Stamp value on the date of agreement to be reckoned for computing capital gains if registration is delayed bonafidely

ITAT HYDERABAD BENCH ‘B’

Deputy Commissioner of Income-tax

versus

S. Venkat Reddy

IT Appeal Nos. 974 & 975 (Hyd.) of 2010
[ASSESSMENT YEAR 2006-07]

NOVEMBER 9, 2012

ORDER

Chandra Poojari, Accountant Member

These two appeals by the Department are directed against different orders of the CIT(A) dated 16.4.2010 in respect of co-owners of same property bearing No. 7-2-1813/5/A/1, Sanat Nagar, Hyderabad. The grounds in these appeals are common in nature and hence these are clubbed together, heard together and are being disposed of by this common order, for the sake of convenience.

2. The common grounds are as follows :

1. The CIT(A) erred both in law and facts.

2. The CIT(A) ought to have appreciated the fact that in the registered sale deed the value of the property as per market value was correctly adopted by the Registration authorities.

3. The CIT(A) would have rejected the impugned agreement of sale which was notarized by the assessee but not registered with registration authorities.

4. The CIT(A) would not have allowed the assessee to submit additional evidence which was not filed by the assessee before the Assessing Officer and would have given due cognizance to the remand report submitted by the Addl. CIT, Range-11, Hyderabad.

3. Brief facts of the issue are that the assessee along with his brother Mr. S. Venkat Reddy and two others acquired a property at 7-2-1813/5/A/1, Sanath Nagar, Hyderabad through a sale cum GPA agreement on 25.4.2005 for Rs. 25,000,000. The assessee’s share in the property is 40%. The particulars of other co-owners along with their share holding are as under:

4. The assessee had entered into an agreement of sale cum GPA on 13.6.2005 with M/s. Victator Homes for sale of the above immovable property for a sum of Rs. 2,75,00,000. As per clause 7 of the agreement the possession of the property was given to M/s. Victator Homes on the same day. The Agreement of Sale was notarized and finally the property was registered on 25.11.2005 vide sale document No. 3637/2005 to M/s. Victator Homes for Rs. 2,75,00,000. In the Sale Deed the possession is stated to be given on 25.11.2005 although there is a reference to the Agreement of Sale of 13.6.2005 in the Sale Deed, under which possession was given on 13.6.2005. The Assessee returned a short-term capital gain of Rs. 9,48,436 as under:

5. A copy of the Sale Deed of the above property was filed during the course of assessment proceedings. As per the Sale Deed, the market value for the purpose of stamp duty was Rs. 4,30,70,000. Stamp duty was paid by the purchaser on the value of Rs. 4,30,70,000. The purchasers did not dispute the stamp duty valuation. The Addl. Commissioner of Income Tax addressed a letter to the Sub-Registrar to confirm the valuation who responded as under:

“With reference to the subject cited, I am herewith submitting the Basic Market value of the land and built up area of property bearing House No. 7-1-1813/5/1, Sanath Nagar, Hyderabad for the Document No. 3637/2005, dated 25.11.2005 is as follows:

The party has paid the stamp duty of Rs. 9,69,100/- Registration fees to Rs. 2,15,350/- and Transfer duty of Rs. 8,61,400/- total comes to Rs. 20,45,850/-.”

6. Based on the above information, the Additional Commissioner of Income Tax issued a Show Cause Notice on 10.12.2008 to adopt the sum of Rs. 4,30,70,000 as the sale consideration u/s 5OC of the Income Tax Act, 1961 which reads as under:

“Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government (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 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.”

Thus the provisions of Section 50C are applicable whenever:

(a) the value adopted by the Sub-Registrar for the purpose of levying stamp duty is higher than the consideration as per the document.

(b) The value fixed by the Sub-Registrar is accepted and not challenged and the stamp duty as demanded is paid. “

7. In response to the above show cause notice the assessee has made the following submissions:

(a) “Assessee has entered into an agreement of sale on 13.6.2005 with GPA cum Agreement holders. A copy is enclosed. It could be seen from the agreement that the possession of the property is handed over on the same day i.e.13.6.2005.as per clause 7 of the Agreement at page 4 and the part consideration of Rs. 1,00,00,000 also is paid by the date of agreement.

(b) This agreement is also mentioned in the last paragraph of the sale deed at page 8.

(c) I submit that as per the provisions of Sec. 2(47) of IT Act, the capital accrues and arise on the date of giving possession and receiving part consideration. As such in my case the capital gains accrued on 13.6.2005 and not at a later date.

(d) The SRO value referred to by the Addl. Commissioner is as on 30.11.2005. Whereas as on the date of agreement of sale that is 13.6.2005 the SRO Value is Rs. 4800. I am submitting a copy of the Annexure 11 given by SARO, Sanjeeva Reddy Nagar certifying the same. Therefore, I submit that though as on the date of registration of document of sale the SRO value is Rs.8000 per sq. yard the same cannot be adopted in my case since the capital gains arose on 13.6.2005 and not on the date of registration of the property. On the date of agreement of sale i.e. 13.6.2005 the value is only Rs. 4800/-.

(e) If the rate of Rs. 4800 is adopted there will not be any difference. The value of land comes to Rs. 2,30,40,000 and the building has not value since it is more than BO years old building it has no value. Therefore we have valued the same at higher value than the SRO value. But it is valued by SRO as per the Addl. CIT’s letter at Rs.43,40,000 as on 30.11.2005.

(f) This we have not contested since the purchaser is paying the stamp duty and not by me.

(g) In the light of the same I submit that it will not be correct to adopt the sale consideration at Rs. 4,30,70,000 invoking provisions of Sec. 50C since it will be contrary to provisions of law. As per the provisions of law, the value should be as at 13.6.2005 when the capital gains accrued and become taxable and not as on 30.11.2005. I, therefore, request the Addl. Commissioner to accept the sale consideration as admitted by me.”

8. On the above basis, the Assessing Officer computed the capital gain considering the total consideration at Rs. 4,30,70,000 and each of the assessee’s case herein worked out at Rs. 1,80,46,324 and the short term capital gain determined on each case of the assessee are as follows:

9. An amount of Rs. 71,76,436 has been considered as short term capital gain in each of the above assessee’s case as against the returned short term capital gain of Rs. 9,48,436. Against this the assessee carried an appeal to the CIT(A). The CIT(A) observed that provisions of section 50C are not applicable in these cases as original sale agreement was made vide sale agreement dated 13.6.2005 through which the possession given to the purchaser which is also evident by the recital in the agreement of sale, the affidavit of the advocate and the rectification of sale deed vide rectification deed dated 14.10.2009. At the time of agreement of sale, guideline value for registration is different and thereafter there was change in the SRO value. The CIT(A) was of the opinion that the date of sale deed executed on 25.11.2005 cannot be considered for determining the SRO value and thereby invoking provisions of section 50C of the Act is improper. It is because transfer has already taken place on 13.6.2005 and the execution of registered sale deed on 25.11.2005 was merely a formality to confirm the legal ownership of the purchaser. Against these findings of the CIT(A), the Revenue is in appeal before us in ground Nos. 1 to 4.

10. The learned DR submitted that provisions of section 50C are mandatory with effect from 1.4.2003 and the property considered to be sold by the assessee vide Absolute Sale Deed executed on 25.11.2005. According to the DR no credence could be given to the sale agreement dated 13.6.2005 and she also submitted as per registered sale deed the possession has been given on the date of sale deed which is evident from the clause no. 3 which reads as follows.

“The scheduled property is under the possession of the vendor, the vendor has at the time of execution of this sale deed have delivered vacant physical possession of the scheduled property to the vendee and the vendee has taken possession of the same”.

11. Further she submitted in view of the above clause no. 3 the CIT(A) is not justified in giving any credence to the sale agreement entered by assessee on 13.6.2005. Further she submitted that the assessee having not availed of the opportunity provided under sub-sections (2) and (3) of section 50C to object to the value adopted by the stamp valuation authorities, the Assessing Officer was justified in treating the value adopted by registration authorities as the deemed sale consideration received by the assessee as a result of the transfer. For this proposition she relied on the judgement of the Madras High Court in the case of Ambattur Clothing Co. Ltd v. Asstt. CIT [2010] 326 ITR 245. Further she relied on the order of the tribunal Lucknow bench in the case of Jitendra Mohan Saxena v. ITO [2008] 305 ITR AT 62 wherein held that “Fair market value of the property arrived at by stamp valuation authorities being higher than the sales consideration transferred by the assessee and fair market value reported by DVO on reference being higher than the one adopted by the stamp valuation authorities, the Assessing Officer was justified in applying provisions of sec 50C and taking the value adopted by the stamp valuation authorities as full value of consideration for computing the capital gain, provisions of sec 50C are mandatory.

12. Further she relied on the order of the tribunal in the case of Asstt. CIT v. Pravin V. Gandhi [2011] 38 (II) ITCL 311 (Mum ‘C’-Trib) where in held that – it is not in dispute that the property in question was transferred by an agreement not registered with the registering authorities. The Assessing Officer while invoking the provisions of sec 50C had taken the value of the property on the basis of the letter given by the sub registrar wherein he had mentioned that as on the date of agreement the value of open plot was Rs. 8000 per sq. yard. However, according to the provisions of sec 50C where the consideration received are accrued as a result of transfer by the assessee of a capital asset being land or building or both, is less than the value adopted or assessed by any authority of a state government. For the purpose of payment of stamp duty in respect of such transfer the value adopted or assessed shall, for the purpose sec 48, be deemed to be the full value of consideration received or accruing as a result of such transfer. Section 50C is applicable only on registration of sale deed and not otherwise. For the same proposition the DR also relied on the order of Tribunal Jodhpur Bench in the case of Navneet Kumar Thakkar v. ITO [2008] 110 ITD 525 (SMC).

13. On the other hand on the above issue the AR submitted that as per section 2(47)(v) the property has been transferred vide agreement dated 13.6.2005 as all the conditions laid down u/s 2(47)(v) have been fulfilled as possession of the property has been given. The registration of sale deed dated 25.11.2005 is only a legal formality. He submitted that the date of transfer has to be considered as 13.6.2005 instead of 25.11.2005. Further he submitted that after entering into sale agreement there was a change in the SRO rate and the SRO rate prevailing on the date of sale agreement has to be considered. Otherwise it gives rise to injustice. Further, he submitted that the valuation of Rs. 4,30,70,000 cannot be adopted as the property was subject matter of agreement of sale on 13.6.2005 on which date the possession of the property was handed over thus attracting the provisions of section 2(47)(v) of the Act. This fact cannot be ignored.

14. The AR submitted that the Assessee filed an affidavit of Advocate D. Jitendra Kumar who drafted the Sale Deed who clearly brought out the draftman’s error and confirmed that possession was given on 13.6.2005. The AR submitted that under the provisions of the Act, capital gains is attracted on date of transfer which includes possession under section 2(47)(v) of the Act. The possession of the property was given on 13.06.2005 on which date the SRO’s value of land was Rs 4,800 per Sq. yard and this accords well with the consideration shown in the sale deed. The property transferred consisted of land ad measuring 4840 Sq yards along with structures in the premises bearing Municipal Numbers 7-2-1813/5/A/1, Sanathnagar, Hyderabad. Further during the course of appellate proceedings, the assessee filed a copy of the Registered Rectification Deed of 14.10.2009 wherein under the Clauses in relation to date of handing over possession of property in the Sale Deed executed on 25.11.2005 was rectified which confirms the fact that possession was given on 13.6.2005. The CIT(A) forwarded a copy of the Affidavit of Advocate D. Jitendra Kumar and a copy of the Registered Rectification Deed of 14.10.2009 to the Sale Deed executed on 23.11.2005 to the Addl. Commissioner of Income Tax for his comments and report. The Addl. Commissioner of Income Tax forwarded the Remand Report dated 11.11.2009 confirming the fact as stated in the Assessment Order.

15. The AR submitted that the Agreement of Sale of 13.6.2005 clearly brought out the fact that possession was given on 13.6.2005 and the Agreement of Sale was referred to at page 8 of the Agreement of Sale of 25.11.2005 which was filed before the Addl. Commissioner of Income Tax. Further the Affidavit of the Advocate D. Jitendra Kumar of 20.1.2009 coupled with the Registered Deed of Rectification dated 14.10.2009 to the Registered Sale Deed clearly brought out the fact of possession being given on 13.6.2005 and therefore the transfer took place on 13.6.2005 notwithstanding the fact that the Registered Sale Deed was executed on 25.11.2005 which was only for the purpose of confirming Title under the Transfer of Property Act. The decision of the Tribunal in the case of Navneet Kumar Thakkar (Supra) according to the assessee supports its case. The AR further submitted that the onus of proving the receipt of consideration adopted for stamp duty purposes was on the department and in its absence the consideration disclosed by the assessee as stated vide Agreement of Sale by 13.6.2005 should be adopted as transfer within the meaning of section 2(47) of the Income Tax Act took place on 13.6.2005. Therefore, it was pleaded that the capital gains as reported be accepted. He relied on the following judgements:

(a) CIT v. Chandni Bhuchar [2010] 323 ITR 510 wherein held that the view taken by the Tribunal while accepting the order of the Commissioner (Appeals) did not suffer from any legal infirmity. The argument of the Revenue that the Tribunal should have asked the Assessing Officer to make a reference to the Valuation Officer under section 142A of the Act did not require any detailed consideration because the Commissioner (Appeals) had sent the evidence produced by the assessee to the Assessing Officer for his comments. He conducted an inquiry and asked the assessee to produce the original bank statement. Then he sent a reply to the Commissioner (Appeals) authenticating the whole transactions. Thereafter, the Commissioner (Appeals) and the Tribunal had accepted the sale consideration depicted in the sale deed as fact. The assessee had discharged the burden of proving the sale consideration as projected in the sale deed. There was no question of law warranting admission of the appeal.

(b) ITO v. Smt. Anshu Jain [2010] 36 SOT 263 (JP) wherein held that the case set up by the assessee is that once there is invoking of provisions of s. 50C and thereafter the provisions of s. 69B have been invoked then the primary evidence for consideration and appreciation coming into play is that of s. 69B wherein the addition is being made by invoking the deeming provision and the onus to prove with regard to the payment over and above the declared amount is on the revenue and there cannot be transaction unilaterally by the assessee himself till a corroborative piece of direct evidence has been brought on record adverse the assessee which in the present case, has been none. When there is no corroborative piece of evidence placed on record by the Revenue to substantiate contention raised emerging from the order under challenge in form of verification from the seller then the assessee cannot put to tax on the lapse of the Department to which extent written pleadings were advanced at the very initial stage during the course of assessment proceedings and which remains and unrebutted fact till date. In such circumstances and facts of the case, the CIT(A) is not justified in confirming the action of the AO and the addition sustained is directed to be deleted. – K.P. Varghese v. ITO [1981] 131 ITR 597applied.

(c) Cauvery Spg. & Wvg. Mills Ltd. (In liquidation) v. Dy. CIT [2011] 11 taxmann.com 193 wherein held: Here s. 2(47)(v) needs to be underscored. This provision creates a notional or artificial transfer on the day when possession is transferred in terms of s. 53A of the Transfer of Property Act. It is common knowledge that transfer of title by way of sale takes place only on the execution of the sale deed as provided in s. 54 of the Transfer of Property Act. But, for the purposes of the IT Act notional/ artificial transfer is effected on the date when transfer of possession is made under s. 53A of the Transfer of Property Act. The object of introduction of s. 2(47)(v) in this Act is easily discernible. In my considered opinion, it was only to make any amount which is received by transfer from the date of such notional/artificial transfer as income, this provision has been made. Before introduction of this provision by Finance Act of 1988 with effect from 1st April, 1988, there was no such provision anywhere in the Act. Therefore, prior to 1st April, 1988, the legal position was that the transfer will take place only as per the provisions of the Transfer of Property Act. Therefore, any amount received prior to such transfer would be only part of sale consideration, though it might have been received under any name like interest. Only to prevent such kind of evasion, probably, the Parliament had thought it fit to introduce the said provision with effect from 1_st April, 1988. This would only to go indicate the correctness of the argument advanced by the learned senior counsel for the petitioner that any amount received, whatever name if may bear, prior to the transfer will be only part of sale consideration and the same can never be considered as income from other sources.

16. We have heard both the parties and perused the material on record. Admittedly, there was a sale of property and the sale deed was dated 25.11.2005. The only issue for consideration is what is the sale consideration for sale of property for computation of capital gain. The learned AR pleaded before us that as on the date of sale agreement dated 13.6.2005, the guidelines value as per SRO rate as notified by the State Government is at Rs. 4,800 per sq. yd. However, later the SRO rate was modified at Rs. 8,000 per sq. yd., thereby resulted in enhanced value for the purpose of registration with the SRO. Under the common law, the date of execution of sale deed shall be taken as date of sale of the property. However under the Income Tax act the legislature made a departure from the common law. Under the Income-tax Act, 1961 the provisions of section 2(47)(v) prescribed that any transfer involving allowing of possession of any immovable property has to be taken or retained in part performance of a contract of nature as provided in section 53A of the Transfer of Property Act would also to be considered a transfer under the Income-tax Act. Therefore, we have to see whether the assessee has handed over the physical possession of property on 13.6.2005 when the agreement of sale was executed. The assessee has filed a copy of sale agreement before us. The important clause no. 7 reads as under.

“7. That the vacant, physical peaceful possession of the schedule property is hereby delivered by the Intending Seller to the Intending Purchaser on this day and the Intending Purchaser is at liberty to enjoy the same.”

17. We have carefully gone through the above clause of the sale agreement dated 13.6.2005 and sale deed dated 23.11.2005. Further the assessee also filed a copy of registered rectification deed of sale deed dated 14.10.2009 wherein under the clauses in the relation to the date of handing over the possession of the property in the sale deed executed on 25.11.2005 was rectified which confirms the fact that the possession was given to the purchaser on 13.6.2005. To support the claim of the assessee an affidavit from the advocate namely D. Jitendra Kumar was also filed. According to the DR clause no. 3 of the sale deed shows that the possession of the property has been given to the purchaser on the date of sale deed. Being so, there cannot be handing over of the same property at two times. She submitted that there cannot be transfer even under section 2(47)(v) of the act. We have carefully gone through submission of the learned DR. The law is that provisions of the section 50C are applicable on registration of sale deed. As per provisions of section 50C valuation adopted for stamp valuation purposes is to be considered as the consideration received or accrued to the assessee. Thus only on registration of sale deed the provisions of section 50C are applicable. However when the assessee is not accepting the value mentioned in the sale deed for stamp valuation purposes on the treating the same as consideration received on transfer of the property the assessee could exercise the provisions of 50C(2) of the IT Act to refer the matter to the DVO. In the present case, the assessee has not exercised this option and only challenged the adoption of the value considered for stamp valuation purposes to determine the consideration on transfer of the property as the transfer was completed vide sale agreement dated 13.6.2005 and for this purpose he relied on the order of the Tribunal in the case of Smt. S. Suvarna Rekha dated 29.10.2010 in ITA no. 743/HYD/09 for the A.Y. 2006-07. In the case of Smt. S. Suvarna Rekha wherein the Tribunal given a finding that since the physical possession of the property on transfer was given vide agreement of sale as the value mentioned therein has to be considered instead of the value adopted by the state authorities for stamp duty purposes. In that case the Tribunal rested its conclusion on the decision of Pune Bench in the case of Rahul Constructions v. Dy. CIT [2010] 38 DTR 19 wherein the Tribunal directed the Assessing Officer to take the consideration at Rs. 70 lakhs against the estimated value by valuation officer at Rs. 75,76,712 as the value of the property so estimated that a difference of ± 10 % which is because of the opinion of the individual valuation officer. No one is expected to value the property accurately since some of the items are to be valued on guess work or notionally. Being so the difference of ± less than 10% is to be ignored.

18. Further it was decided in the following cases that as per section 2(47)(v), when the vendor given the possession of the property to the purchaser, it is to be considered that the transfer is complete on the date of agreement of sale:

(a) CIT v. Veepees Enterprises [2010] 325 ITR 414wherein held that pursuant to the agreement for sale possession itself was given by vendor to purchaser and in the circumstances vendor is not entitled to contend that section 2(47)(v) of the Income-tax Act was not applicable.

(b) Chaturbhuj Dwarkadas Kapadia v. CIT [2003] 260 ITR 491 wherein held that in case of development agreement, if the contract, read as a whole indicates passing of or transferring of complete control over the property in favour of the developer, then date of the contract would be relevant to decide the year of chargeability of capital gain and substantial performance of the contract would be irrelevant.

(c) M. Siva Parvathi v. ITO [2010] 129 TTJ 463 (Vishakhapatnam) wherein held that the delay in registering the sale deed had occurred because of genuine reasons which were beyond the control of the assessees. The average cost according to the sale agreement was more than the market value fixed by the Joint Sub-Registrar at the time the sale agreement was entered into. There was no understatement or suppression of actual consideration and the Department failed to bring out any other material to show that there was suppression of actual consideration. The provisions of section 50C of the Act could not be applied to the sale agreement since the section was introduced in the statute book only after sale agreement had been entered into. Since the final registration of the sale was only in fulfillment of the contractual obligation, the logical conclusion was that the provisions which did not apply at the time of entering into the transaction initially would not be applicable at the time of completion of the transaction.

19. Considering all these facts, if the transfer is completed in terms of section 2(47)(v) by giving the possession of the property in terms of the sale agreement dated 13.6.2005 and SRO rate as on the date of this date was considered in the sale agreement and if the registration was delayed on bona fide reasons which is beyond the control of the assessee and the sale deed executed on 25.11.2005 is only a legal formality, then, the Assessing Officer is required to adopt the SRO rate as on the date of transfer vide sale agreement for the purpose of determining capital gain consequent to the transfer of capital asset. Accordingly, we direct the Assessing Officer to cause necessary inquiry with regard to SRO rate as on 13.6.2005 and also the fact of giving the possession of the property to the purchaser on 13.6.2005 itself, and to decide the issue in the light of the Tribunal order in the case of M. Siva Parvathi (supra) and the judgement of Kerala High Court in the case of Veepee Enterprises (supra) and the Bombay High Court judgement in the case of Chaturbhuj Dwarkadas Kapadia (supra). The Assessing Officer is also directed to consider all the documents produced by the assessee before the CIT(A) while deciding the issue as the grievance of the Assessing Officer is that assessee has submitted additional evidence which was not filed by the assessee before the Assessing Officer.

20. In the result, both the appeals of the Revenue are allowed for statistical purposes.