Income Tax Appellate Tribunal - Chennai
M.Nataraj, Coimbatore vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' Bench Chennai
BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT
MEMBER AND
SHRI CHALLA NAGENDRA PRASAD , JUDICIAL MEMBER
.....
ITA No.2168/Mds./2012
Assessment year:2006-07
M.Nataraj, The Deputy
95,PonnurangamRoad(West), Commissioner of Income
R.S.Puram, Vs. tax, Company Circle-I(3),
Coimbatore 641 002. Coimbatore.
PAN AAIPN 6426 F
(Appellant) (Respondent)
Appellant by : Shri K.Raghu, C.A.
Respondent by : Shri Guru Bashyan
JCIT D.R.
Date of Hearing : 09.04.13
Date of Pronouncement : 02.05.13
ORDER
PER ABRAHAM P GEORGE, ACCOUNTANT MEMBER:
In this appeal filed by Assessee , it has raised seven grounds of which grounds Nos.1 & 7 are general needing no adjudication. Grievance raised by the Assessee through its grounds No.2 to 5 is that Ld. CIT(A) confirmed an addition made under the head 'long term capital gains' for the impugned 2 ITA. 2168 /Mds/12 Assessment Year . Its grievance in ground No.6 is that reopening done for the impugned Assessment Year was held by the Ld. CIT(A) to be valid. When the matter came up, Ld. A.R. Mr. K.Raghu, C.A., at the outset submitted that he was not seriously arguing the grounds challenging the re-opening.
2. Facts apropos the addition for long term capital gain are that assessee had filed his return of income for the impugned Assessment Year declaring a total income of 24,10,290/- and an agricultural income of `18,78,025/-. Assessment was completed after scrutiny under section 143(3) of the Income Tax Act, 1961 (in short 'the Act') on 30.06.08, accepting the returned income. Thereafter on 06.05.10, a notice under section 148 was issued to the assessee proposing a reopening. Assessee filed a letter on 12.06.10 requesting the Assessing Officer to treat the return originally filed as one filed in response to such notice.
3. Assessee had sold a piece of land measuring 7.98 acres bearing Survey No.188/2 at Sarvanampatti Village, Coimbatore to one M/s.Adwaith Reality Private Ltd. on 31.08.05 through a document numbered as 5511/05. Consideration mentioned in the conveyance deed was ` 79 lakhs. However, the Stamp Valuation 3 ITA. 2168 /Mds/12 Authority, for the purpose of registration of the conveyance deed fixed the value of the property at ` 3,61,84,512/- .As per Assessing Officer, provision of Sec.50C of the Act stood attracted. Assessee was put on notice. Thereupon assessee filed a valuation of the subject property done by a valuer having approval for doing valuation of agricultural land and the value estimated by such valuer was ` 4,18,950/-. Assessee also objected to the reopening. According to the assessee, there was no escapement of income in respect of capital gains, since he had invested whole of the consideration received on sale in a specified asset mentioned in Sec.54EC of the Act. As per the assessee, once consideration stood invested in a specified asset mentioned under section 54EC(1)(a) of the Act, deeming provision of Sec.50C was not applicable. Unless and until there were some capital gains which was chargeable to tax under section 45 of the Act, there would be no question of application of Sec.50C of the Act.
4. Since assessee objected to adoption of the value fixed by Stamp Valuation Authority, Assessing Officer referred the valuation to the District Valuation Officer (DVO). No doubt, he did not accept the contention of assessee that reopening was not 4 ITA. 2168 /Mds/12 validly done. District Valuation Officer in his report dated 23.11.11 estimated the value of the property at ` 1,95,33,000/-. Though the assessee objected to the valuation done by the District Valuation Officer, Assessing Officer relying on sub-section (3) of Sec.50C of the Act, accepted the value fixed by the District Valuation Officer, as the fair market value for the purpose of computation of capital gains. He therefore, re-worked the capital gains taking the consideration received on sale as ` 1,95,33,000/- and gave a deduction of ` 75,00,000/- for investments under section 54EC of the Act.
5. Assessee moved in appeal before the CIT(A), argument of the assessee was that consideration received proportionate to the investment of ` 75,00,000/- in SIDBI Bonds had to be excluded, while computing capital gains under section 45 of the Act. Further, as per the assessee, the reassessment was only a review of the earlier assessment and all materials were available on record, at the time of original assessment itself. According to the assessee, in the regular assessment, it had offered capital gains ` 15,796/- based on a consideration of ` 79 lakhs, which was the correct work out of the taxable capital gains. Working of 5 ITA. 2168 /Mds/12 such capital gains was also produced by the assessee before the CIT(A) which read as under:-
Sl. Capital Sale Indexed cost Capital gains Cost new Taxable No. Asset consideration of acquisition asset exempt Amount of under Capital section.54EC gains.1
7.96 Acres 78,80,200 3,83.241 74,96,959 75,00,000 Nil of land 2 0.02 Acres 19,800 963 18,837/- Nil 18,837/-
of land Total 7.98 Acres 79,00,000 3,84,204/- 18,837/- 75,00,000 However, the assessee admitted before the Ld. CIT(A) that actual capital gain was ` 18,837/- and not ` 15,796/- originally worked out by him.
6. Assessee placed reliance on the decision of Jaipur Bench of this Tribunal in the case of Gyan Chand Batra Vs. ITO, 133 TTJ 482, for arguing that a part of the consideration could be separately considered for working out Sec.54EC exemption. Further as per the assessee, consideration relatable to 7.96 acres out of the total 7.95 acres having been fully invested in a bond specified under section 54EC of the Act invocation of Sec.50C was not warranted. If at all any capital gains was to be computed, 6 ITA. 2168 /Mds/12 it could only be with reference to 0.02 acres of land comprised with the total area of 7.98 acres sold.
7. The CIT(A) however, was not appreciative of this contention. According to him, assessee had not declared the stamp duty value of the transaction, while computing the capital gains, when he filed the return of income. He had went by the consideration mentioned in the document. As per CIT(A), Assessing Officer was correct in his view, that the transaction attracted under section 50C of the Act. Ld. CIT(A) also noted that Assessing Officer had granted relief under section 54EC of the Act to the extent of investment made by the assessee in SIDBI capital gain Bonds. In this view of the matter, he confirmed the order of the Assessing Officer.
8. Now, before us Ld. A.R assailing the order of lower authorities submitted that sale of 7.98 acres of land could be split into two, one of 7.96 acres and other of 0.2 acres. For sale of 7.96 acres of land, the capital gains worked out only to ` 74,96,959/-, pro-rating the sale consideration mentioned in the document. Assessee had invested ` 75 lakhs in SIDBI capital gain Bonds and was therefore, eligible for claiming exemption 7 ITA. 2168 /Mds/12 under section 54EC of the Act for the surplus arising on sale of 7.96 acres. If at all there could be any capital gains, it would only be in respect of .02 acres of land and such gains came to ` 18,837/- only. According to him, at the best, capital gains of ` 15,796/- admitted by the assessee in the original return could be enhanced to ` 18,837/- and nothing more. Reliance was once again placed on the decision of Tribunal in the case of Gyan Chand Batra Vs. ITO(supra) [ (2010) 6 ITR (Trbl.) 147 ]. Ld. A.R also placed reliance on the decision of Jaipur Bench of this Tribunal in the case of Shri Prakash Karnawat Vs. ITO (ITA No.364/JP/2011 dt.18th Nov.2011).
9. Per contra, Ld. D.R strongly supporting the order of lower authorities submitted that assessee's case fell under sub- clause(b) of Sec.54EB(1) and not clause (a).
10. We have heard the rival contentions and perused the orders of the lower authorities. First dealing with the issue of reopening, there is no doubt that assessee had admitted a capital gains of ` 15,796/- in his original return. However, by assessee's own admission, the actual amount even if assessee's version was to be accepted ought have been ` 18,837/-. Further, while doing 8 ITA. 2168 /Mds/12 the original assessment, Assessing Officer did not apply Sec 50C(1), which is mandatory, once the value adopted by Stamp Valuation Authority was higher than the consideration received in the document. In any case, the A.R did not advance any serious argument against the re-opening. We are of the opinion that reopening for the impugned Assessment Year was justified.
11. Coming to the merits of the case, argument of the ld.A.R is that once consideration received on a transfer was fully invested in accordance with Sec.54EC of the Act, then there was no room for applying the deeming provision of Sec.50C of the Act. According to him, this view is supported by the decision of Jaipur Bench of this Tribunal in the case of Gyan Chand Batra Vs. ITO(supra). Relevant para-7 of the order of the Tribunal is reproduced hereunder:-
"7. We have heard both the parties. Sec. 48 of IT Act states that capital gain is to be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the expenditure incurred in connection with transfer and the cost of acquisition of the asset and the cost of any improvement thereto. Hence, we will have to first ascertain the full value of the consideration. In respect of transfer of capital asset being land or building, full value of the consideration to be adopted for the purpose of s. 48 is defined in s. 50C of the IT Act. It will be useful to reproduce s. 50C(1) of the IT Act :
"50C(1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government (hereafter in this section referred to as the 9 ITA. 2168 /Mds/12 '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 purpose of s. 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer."
7.1 From the above sub-section, it is clear that in case the consideration received is less than the value adopted by stamp valuation authority then the value so adopted is to be taken as full value of the consideration for the purposes of s. 48 of the Act. Sec. 50C provides a deeming provision for considering the full value of consideration as the value adopted for stamp duty. In modern statutes, the expression 'deem' is used a great deal and for many purposes. It is at times used to introduce artificial conceptions which are intended to go beyond legal principles or to give an artificial construction of a word for phrase. Thus the artificial meaning of full value of the consideration has been given in s. 50C of the IT Act for the purpose of s. 48 of the IT Act. One is entitled to ascertain the purpose for creating a statutory fiction. After ascertaining the purpose, full effect must be given to the statutory fiction and it should be carried to its logical conclusion and to that end, it would be proper and even necessary to assume all those facts on which alone fiction can operate. The legislature in its wisdom has referred to s. 48 of IT Act in s. 50C for adopting the same value as fair market value. Hence, the deeming fiction as provided in s. 50C in respect of the words 'full value of consideration' is to be applied only for s. 48 of the IT Act. The words 'full value of consideration' as mentioned in other provisions of the Act are not governed by the meaning of full value of consideration as contained in s. 50C of the IT Act. The natural meaning of full value of consideration refers to consideration specified in the sale deed. The Hon'ble Delhi High Court in the case CIT vs. Smt. Nilofer I. Singh (2009) 221 CTR (Del) 277 : (2008) 14 DTR (Del) 108 : (2009) 309 ITR 233 (Del) had held that full value of consideration refers to the consideration specified in the sale deed. For deciding the meaning of words 'full value of consideration', the Hon'ble Delhi High Court has referred to the decision of Hon'ble apex Court at p. 237 as under :
"This controversy has already been settled by the Supreme Court in the case of CIT vs. George Henderson & Co. Ltd. (1967) 66 ITR 622 (SC), the very expression 'full value of consideration' was under consideration of the Supreme Court in the context of the provisions of the Indian IT Act, 1922. The provisions of s. 12B of the 1922 Act pertain to capital gains. Sub-s. (1) was in pari materia to s. 45(1) of the present Act and sub-s. (2) of s. 12B of the 1922 Act was in pari materia to the provisions of s. 48 of the present Act. The Supreme Court was of the view that the expression 'full value of consideration' in the main part of s. 12B(2) of the Act cannot be construed as having a reference to the market value of the asset transferred but the expression only meant, the full value of a consideration received by the transferor in exchange of the capital asset transferred by him. The Supreme Court also observed that in the case of a sale the full value of consideration is the full sale price actually paid. It was further of the view that the expression 'full value' means the whole price without any deduction, whatsoever, and it cannot refer to the adequacy of the price 10 ITA. 2168 /Mds/12 bargained for. Nor did it have any necessary references to the market value of the capital asset which is the subject-matter of the transfer." Hence, for the meaning of full value of consideration as mentioned in different provisions of the Act except in s. 48, one will have to consider the full value of consideration as specified in sale deed.
7.2 Before ascertaining as to how the deduction under s. 54F is to be given, it will be useful to reproduce s. 54F(1) :
"54F. (1) Subject to the provisions of sub-s. (4), where, in the case of an assessee being an individual or an HUF, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,--
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under s. 45;
(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under s. 45 :
Provided that nothing contained in this sub-section shall apply where--
(a) the assessee--
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or
(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head 'Income from house property'.
11 ITA. 2168 /Mds/12 Explanation : For the purposes of this section, (***) 'net consideration', in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer." 7.3 In Explanation to s. 54F(1), it is mentioned that net consideration means the full value of consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. The meaning of full value of consideration in Explanation to s. 54F(1) will not be governed by meaning of words 'full value of consideration' as mentioned in s. 50C. The value adopted for stamp duty is to be considered as full value of consideration for the purpose of computing the capital gains under s. 48. Sec. 54F(1) says that capital gains is to be dealt with in accordance with the provisions of sub-ss. (a) and (b) of s. 54F(1) of the Act. In the instant case, the cost of new asset is not less than the net consideration thus the whole of the capital gains will not be charged even if the capital gains has been computed by adopting the value adopted by stamp registration authority. It is clearly mentioned in s. 54F(4) also that net consideration which is not appropriated towards the purchase of new asset then the same is to be taxed in case such net consideration not appropriated is not deposited in the capital gain account. It is not necessary that the new asset should be got registered before filing of the return. The requirement of law is that net consideration is required to be appropriated towards the purchase of the new asset. Thus deduction under s. 54F is clearly applicable.
7.4 We have also considered the decision of Hon'ble Bombay High Court in the case of CIT vs. Ace Builders (P) Ltd. (supra). Sec. 50 of the IT Act provides that capital gains on sale of depreciable asset is to be deemed as short-term capital gains . The Hon'ble Bombay High Court has held that fiction limited to s. 50 will apply to computation of capital gains and not to exemption provisions. For allowing deduction under s. 54E, one will have no distinction between depreciable asset and non-depreciable asset. Hence, it is clear that deeming fiction mentioned in one section will not automatically apply to all the provisions. In case deeming fiction has been created in specific provision of the Act then Hon'ble Gauhati High Court in the case of CIT vs. Assam Petroleum Industries (P) Ltd. (supra) also held that s. 54E is not controlled by s. 50. Hence deeming provisions as mentioned in s. 50C will not be applicable to s. 54F so far as the meaning of full value of consideration is concerned as deeming provision mentioned in s. 50C is for specific asset and for the purpose of s. 48 of IT Act, 1961."
12 ITA. 2168 /Mds/12
12. No doubt, it has been clearly mentioned by the Co-ordinate Bench that deeming provision of Sec.50C would not be applicable for construing the meaning of the term 'full value of consideration' vis-à-vis application of Sec.54F of the Act. Crux of the decision is that once the entire amount of consideration stood deployed, or invested in accordance with Sec.54F, then provision of Sec.50C could not be invoked. The same view was also taken by the Jaipur Bench in the case of Shri Prakash Karnawat Vs. ITO(supra). However, admittedly in the given case, entire capital gains were not invested by the assessee in the bonds. The total sale consideration received was ` 79 lakhs and the capital gains on such transaction after deducting indexed cost of acquisition, as per the assessee's own working out to ` 75,15,796/-. Assessee had invested only ` 75 lakhs in the SIDBI capital gain Bonds. Had the assessee invested whole amount of ` 75,15,796/- which was the capital gains arising out of the transaction, then may be, the full value of consideration could be taken as the amount specified in the conveyance deed, for the purpose of giving effect to the exemption under section 54EC of the Act. However, assessee here has endeavored to make an artificial split of a single transaction. The sale of 7.98 acres of land was effected 13 ITA. 2168 /Mds/12 through a single document and the sale consideration mentioned shown was ` 79 lakhs. In our opinion an artificial split of a single transaction for claiming a better benefit than what is lawfully available cannot be accepted or encouraged. The sale executed through a single conveyance deed can be considered only as one single transaction, not amenable to any such split. It was not a case of two separate transactions. Assessee had simply taken out 0.02 acres from 7.98 acres of land, and considered it as an independent sale. Once, the entire capital gains was not invested in a long term specified asset , what has to be applied is clause (b) of Sec.54EC (1) of the Act. The said Sec.54EC(1) is reproduced hereunder:-
"54EC(1)Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,--
(a) the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;
(b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the
14 ITA. 2168 /Mds/12 whole of the capital gain, shall not be charged under section 45 :
Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees.]"
13. Where a transaction calls for a computation specified under clause(b) above, then it is necessary to find out the quantum of capital gains that could be claimed as exempt. For working out such capital gains, section 50C of the Act, which is mandatory in nature cannot be ignored. Said Sec.50C requires substitution of the consideration mentioned in the deed with the value fixed by Stamp Valuation Authority for the purpose of stamp duty. In the given case, assessee had disputed the valuation and the matter was referred by Assessing Officer to DVO as provided under section 50C(2) of the Act. Once the DVO had given the report, Assessing Officer was bound to apply sub-clause (3) of Sec.50C for working out the capital gains. The said section stipulates that full value of consideration should be taken as the value adopted by Stamp Valuation Authority or the value fixed by the District Valuation Officer (DVO) whichever was lower. When the value fixed by the DVO exceeded the value fixed by the Stamp Valuation Authority, then value fixed by the Stamp Valuation Authority alone had to be considered. Here, the value fixed by
15 ITA. 2168 /Mds/12 the Stamp Valuation Authority was ` 3,61,84,512/- whereas the value fixed by DVO was ` 1,95,33,000/- . Assessing Officer, in our opinion, therefore, had proceeded in accordance with law, in considering the fair market value at `1,95,33,000/- . Nevertheless,, for working out the exemption under section 54EC available to the assessee, Assessing Officer was required to apply the proportion mentioned in sub clause (b) of Sec.54EC(1) of the Act, which has not been done. Therefore, we set aside the order of the authorities below and remit the issue of computation of long term capital gains tack to the file of the Assessing Officer, for computing such capital gains in accordance with Sec.54EC (1)
(b) of the Act. Ordered accordingly.
14. In result, the appeal of assessee is treated as partly allowed for statistical purposes.
Order pronounced on Thursday, the 2nd May, 2013 at Chennai.
Sd/- Sd/-
(CHALLA NAGENDRA PRASAD) (ABRAHAM P GEORGE)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Chennai,
Dated 2nd May, 2013 .
K S Sundaram
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file
16 ITA. 2168 /Mds/12