Income Tax Appellate Tribunal - Lucknow
Sri Jitendra Mohan Saxena, Mohan ... vs The I.T.O. (1) on 27 July, 2007
ORDER
D.C. Agrawal, Accountant Member
1. This is an appeal field by the assessee raising nine grounds which only relate to the addition made by the Assessing Officer under Section 50C of the Income-tax Act, 1961. In the interest of justice, the grounds raised by the assessee are reproduced below:
1). Because the ld. CIT(A) Bareilly erred in sustaining the addition of Rs. 16,01,480 in capital gain by relying on the order of the Assessing Officer Shahjahanpur.
2. Because the ld. CIT(A) Bareilly erred in making the decision as he did not place reliance even on the submissions given on 28.3.2004 before the Assessing Officer Shahjahanpur wherein the rates were quoted as per letter of the CPWD dated 26.7.2000 giving basis for valuation to be. considered as on the date of sale i.e. July, 2002 wherein the construction was done from the period financial year 1991-92 to 1995-96.
3. Because the learned CIT(A), Bareilly erred in not considering the reply given by the DVO in his report and reply dated 23.3 2005 wherein valuation done as on 5th Feb. 05 while taking into account the rates of construction at more than Rs. 4,600 per sq.Mtr. on July, 02. Wherein the report of the Govt. Approved Valuer was done before the date of sale and was fairly detailed and evenly matched with the rates of CPWD quotation.
4) Because the learned CIT(A), Bareilly was more biased with the Revenue aspect and language of the Section 50C of the I.T. Act, 1961 more than the determination of the correct fair market value; as on the date of sale i.e. July, 2002 to come to the correct conclusion that the sale price at Rs. 21,50,000 was correctly shown and not the hypothetical value as per stamp duty paid for Rs. 37,51,480 for deriving the capital gains and tax thereon.
5) Because the learned CIT(A) Bareilly took no notice of the order of the Assessing Officer wherein the order itself speaks of the deformities that the valuation report of the DVO contains, while he negates all the reports and documentary evidences and submissions so made before him.
6) Because the learned CIT(A) Bareilly erred in not taking into consideration the words of Justice Hand quoted by the S.C. in CIT v. J.H. Gotia (85) 45 CTR 323(SC) "...The result would be that the provision would come into play only in the cases of understatement in the declared value ¬ universally in all the cases of transfers." The assessee correctly placed his reliance on this case law which squarely apply to his case.
7) Because the learned CIT(A) Bareilly erred in not appreciating the fact that the stamp valuation is fixed by the Distt. Collector for the collection of money for the state based on Hypothetical basis hence the difference between the stamp valuation and fair market value (sale price) cannot be adopted as capital gain for tax purposes. Accordingly the appellant can be taxed on capital gain Which did not receive or accrue to the appellant. As such, it is against the natural justice to tax the capital gain on such difference without taking into account the practical application and prevailing market trend.
8) Because learned CIT(A) Bareilly failed to intepret the language of the new Section 50C introduced to arrive at the correct conclusion. The assessment proceedings and the order given by learned Assessing Officer Shahjahanpur and CIT(A)Bareilly no where speaks and takes notice that the value and purpose should be for arriving at correct fair market value first which they did not refer, and then work out the capital gain for tax purposes, instead the working seemed more to impose and derive tax than to do justice and read the section with impartial eye.
9) Because the learned CIT(A) Bareilly has erred in sustaining the addition of Rs. 16,01,480- without any basis to form opinion negating the submissions in totality & being biased from the Revenue point of view and not interpreting the language correctly of the Section 50C to conclude the fair market value instead; which is bad in the eyes of law.
10) Because the order of the learned CIT(A) Bareilly is not a self speaking order and only dittoing the order of the Assessing Officer Shahjahanpur, hence it deserves to be quashed.
11) Because the assessment order on facts & law was not legally sustainable.
12) Because the assessee may kindly be permitted to raise any fresh ground/grounds at the time of the hearing of appeal.
2. The facts of the case are that the assessee is an individual. He has sold his residential property with respect to which sale consideration was declared at Rs. 21,50,000 but the fair market value as per rates prescribed by the District Magistrate for stamp duty purposes was determined at Rs. 37,51,480. The stamp duty on the sale transaction was charged on this value being based on Circle rate. The capital gains was worked out by the assessee on the basis of sale price taken at Rs. 21,50,000. The Assessing Officer, however sought to adopt the circle rate by which valuation was determined at Rs. 37,51,480 as per Section 50C of the I.T. Act, which was inserted by the Finance Act, 2002 with effect from 1.4.2003 i.e. assessment year 2003-04. He accordingly charged additional long term capital gains of Rs. 16,01,480. As the assessment was earlier completed; under Section 143(1) on the returned income of Rs. 2,33,680, the Assessing Officer issued notice under Section 148 to charge additional capital gains worked out on the basis of stamp duty valuation. The assessee relied on before the Assessing Officer on various decisions as under:
1. CIT v. Bhupender Singh Atwal 32 CTR (P & H) & 14 DTR 928 (P & H).
2. Mrs. Nirmal Laxmi Narain Grover v. Appropriate Authority (1997) 139 CTR (Bom.) 40 & 223 ITR 572(Bom.),
3. Bhola Nath Majumdar v. ITO and Ors. (1997) 137 CTR (Gan.) 198 & 221 ITR 608 (Gan).
In addition to this, the assessee requested the Assessing Officer vide letter dated 5.10.2004 to refer the property to the Departmental Valuation Cell. In this regard, it would be important to refer to the submission of the assessee in the above letter:
...to ascertain the true value of the asset the same may be referred to the departmental valuation officer and his valuation report should be made subject matter for ascertaining the sale price for the purpose of deriving of long term capital gain, as against the acquired/deemed sale value based on the stamp duty so paid by the assessee.
3. The Assessing Officer referred the property for valuation to the DVO under Section 50C(2) read with Section 55A of the Income-tax act, 1961, who determined the fair market value of the property at Rs. 37.75 lakhs. The D.V.O. commented in his report that during his physical inspection of the property on 5.2.2005, it was seen that the purchaser had built up and increased floor area at 1st and 2nd floor. However, built up area has been considered as existing on the date of transfer i.e. July, 2002. The area of the land and building as mentioned in the registration deed only has been accounted for in the report.. The Assessing Officer sent the copy of the valuation report to the assessee for his comments. Vide his letter dated 2.3.2005, he also asked the assessee to explain as to why not the value of the property be adopted at Rs. 37,51,480 being the value adopted by the State authorities for stamp duty purposes, as provided in Section 50C(3). The assessee objected to the valuation made by the D.V.O. on various grounds as mentioned by the Assessing Officer in his order. The objections of the assessee were also forwarded to the DVO who had offered his comment which are also mentioned by the Assessing Officer in his order. The D.V.O. has stated that fair market value has been worked out in a very scientific manner and realistic figures have been arrived at. Therefore, the valuation report does not require any change.
4. After considering the submissions of the assessee and reply of the DVO, the Assessing Officer adopted the sale consideration at Rs. 37,51,480 and worked out the long term capital gains thereon.
5. The ld. CIT(A) confirmed the addition by observing as under:
I have considered the issue, gone through the arguments of the counsel, perused the assessment order. It is clear that the newly inserted Section 50C of the IT Act, 1961 was inserted by the Finance Act, 2002 with effect from assessment year 2003-04. The provisions of Section 50C of the IT Act are mandatory in nature and the assessing officer has rightly applied the same in the case of the assessee. In this background of the case I see no reason to interfere with, the action of the assessing officer in applying the provisions of Section 50C of the IT Act. Hence the long term capital gain as worked out by the assessing officer is upheld. The grounds of appeal as raised by the assessee fail.
6. Before us, the ld. A.R. for the assessee submitted that provisions of Section 50C introduced with effect from 1.4.2003 related to the deemed income which never accrues to the assessee either in the present or in the future and he has to pay tax on it without earning income. This charge is against the very basis of tax structure as a whole and invades on the right to earn income which is against the fundamental right of having property. He submitted that Income-tax incidence on income which has neither accrued or will accrue, received or will be received, itself is a violation of constitutional right and deeming provisions are invalid. He further submitted that circle rates adopted are much higher than the actual sale consideration and vary with upward trend without any justification and cost inflation index comes in strict contrast with it. He also submitted that valuation made by the State Authorities is for the purposes of working out stamp duty and it is not for the purposes of income-tax. Even the value on which the stamp duty is paid by the assessee is not the real consideration. Neither it is the amount that accrued or will accrue, nor it is received or will be received and hence this cannot be either income or deemed income. The Assessing Officer should assess only real income and not artificial income. The order passed by the Assessing Officer based on valuation report of the DVO is defective and against natural justice and bad. The ld. CIT(A) has passed a short order without considering the submissions made by the assessee. The order of the Assessing Officer was dittoed without looking into the appeal matter. This is a non-speaking order of the ld. CIT(A). The ld.A.R. further submitted that stamp duty is different in different States and therefore different assessees will be taxed differently for the same sale consideration and hence it is discrimination. He also submitted that Section 50C is discriminatory in nature and therefore, it is ultra vires of the Constitution. He relied on the decisions in:
1. Bhagwan Das Jain v. Union of India ,
2. K.P. Yarghese v. ITO ,
3. 54 ITR 962.
The ld.A.R. also submitted that adoption of the valuation as made by State authorities for stamp duty purposes is not mandatory. "Shall" here would mean "may" and it is discretion of the Assessing Officer to adopt such a value or to determine a different valuation.
7. On the other hand, the ld. D.R. submitted that the argument on validity of provisions of Section 54C cannot be raised before the Tribunal or at least Tribunal is not competent to adjudicate upon vires of a statutory provision. The Tribunal is a creature of Statute i.e. Income-tax Act, 1961 and therefore, it is beyond the competence of the Tribunal to adjudicate as to whether Section 50C is a valid enactment. The ld.D.R. also submitted that there are several deeming provisions under Income-tax Act. Their vires have been upheld by the Court. Section 50C is also a deeming provision wherein sale consideration is deemed at a certain figure which is equal to the valuation of the property made by the State Authorities for stamp duty purposes. Further this is a specific provision and will overwrite all other provisions relating to computation of capital gains wherein the sale consideration as shown by the assessee is to be adopted.
8. We have considered the rival submissions and perused the material on record. In this regard, it will be relevant to refer to Section 50C, which is as under:
Special provision for full value of consideration in certain cases. 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 "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.
(2) Without prejudice to the provisions of Sub-section (1), where:
(a) the assessee claims before any Assessing Officer that the value adopted or assessed by the stamp valuation authority under subsection (1) exceeds the fair market value of the property as on the date of transfer;
(b) the value so adopted or assessed by the stamp valuation authority under Sub-section (1) has Hot been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court.
the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of Sub-sections (2), (3), (4), (5) and (6) of Section 16A, Clause (i) of Sub-section (1) and Sub-sections (6) and (7) of Section 23A, Sub-section (5) of Section 24, Section 34AA, Section 35 and Section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under Sub-section (1) of Section 16A of that Act.
Explanation.-For the purposes of this section, "Valuation Officer" shall have the same meaning as in Clause (r) of Section 2 of the Wealth-tax Act, 1957 (27 of 1957).
(3) Subject to the provisions contained in Sub-section (2), where the value ascertained under Sub-section (2) exceeds the value adopted or assessee by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.] This was introduced by the Finance Act, 2002 with effect from 1.4.2003. The intention of the Legislature for introducing this section can be gauged from the Explanatory notes to the amendment. For this purpose, we refer to the same as under:
Introduction.- By the Finance Act, 2002 (20 of 2002), a new Section 50C has been inserted (with effect from 1.4.2003). the scope and effect of such insertion have been elaborated in the following portion of the departmental circular No. 8 of 2002, dated 27th August, 2002, as under:
'37. Computation of capital gains in real estate transactions. 37.1 The Finance Act, 2002, has inserted a new Section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property.
37.2 It provides that where the consideration declared to be received or accruing as a result of the transfer of 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 so adopted or assessed shall be deemed to be the full value of the consideration, and capital gains shall be computed accordingly under Section 48 of the Income-tax Act.
37.3 It is further provided that where the assessee claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer, and he has not disputed the value so adopted or assessed in any appeal or revision or reference Before any authority or court, the Assessing Officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with Section 55A of the Income-tax Act. If the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purposes, the Assessing Officer may take such fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes, the Assessing Officer shall not adopt such fair market value and shall take the full value of consideration to be the value adopted or assessed for stamp duty purposes.
37.4 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years.
It clearly shows that the intention of the Legislature was to substitute the sale consideration by the stamp duty valuation in a situation 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 an authority of State Government for the purposes of stamp duty in respect of such transfer. Sub-section (2) thereof is applied in a situation where assessee claims before the Assessing Officer that the value adopted by State valuation authority has not been disputed in appeal, revision or reference before any authority ,Court or High Court. Under that situation, the Assessing Officer may refer valuation of the capital asset to a Valuation Officer and where such reference is made then the provisions of Sub-sections (2)(2A), (3), (4),(5) and(6) of 16A of W.T. Act and other provisions of Section 23A, 24, 34AA, 35 and 37 of W.T. Act with necessary modification will apply in relation to a reference so made by the Assessing Officer under Section 50C of the I.T. Act. Thus, the provisions of Section 50C(2) are on the lines of Section 55A with certain modifications.
8. Sub-section (3) of Section 50C is applicable where the value ascertained by the DVO exceeds the value adopted or assessed by stamp valuation authority as referred to in Section 50C(i). In that situation, the value so adopted or assessed by such Stamp Valuation Authority shall be taken to be the full value of consideration received or accruing as a result of the transfer. From this it follows that where the assessee does not object to the valuation made by the Stamp Valuation Authority, then that valuation would; be adopted and where he objects and accordingly Assessing Officer makes a reference to the D.V.O. and if valuation as per D.V.O. is higher than the value as per Stamp Valuation Authority, then as per Sub-section (3), the valuation as done by Stamp Valuation Authority will be adopted as a sale consideration.
9. In the present case, the assessee had shown a sale consideration of Rs. 21,50,000, the stamp valuation authority had adopted the value at Rs. 37,51,480. The DVO has determined the value at Rs. 37.75 lacs which is higher than Valuation made by the Stamp Valuation Authority. The Assessing Officer has, therefore, adopted the valuation as made by Stamp Valuation Authority and accordingly calculated the capital gains. The ld.CIT(A) has confirmed the same.
10. We do not find any infirmity in the action taken by the authorities below and the ld.A.R. has also not been able to point out any error. The argument of the ld. A.R. has been that the D.V.O. had not considered the post-purchase construction made by the purchaser but we notice that the DVO had actually considered such construction by the purchaser and given effect to by only adopting the area and space as existing on the date of the sale as per Sale deed. Therefore, we do not find any material which would substantiate the argument of the assessee. The next objection of the assessee is that the Assessing Officer has not given any importance to the quality of construction. The! sale deed showed that construction was simple and it was six years old before being sold.
11. However, we do not find any material to show that valuation made by the D.V.O. was anyway adversely affected because of this factor or that he has not taken these factors into account while valuing the property under Section 50C(2).
12. The next objection of the assessee is that the DVO had inspected the property in February, 2005 whereas deed of sale is of July, 2002. Again this objection is baseless because even though property was inspected in February, 2005, but the area and the space as sold by the assessee in July, 2002 was only considered for valuation.
13. The next objection of the assessee is that the rates adopted by the DVO are higher. However, no material is given to show as to how the rates adopted by the DVO were higher. Since this argument is without basis, it is rejected.
14. Another objection was that the Assessing Officer has not given any credence to the report of the Government Approved Valuer, whose report was made the basis for determination of sale price and the property was sold accordingly as per sale deed. In our considered view, this objection has no merit because what has to be compared as per Section 50.C(3) is the Department Valuation Officer's report and Stamp duty valuation and nothing else. For the purposes of invoking Section 50C(1) what is to be compared is the sale consideration as shown by the assessee and the valuation shown by stamp valuation authorities. The report of the approved Valuer is an alien evidence for the purpose of applying Section 50C(1) or Section 50C(3)
15. One important objection raised by the ld.A.R. is that once there are wide variations in the approved Valuer's report and the report by the DVO, then the Assessing Officer ought to have referred the matter to the third valuer. We are afraid it is not the requirement of law and there is no provision in the Income-tax Act where reference to third valuer can be made.
16. Accordingly, we do not find any merit in various contentions raised by the ld.A.R.
17. The Id.A.R. has also raised certain legal objections. One is about legislative competency to insert Section 50C. we are afraid it is beyond the jurisdiction of Tribunal to comment upon the legislative competence in inserting a provision in the Statute. It is for the Hon'ble High Court or Hon'ble Supreme Court to entertain such a plea. The Tribunal is a creature of Income-tax Ad and therefore, it can only comment as to how a provision of the Act can be implemented by the Revenue authorities and not beyond.
18. The next legal objection raised by the ld.A.R. is that only real income should have been assessed and not the deemed income. Though there is no dispute with the proposition that only real income should be assessed but once a provision is inserted in the Income-tax Act to deem a particular amount as income of the assessee then by virtue of such a fiction that amount shall be income of the assessee unless a discretion is provided to the Assessing Officer to consider otherwise. Sections 68, 69,69A, 69B and 69C are deeming provisions where either credit entry or investment or expenditure for (which no explanation is furnished or the explanation furnished is found unsatisfactory can be deemed to be the income of the assessee. The Legislature have though it proper to substitute valuation by stamp valuation authority as sale consideration for sale consideration recorded in the sale deed. The Explanation while introducing this provision clearly indicates '[that the intention was to plug tax evasion resulting from under statement of sale consideration.
19. The last argument of the ld.A.R. was that the word "shall" has been used in Section 50C, but there is also discretion with the Assessing Officer. We are afraid we do not find any scope of any discretion to adopt or not to adopt the valuation made by stamp valuation authorities. The word "shall" has always been used as mandatory. It is substantive provision and therefore, it could not be said that when word "shall" is used, it could also mean "may". The position in Sections 68, 69A, 69B, 69C and 69D is different. There the word used is "may" and not "shall". This shows a discretion to the Assessing (Officer to treat particular transaction as income or not, as held by the Hon'ble Supreme Court in CIT v. Noorjahan (P.K.)(Smt.) 237 ITR 570(S.C). However, the expression "shall" used in the present section cannot be considered as "may". When a Statute uses the word "shall" prima facie it is mandatory. Even though Court may ascertain the real intention of the Legislature by carefully attending to the real scope of the Statute. Where Section 50C is invoked, then there is no scope of any discretion and the Assessing Officer is duty bound to adopt the valuation made by stamp valuation authority if it is higher than the sale consideration shown by the assessee. However Sub-section (3) of Section 50C does provide some latitude. Where valuation made by Departmental Valuation Officer is higher, then the valuation by stamp valuation, authority will be adopted for sale consideration declared but where the valuation made by DVO is less than the valuation made by the stamp valuation authority, then he may adopt such fair market value to be the full value of consideration. Thus, the discretion available to the Assessing Officer, if any, is limited to this extent and as clarified in the departmental circular No. 8 referred to above. In the present case, we do not find any material to come to the conclusion that valuation adopted by the DVO was lesser or could have been lesser than the valuation made by stamp valuation authority and therefore, we do not find any discretion available to the Assessing Officer within the Subsection (3) of Section 50C.
20. As a result, we do not find any force in the appeal filed by the assessee. The order of the ld. CIT(A) is upheld and the appeal filed by the assessee is dismissed.
This order was pronounced in the open Court on 27.07.07.