Case Law Details

Case Name : Sh. Prem Chand Jain Vs ACIT (ITAT Jaipur)
Appeal Number : ITA No. 98/JP/2019
Date of Judgement/Order : 08/06/2020
Related Assessment Year : 2014-15
Courts : All ITAT (7341) ITAT Jaipur (228)

Sh. Prem Chand Jain Vs ACIT (ITAT Jaipur)

The issue under consideration is whether the provisions of section 56(2)(vii)(b) can be invoked in case of agricultural land where it doesn’t qualify as falling in the definition of capital asset?

ITAT states that, on reading of provisions of 56(2)(vii)(b), they find that it refers to any immoveable property. Further, provisions of section 56(2)(vii)(c) refers to any property, other than an immovable property. The meaning of the term “property” has been provided in Explanation (d) to section 56(2)(vii) where the term “property” has been defined to mean capital asset of the assessee namely immoveable property being land or building or both. It has been contended by the ld AR that all immovable properties of any nature are not covered in the definition of property. Only those immovable properties which are held as capital assets and is in nature of land or building or both are only covered u/s 56(2)(vii). ITAT agree with the contention of the ld AR that where the term “property” has been defined to mean a capital asset as so specified and where an immoveable property as so specified being land, building or both is not held as an capital asset, it will not be subject to the provisions of section 56(2)(vii)(b) of the Act. In the instant case, therefore, where the agricultural land doesn’t qualify as falling in the definition of capital asset, provisions of section 56(2)(vii)(b) cannot be invoked.

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal filed by the assessee against the order of ld. CIT(A), Kota dated 29.11.2018 wherein the assessee has taken the following ground of appeal:-

“The Ld CIT (A) has erred in law and on facts in confirming the addition of Rs. 303,596/- on account of addition u/s 56(2)(vii)(b) made by AO ignoring the fact and law that the property acquired by the assessee was not a capital asset.”

2. The ld. AR submitted that the appellant is a wholesale grain & seed merchant. During the year, he had purchased two piece of agriculture land admeasuring 1/6th of 40.25 bighas i.e. 6.71 bighas(appx.) and also 1/6th of 25 bighas i.e.4.17 bigha (apprx) respectively from Smt. Rajbala w/o Sh Satveer Singh and Sh. Satveer Singh s/o Sh. Surja Ram, for a consideration of Rs.3,50,000/- and Rs. 2,00,000/- which were valued by the SubRegistrar at Rs.5,26,660/- and Rs. 3,26,976/- respectively. The Assessing officer worked out the deemed sales consideration as per the aforesaid DLC value and added the difference of Rs.3,03,596/- u/s 56(2)(vii)(b) in the hands of the appellant, under the head
“Income from other sources”.

3. On appeal, the ld. CIT(A) has confirmed the addition and against the said findings, the assessee is in appeal. During the course of hearing, our reference was drawn to the findings of the ld CIT(A) which read as under:-

“As regards Ground No. 2, since the matter pertains to A.Y 2014-15 and the provisions of section 56(2)(vii)(b) have been made effective from April 2014 present assessment year under appeal is covered. The AO has not questioned the source or nature of the transaction but the difference in the actual value paid to the seller & the DLC rate taken by the SVA. The difference is sought to be taxed under ‘other sources’ income as per the above referred section.

The appellant has contended that since the purchased land was agricultural, his case was not covered under section 56(2)(vii)(b). However, on a perusal of the section it is seen that there is no express exclusion provided for agricultural land from the section. Hence this argument of the appellant is not found to be acceptable and the same addition made by the AO amounting to Rs. 3,03,596/- as income from other sources is upheld. ”

4. The ld AR submitted that during the appellate proceedings, it was specifically contended before the CIT(A) that the assessee had purchased two pieces of agriculture land during the year and the agriculture land not being a capital asset, the provisions of section 56(2)(vii)(b) are not applicable. However, the ld CIT(A) has summarily rejected the contention so advanced by the ld AR and has erred in interpreting the provisions of section 56(2)(vii)(b) in right perspective.

5. Referring to the provisions of 56(2)(vii)(b) and the amendment brought in by the Finance Act, 2010, it was submitted as under:

“The Finance Act, 2010 made the following amendments to section 56:

In section 56 of the Income-tax Act, in sub-section (2),—

(a) in clause (vii),—

(i) for sub-clause (b), the following sub-clause shall be substituted and shall be deemed to have been substituted with effect from the 1st day of October, 2009, namely:—

“(b) any immovable property, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property.”

(ii) in the Explanation, in clause (d),—

(A) in the opening portion, for the word “means—”, the words “means the following capital asset of the assessee, namely:—” shall be substituted and shall be deemed to have been substituted with retrospective effect from the 1st day of October, 2009;

(B ) in sub-clause (vii), the word “or” shall be omitted with effect from the 1st day of June, 2010;

(C) in sub-clause (viii), the word “or” shall be inserted at the end with effect from the 1st day of June, 2010;

(D) after sub-clause (viii), the following sub-clause shall be inserted with effect from the 1st day of June, 2010, namely:—

“(ix) bullion;”;

6. It was submitted that the substitution of the words “means” for the words “ means the following capital asset of the assessee, namely” made the intention of the legislators very clear that henceforth the deeming provision of 56(2)(vii)(b) would apply in case of these nine assets, if and only if, they are capital assets. It is not without a purpose or intent that the word means has been substituted with means the following capital asset of the assessee.

7. It was submitted that it is a fundamental rule of statutory interpretation that a section has to be read as a whole, and not in isolation, and due weightage has to be given to the provisos and explanations. An Explanation is at times appended to a section to explain the meaning of words contained in the section. [S. Sundaram Pillai vs. Pattabhiraman, AIR 1985 SC 582] It becomes a part and parcel of the enactment. [Bengal Immunity Co. Ltd. vs. State of Bihar, AIR 1955 SC 661 p.733]. The meaning to be given to an Explanation must depend on its terms, and no theory of its purpose can be entertained unless it is to be inferred from the language used [Dattaraya Govind Mahajan vs. State of Maharashtra AIR 1977 SC 915 p.928] But if the language of the Explanation shows a purpose and a construction consistent with that purpose can be reasonably placed upon it, that construction will be preferred as against any other construction which does not fit in with the description or the avowed purpose. An Explanation may be added to include something within or to exclude something from the ambit of the main enactment or the connotation of some word occurring in it. Even a negative Explanation which excludes certain types of category from the ambit of the enactment may have the effect of showing that the category leaving aside the excepted types is included within it [ITO(First), Salem vs. Short Brothers Pvt. Ltd. AIR 1967 SC 81 p.83] An Explanation, normally, should be so read as to harmonise with and clear up any ambiguity in the main section.

8. It was submitted that in section 56(2), Explanation has been provided to Clause (vii) to explain the meaning and intendment of the Act itself. As the word property has been used in sub-clause (b) and (c) of Clause (vii), and the Explanation is for the purpose of this clause, i.e. for clause (vii), the Explanation removes all doubts, obscurity or vagueness of the main enactment and clarifies the property to be covered in its ambit, so as to make it consistent with the dominant objective, which it seems to sub serve. It provides an additional support to the dominant object of the Act in order to make it meaningful and purposeful.

9. It was further submitted that Section 56(2) has been amended many a times to tax and exclude certain transactions. The provisions of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into the normal course of business or trade, the profits of which are taxable under specific heads of income. Therefore, the definition of property has been amended to provide that Section 56(2)(vii)(b) will have application to the property which is in the nature of capital asset of the recipient. This position has been made clear by Chaturvedi & Pithisaria’s Income Tax Law, Volume 4 (sixth Edition) Page 4796.

10. It was submitted that the question which needs to be determined is whether ‘immovable property’ for the purposes of Section 56(2)(vii) covers only ‘capital assets’ as defined in Section 2(14) or covers all types of ‘immovable property’. In simpler words, an immovable property which was not a capital asset for the purposes of taxability of capital gain, is also subjected to taxation under Section 56(2) or for the purposes of taxation under Section 56(2), the immovable property should satisfy the definition of capital asset?

11. It was submitted that the term ‘immovable property’ is not defined for the purpose of Section 56(2). However, the term ‘Property’ is defined for the purpose of this clause. The term immovable property being land or building or both, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of an art or bullion. From the above definition, it is evident that ‘property’ covers only the immovable properties which are in the nature of ‘capital asset’. However, Section 56(2) (vii) has used the word any immovable property while fixing the taxation. Now, the challenge is whether we should interpret the phrase ‘any’ in light of ‘capital asset’ or ‘any’ in its normal meaning. If we adopt the former, only such immovable properties which are in nature of capital assets are covered under the ambit of Section 56(2). If we adopt the latter, any kind of immovable property is covered and there is no necessity to go and examine whether such immovable property would fit under the definition of capital asset.

12. It was submitted that as per the rules of interpretation where the language of the Act is clear, the former is more accurate keeping the intent of the legislature in the background. That is to say, the immovable property which is trying to be taxed under Section 56(2) needs to be a capital asset, in view of the fact that the phrase ‘property’ uses the phrase ‘capital asset’. It may also be noted that the phrase ‘capital asset’ as defined vide Section 2(14) is not only for the purposes of capital gains but for the entire purposes of the Act and hence the immovable property which is not in nature of capital asset is not taxable under Section 56(2).

13. It was accordingly submitted that from the above analysis of Section 56(2)(vii)(b), it is clear that the taxability under this section would arise only when the property purchased is a Capital asset and not otherwise. In this case, the impugned ‘Property’ “means the following capital asset of the assessee, namely property is not a capital asset as defined in Section 2(14), hence is not subject to be taxed as Income from other sources u/s 56(2)(vii)(b) of the Income Tax Act, 1961.

14. Without prejudice, it was further submitted that during the course of assessment proceedings, the assessee has objected to the DLC value adopted by the Assessing Officer and therefore before applying the DLC value, the matter should have been referred to the DVO for determination of fair market value and given that the matter was not referred to the DVO, necessary relief may be provided to the assessee.

15. Per contra, the ld. DR submitted that the provisions of section 56(2)(vii)(b) are clearly attracted in the instant case. No proof has been submitted before the AO that agriculture land so purchased is not a capital asset. Further, he submitted that the assessee has not made any specific request for reference of the matter to the DVO. Therefore, in absence thereof, the Assessing Officer was not required to refer the matter to the DVO. He accordingly supported the findings of the lower authorities.

16. We have heard the rival contentions and perused the material available on record. The relevant provisions of section 56(2)(vii)(b) which are under consideration read as under:

“(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,—

(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

(b) any immovable property,—

(i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

(ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:

Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause:

Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property;

(c) any property, other than immovable property,—

(i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

(ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :

Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections :

Provided further that this clause shall not apply to any sum of money or any property received—

(a) from any relative; or

(b) on the occasion of the marriage of the individual; or

(c) under a will or by way of inheritance; or

(d) in contemplation of death of the payer or donor, as the case may be; or

(e) from any local authority as defined in the Explanation to clause (20) of section 10; or

(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

(g) from any trust or institution registered under section 12AA; or

(h) by way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of section 47.

Explanation.—For the purposes of this clause,—

(a) “assessable” shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of section 50C;

(b) “fair market value” of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed;

(c) “jewellery” shall have the meaning assigned to it in the Explanation to subclause (ii) of clause (14) of section 2;

(d) “property” means the following capital asset of the assessee, namely:—

(i) immovable property being land or building or both;

(ii) shares and securities;

(iii) jewellery;

(iv) archaeological collections;

(v) drawings;

(vi) paintings;

(vii) sculptures;

(viii) any work of art; or

(ix) bullion;

(e) “relative” means,—

(i) in case of an individual—

(A) spouse of the individual;

(B) brother or sister of the individual;

(C) brother or sister of the spouse of the individual;

(D) brother or sister of either of the parents of the individual;

(E) any lineal ascendant or descendant of the individual;

(F) any lineal ascendant or descendant of the spouse of the individual;

(G) spouse of the person referred to in items (B) to (F); and

(ii) in case of a Hindu undivided family, any member thereof;]

(f) “stamp duty value” means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property;”

17. The above provisions thus provide that where an individual receives in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017, any immoveable property for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration shall be income chargeable to tax under the head “Income from other sources”.

18. In the instant case, the assessee has purchased two plots of land during the year under consideration. The sale consideration as per the respective sale deeds amounts to Rs 5,50,000/- and the stamp duty value of such properties as determined by the Stamp duty authority amounts to Rs 8,53,636/- and therefore, there is difference to the tune of Rs 3,03,636/- between the sale consideration as per the sale deeds and the stamp valuation determined by the Stamp Valuation Authority. To this extent, the facts are not disputed and have been accepted by both the parties. The limited point of dispute is the nature of immoveable property which has been purchased by the assessee. The assessee’s contention is that which he has purchased are two plots of agricultural land and the same doesn’t fall in the definition of capital asset as per the provisions of Section 2(14) of the Act and provisions of section 56(2)(vii)(b) cannot be invoked. The Revenue’s contention is that the provisions of Section 56(2)(vii)(b) talks about any immoveable property and thus even an agriculture land falls under the definition of an immoveable property and the provisions of Section 56(2)(vii)(b) are clearly attracted.

19. On reading of provisions of 56(2)(vii)(b), we find that it refers to any immoveable property. Further, provisions of section 56(2)(vii)(c) refers to any property, other than an immovable property. The meaning of the term “property” has been provided in Explanation (d) to section 56(2)(vii) where the term “property” has been defined to mean capital asset of the assessee namely immoveable property being land or building or both. It has been contended by the ld AR that all immovable properties of any nature are not covered in the definition of property. Only those immovable properties which are held as capital assets and is in nature of land or building or both are only covered u/s 56(2)(vii). We agree with the contention of the ld AR that where the term “property” has been defined to mean a capital asset as so specified and where an immoveable property as so specified being land, building or both is not held as an capital asset, it will not be subject to the provisions of section 56(2)(vii)(b) of the Act. In the instant case, therefore, where the agricultural land doesn’t qualify as falling in the definition of capital asset, provisions of section 56(2)(vii)(b) cannot be invoked.

20. In the instant case, whether agriculture land so acquired falls in the definition of capital asset or not, one has to refer to the provision of section 2(14) which exclude agriculture land in India subject to certain exceptions. However, there are no findings of the lower authorities in this regard. Therefore, we deem it appropriate to set-aside the matter to the file of the AO for the limited purposes of examining whether the two plots of agricultural land so acquired falls in the definition of capital asset or not. Where it is so determined by the Assessing officer that the agricultural land so acquired doesn’t falls in the definition of capital asset, difference in the DLC value and sales consideration cannot be brought to tax under the provisions of section 56(2)(vii)(b) of the Act and relief should be granted to the assessee.

21. In a scenario, where it is so determined by the Assessing officer that the agricultural land so acquired falls in the definition of capital asset, the provisions of section 56(2)(vii)(b) of the Act would be applicable. In this regard, the contention of the ld AR is that during the course of assessment proceedings, the assessee has objected to the DLC value adopted by the Assessing Officer and therefore before applying the DLC value, the matter should have been referred to the DVO for determination of fair market value.

22. We note that during the course of assessment proceedings, the assessee was issued a show cause as to why the difference of Rs.3,03,596/- may not be added u/s 56(2)(vii) of the Act. In reply thereof, the assessee has submitted that the assessee purchased the land on 22.04.2013 for a consideration of Rs 5,50,000/- only and provisions of section 56(2)(vii) are applicable from 01.04.2014, so no addition should not be made in this case. The AO considered the submissions of the assessee but held that provisions of section 56(2)(vii) are applicable from the A.Y 2014-15 and the case of the assessee is squarely covered by the provisions of section 56(2)(vii) of the I.T. Act, 1961 as amended by the Finance Act, 2013. However, we find that the AO has not appreciated the objection of the assessee regarding adoption of DLC value as against the sale consideration. Therefore, where the assessee has objected to the stamp duty valuation, as per the provisions of section 50C(2) of the Act which are equally relevant for the purpose of provisions of section 56(2)(vii)(b)(ii) of the Act, the matter should have been referred by the Assessing Officer to the DVO for determination of fair market value. Therefore, in the instant case, where it is so determined by the Assessing officer that the agricultural land so acquired falls in the definition of capital asset, he has to refer the matter to DVO to further determine the fair market value of the two plots of agricultural land and thereafter, decide the matter afresh.

23. The matter is accordingly set-aside to the file of the AO who shall decide the same as per the aforesaid directions after providing reasonable opportunity to the assessee.

In the result, appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open Court on 08/06/2020.

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