed by the assessee was acquired by him beyond the time limit within which reinvestment could have qualified for exemption for the year under consideration. Admittedly, the cost of such open plot for the above reason shall not qualify for exemption, however such shall neither impair the right & entitlement of assessee to construct house thereon for the purpose of exemption nor will disqualify the construction cost for exemption if found incurred within the time limit prescribed u/s 54 of the Act.
19.4 The assessee submitted the details of construction of house i.e. investment in 2nd house property, which is reproduced at page 26 of the impugned order. A bare reading of the tabulated details suggests that, while claiming exemption in respect of 2nd house property, the assessee did not include the cost of open plot but the construction cost alone. The cost of investment of open plot invested outside the time limit of three year from the date of sale-deed, although disqualifies for exemption, however cost incurred in constructing a new house on such open plot, anytime within a period of three years form the date of sale-deed executed qualifies for exemption in terms of section 54(1) of the Act. There is hardly any material placed on record by the Revenue to suggest otherwise. In view foregoing discussion and findings, we set-side the denial of exemption and remit the issue back to the file of Ld. AO with a direction to deal therewith in accordance with foregoing paragraphs. The second ground of the assessee’s appeal thus stands partly allowed for statistical purposes.
20. In result, the cross appeals stands partly allowed in afforested terms.
U/r 34 of ITAT Rules, order pronounced in the open court on the date mentioned herein above.
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