Gujarat High Court
The Commissioner Of Income Tax-Iii vs Kaushik Sureshbhai Reshamwala - ... on 14 June, 2011
Author: Akil Kureshi
Bench: Akil Kureshi, Sonia Gokani
TAXAP/2300/2010 1/10 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 2300 of 2010
To
TAX APPEAL No. 2306 of 2010
=================================================
THE COMMISSIONER OF INCOME TAX-III - Appellant(s)
Versus
KAUSHIK SURESHBHAI RESHAMWALA - Opponent(s)
=================================================
Appearance :
MR MR BHATT, SR. ADV. with MRS MAUNA M BHATT for Appellant(s) : 1,
None for Opponent(s) : 1,
=================================================
CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 14/06/2011
COMMON ORAL ORDER
(Per : HONOURABLE MS JUSTICE SONIA GOKANI)
1. All these seven appeals, where facts are identical, are of different assessees. As common question of law arises for the determination by this Court, the same are decided by this Court by way of a common order.
2. In the business premises of the assessee respondent, the appellant carried out search operations under Section 133A of the Income-Tax Act, 1961( to be referred to hereinafter as " the Act"). A writing pad was found mentioning the receipt of huge amount of Rs.3,00,11,111/-. It was explained that the said amount was a cash consideration on sale of ancestral land to one Shri Hitendra Patel and purchaser Shri Hitendra Patel admitted this fact. No sale deed was registered for the sale of this land on the date of survey but an agreement to sell was made by and between the parties on TAXAP/2300/2010 2/10 ORDER 31.3.2006. The Assessing Officer taxed the capital gain as provided in Section 45 of the Act as against the value adopted by the assessee respondent under Section 50C of the Act. The Assessing Officer adopted the land value at Rs.700/- per sq.meter instead of Rs.483/- per sq.meter as was shown by the assessee. The cost of acquisition was calculated at Rs.60/- per sq.meter basing it on valuation report of the Registered Valuer but the Assessing Officer had taken the average of sale instances at Rs.25 per.sq.meter as the cost of acquisition. Thus, he worked out the total capital gain at Rs.5,10,69,025/- and considering the share of the assessee-
respondent made addition of Rs.19,76,344/-.
When this was challenged before the CIT(Appeals), it enhanced the capital gain by adopting sale value of Rs.5000/- per sq.meter and the cost of acquisition at Rs.25/- per.sq.meter on the lines of Assessing Officer. Thus, the net taxable capital gain, according to the CIT(Appeals), was Rs.29,94,29,025/-. The assessee further challenged this before the Income-Tax Appellate Tribunal but it had deleted the additions and directed the cost of acquisition at Rs.60/- as taken by the assessee. Being aggrieved by this order of Tribunal dated 15.1.2010 present tax appeal is preferred under Section 260A of the Income-tax Act proposing following questions:-
"[A] Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal was right in holding that the capital gain is taxable u/s.50C of the Act and not as per provisions of Section 45 of the Income-Tax Act despite the fact that there is no registered sale document?"
[B] Whether on the facts and in the circumstances of the TAXAP/2300/2010 3/10 ORDER case and in law, the Appellate Tribunal was right in accepting the cost of acquisition of land at Rs.60/- per sq.mtr. on the strength of the Registered Valuer's report when the Assessing Officer adopted the rate at Rs.25/- per sq.mtr. on the basis of Sale Deeds registered at the time in that locality?"
3. On hearing the learned Senior Advocate Mr. M.R.Bhatt for the Revenue and on close perusal of the papers the order of the Tribunal when is closely perused it emerges that both the issues have been elaborately dealt with by the Tribunal in favour of the assessee respondent. Adverting to the first issue, Tribunal has detailed thus:-
"12. We further find from the Memorandum Explaining the provision of Section 50C in the Finance Bill, 2002, which clearly states that where the consideration declared to be received or accruing as a result of transfer of land or building or both is less than the value adopted or assessed by any authority of a State Government for the purposes of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration and capital gains shall be computed accordingly u/s 48 of the Act. In case the value adopted or assessed for stamp duty purposes is revised in any appeal, revision or reference, the assessment made shall be amended to re- compute the capital gains by taking the revised value as the full value of consideration. Accordingly, we are of the view that the provisions of Section 50C are applicable only for the computation of capital gains in real estate transaction. We find from Section 50C of the Act that it create a legal fiction thereby apparent consideration is substituted by valuation done by Stamp Valuation Authorities and capital gains are calculated accordingly. Legal fiction cannot be extended any further and has to be limited to the area for which it is created. Hon'ble Andra Pradesh High Court in Addl. CIT vs. Durgamma P.(1987) 167 ITR 776(AP) held that it is not possible to extend the fiction beyond the field legitimately intended by the statute. The Hon'ble Court was dealing with the provisions of Section 171(1) of the I.T. Act in the context of which, it was held that joint family shall be deemed to continue for the limited purpose of assessing cases of joint families which have been hitherto assessed as such. It is not possible to extend that fiction to other cases. Similar view was taken by the Hon'ble Kerala High Court in CIT vs. Kar Valves Ltd.(1987) 168 ITR 416(Ker.) wherein, it is held that TAXAP/2300/2010 4/10 ORDER legal fiction is limited to the purpose for which they are created and could not be extended beyond that legitimate frame. Hon'ble Kerala High Court was dealing with the case where the assessee sought to take advantage of Section 41(2) by submitting that if liabilities are not liquidated and outstanding are not collected, then business could be deemed to continue. Hon'ble Allahabad High Court in Controller of estate Duty vs. Krishna Kumar Devi (1988) 173 ITR 561 (All) held that in interpreting the legal fiction the Court should ascertain the purpose for which it was created 2nd after doing so assume all facts which are logical to give effect to the fiction, Hon'ble Supreme Court in CIT vs. Mother India Refrigeration Pvt. Ltd. (1985) 155 ITR 711(SC) held that legal fictions are created only for some definite purpose and they must be limited to that purpose and should not be extended beyond that legitimate field. In CIT vs. Bharani Pictures (1981) 129 ITR 244(Mad.), it is held that legal fictions are for a definite purpose and are limited to the purpose for which they are created and should not be extended beyond its legitimate field. The statutory fiction introduced in one enactment cannot be incorporated in another enactment. The point that legal fiction cannot be extended to a new field was highlighted by Hon'ble Madras High Court in CIT vs. Rajam T.S.(1980) 125 ITR 207(Mad.) wherein, it is held that section 41(2) creates a legal fiction under which the balancing charge is treated as business income chargeable to tax, but when this amount is distributed to shareholders then, it would not become deemed dividend and it would be only a capital receipt and not distribution of accumulated profits. Thus, a legal fiction was invoked in the hands of the assessee company and was not extended in the hands of the shareholders. In the present case, section 50C creates a legal fiction for taxing capital gains in the hands of the seller and the difference between apparent consideration and valuation done by Stamp Valuation Authorities to be assessed as capital gain. It is for the legislature to introduce legal fiction to over come difficulty in taxing certain receipts or expenditure which otherwise was not possible under normal provisions of the Act. It is with this purpose that when it is found difficult to prevent tax evasion by understating apparent sale consideration as compared to the valuation made by Stamp Valuation Authorities for the purposes of levying stamp duty then it was though necessary to introduce section 50C for substituting apparent sale consideration by valuation done by Stamp Valuation Authorities. Hon'ble Madras High Court in CGT vs. R. Damodaran (2001) 247 ITR 698 held that Stamp Valuation Authorities have their own method of evaluating the property. Merely because for the purpose of stamp duty, property is valued at High cost, it cannot be said that assessees has made more payment than what is stated in the TAXAP/2300/2010 5/10 ORDER sale deed. We are in full agreement with the arguments of the assessee that Section 50C is applicable in the present case and this provision being deeming provision will apply for determining the full value of consideration as a result of transfer of capital assets for the purposes of computation of capital gains u/s 48 of the Act. We further find that there is no evidence on record to show that the consideration over and above, what has been recorded in the sale deed/agreement, has been made by the assessee and in the absence of the same, no addition can be made by the lower authorities in these appeals."
4. This Court had an occasion to consider the similar question in Tax Appeal No.1370 of 2009 in the following manner:-
" On hearing learned Sr. Counsel Mr. Manish R. Bhatt appearing for the Revenue and on close scrutiny of the orders of the Adjudicating Authorities as well as considering the ratio laid down in the case of K.P Verghese [Supra], it can be seen that there are more than one questions raised by the Revenue in the present Appeal. The only one which needs to be answered is the one, which is subsequently brought on the record by the learned counsel for the Revenue. The said question, reads as under :-
"Whether the Appellate Tribunal is right in law and on facts in holding that the Assessing Officer was not justified in adopting the sale rate of Rs. 4,975/= per sq. yard relying upon the approved valuer's report and that the sale rate shown by the assessee was required to be accepted, while computing the capital gain u/s. 48 r.w.s 45 of the Act ?"
Prior to discussing the findings of the Tribunal, the ratio laid down in the case of K.P Verghese [Supra], if can be considered here, it reads thus - "What is in fact never accrued or was never received cannot be computed as capital gain under Section 48. Section 52 (1) does not deem income to accrue or to be received which in fact was accrued or was never received. It seeks to bring within the net of taxation only that income which has accrued or is receivable by the assessee as a result of the transfer of the capital assets. But, since it would not be possible for the ITO to determine precisely how much more consideration is received by the assessee than that declared by him, sub-Section (1) provides that the fair market value of the property as on the date of the transfer shall be taken to be the full value of the consideration for the transfer which has accrued to, or is TAXAP/2300/2010 6/10 ORDER received by the assessee. The net effect of this provision is as if a statutory best judgment assessment of the actual consideration received by the assessee is made, in the absence of reliable materials. The onus of establishing that the conditions of taxability are fulfilled is always on the revenue."
The Tribunal, in the aforementioned background, if treatment given to this issue by the Tribunal if is examined, it has considered the fact that the assessee had sold a plot of land admeasuring 7811 sq. yards at Kapodara area in Surat, on which long term capital gain of Rs. 2,278,88,328/= was shown.
The Assessing Officer was of the opinion that the closure of the business was in the year 2000, and therefore, he sought for the report of the Government Valuer and one Mr. J.B Mehta, in his report dated 24 th July 2000 valued the said property at the rate of Rs. 4,975/= per sq. yard. As considerable difference that the Assessing Officer found between the long term capital gain revealed by the assessee- respondent and the rate shown in the Valuation Report, the Assessing Officer adopted the rate of Rs. 4,975/= per sq. yard and computed the revised capital gain at Rs. 3,64,02,883/= as against Rs. 2,27,88,328/= shown by the assessee. The CIT [A] also was of the opinion that the real value of consideration is not the market value but the price bargained for by the parties to the sale, and that can only be construed as the full value of consideration. The CIT [A] was influenced by the fact that the report of the Government Approved Valuer had a scientific basis, and therefore, it confirmed the Assessing Officer's revision of capital gain.
Under Section 48 of the Act, the Tax authority needs to compute the capital gains by deducting from the full value of the consideration received of transferred capital asset in the manner provided under the proviso mentioned therein. This provision does not speak of fair market value but it takes into account the expenditure incurred in such transfer as well as in acquisition of the asset cost; cost of improvement for deducting from the full value of the consideration received by the transfer of a capital asset. Sub-section (2) of Section 45, at this stage, needs to be taken into account, which has a concept of the fair value of the asset.
This Court, in Tax Appeal No. 1016 of 2009 with Tax Appeal No. 1015 of 2009 & 1012 of 2009 had examined similar question. It would be apt to reproduce some of the findings of this Court, which would be relevant for the purpose of deciding the same in this case :-
"14. From the record, as already noted, the Assessing Officer, doubting the disclosure of the TAXAP/2300/2010 7/10 ORDER sale consideration in a sale deed of the lands sold by the assessee, referred the issue to the departmental valuer and relying upon such report, replaced the sale consideration indicated in the sale deed for arriving at fair market value of the land in question. CIT (A) on the other hand, however, discarded such report by noting that indisputably lands were agricultural lands and were also covered under the Land Ceiling Act at the relevant time. The value declared in the sale deed was accepted by the Valuation Department. Valuation Officer of the Department compared the sale instances of different survey numbers which were non agricultural lands and which were divided into smaller plots. These aspects were ignored by the Assessing Officer. In short, CIT (A) on facts found that the report of the valuation Officer could not have been relied upon and the Assessing Officer committed an error in relying on such report.
15. With the assistance of the learned counsel for the parties, we have perused the statutory provisions applicable in the case, as obtaining, at the relevant time. Present case relates to Assessment year 2000-01, it is undisputed position that Section 50C was not in the statute book, at the relevant time. CIT (A), therefore, erred in adopting principles contained thereunder to accept the Stamp Valuation Authority's assessment for the purpose of computing the capital gain.
16. Despite above error, we do not find that in the ultimate analysis, the CIT (A) committed an error. Firstly, we find that in Section 48 of the Act, the Income Tax Authority has to compute the capital gains by deducting from the full value of the consideration received (or accruing in given case) of transferred capital asset in the manner provided therein. Section 48 of the Act does not refer to fair market value and only reference is to expenditure incurred in such transfer and in the case of acquisition of asset, cost of improvement for deducting from the full value of the consideration received by the transfer of a capital asset.
17. Section 45(2) reliance upon which is placed for referring the question of fair market value to the Departmental Valuation Officer reads as under:
TAXAP/2300/2010 8/10 ORDER
"45(2) Notwithstanding anything contained in
sub- section (1), the profits or gains arising
from the transfer by way of conversion by the
owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in- trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset".
18. Bare perusal of the provisions contained in sub-section (2) of Section 45 would convince us that the present case is not covered thereunder. Sub-Section (2) of Section 45 envisages the concept of fair market value of the asset where transfer of an asset by conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him. For obvious reasons, the said provision would not govern the present case.
19. Counsel for the revenue was unable to point out any other provision in which in a situation like the present one, the Assessing Officer could have made a reference to a value for ascertaining the fair market value of the assets in question as on date of its transfer.
20. Quite apart from the CIT (A) discarding the very Valuer's Report, we find that the reference itself was not competent insofar as he wanted to ascertain fair market value of the land on the date of sale. In absence of any material on record before us by which Assessing Officer could have concluded that the consideration indicated in the sale-deed did not reflect the full consideration received by the assessee, it was not possible to assess the capital gain by estimating what would be the fair market value of the land through valuer's report.
21. Decision of the Delhi High Court in the case of Commissioner of Income-Tax V/s. Smt.Nilofer I.Singh reported in (2009) 309 ITR 233 was also brought to our notice; wherein, relying on the decision of George Henderson & Co. Ltd. (supra) TAXAP/2300/2010 9/10 ORDER and Gillanders Arbuthnot & Co.(supra), the Division Bench observed that expression "full value of consideration" used in Section 48 of the Act does not have reference to the market value but only to the consideration referred to in the sale deed as sale particulars of the assets which have been transferred.
22. In short, we do not find any error in the ultimate conclusion arrived at by CIT (A) as well as the Tribunal. No question of law arises. Tax Appeals are, therefore, dismissed."
Resultantly, in the present Appeal also, this Court finds no error in the findings arrived at by the Tribunal and when no substantial question of law remaining for determination by this Court, this Tax Appeal stands dismissed."
5. With regard to the cost of acquisition estimated by adopting the fair market value, the Tribunal has reasoned thus:-
"13. As regards to the issue of cost of acquisition to be estimated by adopting fair market value as on 01-04-1981 for the purposes of computing the indexation value, the Assessing Officer has estimated the cost of acquisition at Rs.25/- per sq.mtr on the basis of report of assessee's registered valuer approved by the Department, taking comparable sale instances given by the valuer, which ranged from 15/- to Rs.32/- per sq.mtr. The assessee has adopted the value at Rs.60/- per sq.mtr. on the basis of report given by registered valuer approved by Department, who has valued on the basis of many factors as locality, traffic jam, fertility of land, etc. We find that the revenue could not substantiate the value adopted by the lower authorities at Rs.25/- per Sq.mtr. which has no basis. The value adopted by the assessee of land at Rs.60 per sq.mtr. is based on a technical report of registered valuer approved by the Department. Accordingly, we accept the value adopted by the assessee for computation of capital gains at Rs.60/- per sq.mtr. and directing the Assessing Officer to adopt this value for the computation of capital gains in these appeals."
6. In case of this very assessee, for the earlier years, the very same stand has been taken by the Tribunal in ITA No.3374/Ahd/2009 and allied matters and when these orders were TAXAP/2300/2010 10/10 ORDER carried in appeals on such similar/identical issues, they have not been entertained by is Court.
7. Resultantly, for the aforementioned reasons this Court finds no reason to take a different view than taken earlier. Present Appeal, are, therefore, dismissed.
(Akil Kureshi, J. ) (Ms.Sonia Gokani, J. ) sudhir