SHRI ASHOKBHAI CHINUBHAI BHARWAD,,AHMEDABAD vs. INCOME TAX OFFICER, WARD-2(2)(1),, AHMEDABAD

Assessee has taken seven grounds of appeal, out of which, ground no.1 to 4 are inter-connected with each other. In these grounds, grievance of the assessee relates to determination of sale consideration for the purpose of section 50C of the Act, which would lead to computation of long term capital gain on sale of agriculture land. In 2 brief, grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.50,20,750/- while computing the long term capital gain.

Brief facts of the case are that the assessee has filed his return of income on 27.3.2014 electronically declaring taxable income of Rs.2,55,836/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that the assessee along with five more co-owners had sold two properties admeasuring 3386.28 sq.meters situated at survey no.237 of village Vadaj. The assessee has shown his share of sale consideration at Rs.81.00 lakhs being 25% share. The AO further found that sub- Registrar, Ahmedabad City Taluka had valued the property for the purpose of stamp duty payment at Rs.5,24,83,000/- as against sale consideration shown by the assessee at Rs.3,24,00,000/-. Therefore, the AO issued a show cause notice inviting explanation of the assessee as to why sale value for the purpose of computation of capital gain should not be taken at Rs.5,24,83,000/- i.e. value adopted by the sub-Registrar for payment of stamp duty In response to the query of the AO, it was contended by the assessee that he has entered into an agreement to sell on30.10.2010. A part payment equivalent to 10% of total sale consideration was received at Rs.32,40,000/- by the vendor, and therefore the value for the purpose of section 50C is ought to be seen on the date of agreement which were supported by the receipt of part sale consideration through account payee cheque. The ld.AO did not accept this contention of the ld.counsel for the assessee. He observed that the 3 sale deed was executed on 31.3.2012, and therefore, jantri value (circle rate) for the purpose of stamp duty adopted by the Sub-Registrar on the date of sale i.e. 31.3.2012 is to be adopted for calculating deemed sale consideration. He accordingly adopted the sale consideration at Rs.5,24,83,000/-, and accordingly determined long term capital gain. The sale consideration for the purpose of calculating long term capital gain was taken at Rs.1,31,20,750/- in the hands of the assessee against Rs.81,00,000/- being 25% shown by the assessee. In this way, an addition of Rs.50,20,750/- has been made in the hands of the assessee. Appeal to the CIT(A) did not bring any relief to the assessee.

The ld.counsel for the assessee while impugning order of the ld.CIT(A) took us through copy of the agreement dated 30.12.2010 available on page nos.12 to 26 of the paper book. He further took us through details of payments received by the vendor through account payee cheque available on page no.21 of the paper book. Thus, he demonstrated that agreement to sell was not registered, but part payment was received through banking channel. The receipt of this payment has subsequently been recognized in the sale deed which is available on page no.66 to94 of the paper book, particularly, he took us through page no.76 of the paper book, internal page no.11 to 14 of the sale deed. On the strength of these documents, he demonstrated that payment received by virtue of agreement to sell through banking channel has been recognized in the sale deed also. He further relied upon the decisions, viz. Dharamshibhia Sonani Vs. ACIT, 75 taxmann.com 141 (Ahd-Trib), Rahul G. Patel Vs. DCIT, 97 taxmnan.com 598 (Ahd-Trib) and Manilal Dasbhai Makwana Vs. Ito, 96 taxmann.com 219 (Ahd-Trib) and 4 submitted that sale value on the date of agreement ought to be taken for the purpose of section 50C. The break-up of cheques including their number and date of payment etc. has been compiled in English translation and placed on page nos.6 to 35 of second paper book. He took us through all these details.

The ld.DR on the other hand relied upon the orders of the ld.CIT(A). He contended that sale deed was registered on 31.3.2012, and therefore, the AO has rightly adopted the jantri value for the purpose of computing the long term capital gain on the date when sale deed was registered.

We have duly considered rival contentions and gone through the record carefully. One of the decisions referred by the ld.counsel for the assessee is in the case of Rahul G. Patel Vs. DCIT, 97 taxmann.com 598 (Ahd-Trib). It is authored by one of us (Vice-President). In that decision the Tribunal has considered all these aspects, and therefore we deem it appropriate to take note of discussion made by the Tribunal Rahul G. Patel (supra), which reads as under:

“8. We have duly considered rival contentions and gone through the record carefully. Section 48 of the Income Tax Act provides mode of computation of capital gain. It contemplates that income arising under the head "capital gains" shall be computed by deducting from the full value of the consideration received or accruing, as a result of the transfer of the capital assets the following amounts, viz. (a) expenditure incurred wholly and exclusively in connection with such transfer; and (b) the cost of acquisition of the asset and the cost of any improvement thereto.

Sub-Section (2) of section 50C further contemplates that in case assessee alleges that stamp duty valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer, then, the AO may refer the valuation of the capital asset to the Valuation Officer. Sub-clause (v) of Section 2(47) has a direct bearing on the controversy. Therefore, it is pertinent to taken note of this clause. It reads as under: 'Section 2 . . . . . . . . . . . . . . . . (47) "transfer", in relation to a capital asset, includes,— (i) to (iva) (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or'

Before taking cognizance of any argument, it is pertinent to take note of Registration and other related Laws, Amendment Act, 2001 which has brought about radical changes in the rights flowing on the basis of the agreement executed in part performance of the contract under section 53A of 1882 Act. The amendments have been made to sections 17 and 49 of the Indian Registration Act, 1908. It is pertinent to take note of section 17(1A) as well as Section 49 of the Registration Act.

Effect of non-registration of documents required to be registered.—No document required by section 17 1[or by any provision of the Transfer of Property Act, 1882 (4 of 1882)], to be registered shall— (a) affect any immovable property comprised therein, or (b) confer any power to adopt, or (c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered: Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (3 of 1877) or as evidence of any collateral transaction not required to be effected by registered instrument.]"

A perusal of section 53A of the TPA would indicate that it provides a protection to transferee to retain his possession which was taken in part performance of the contract. He was able to protect his possession even after expiry of limitation to bring a suit for specific performance. But after the amendment effected in the Registration and Other Related Laws Amendment Act, 2001, it has been provided that though a contract accompanied by either of possession or executed in favour of a person in possession is compulsorily registerable under section 17(1A) of the Registration Act, 1908, if he failed to register such contract, then, he would not be able to protect his possession or any benefit conferred by section 53A of the TPA. Proviso appended to section 49 of the Indian Registration Act only postulates that such agreement could be tendered in evidence in a suit for specific performance. In other words, validity of unregistered agreement has not been denied for the purpose of adducing it as evidence for obtaining the benefit flowing from such contract. But for the purpose of protecting the possession, un-registered contract could not be enforced. The "transfer" within the meaning of section 2(47) of the Income Tax Act would complete, if possession is protected. Thus on execution of an agreement, if it was not registered then transfer within the meaning of section 2(47) will not happen. Like in the present case, agreement was executed on 8.2.2010 but not registered.

It is pertinent to observe that an agreement to sale was executed by the assessee on 8.2.2010 which is followed by payment through account payee cheque. Details of payments have been duly noticed by the ld.AO as well as by the ld.CIT(A). First cheque was received on 1.4.2011 for a consideration of Rs.10 lakhs; then Rs.30 lakhs on 23.7.2011; Rs.15 lakhs on 28.12.2011 and Rs.50 lakhs on 26.3.2012. Similarly on 1.5.2012 Rs.45 lakhs was received through account payee cheque. It means that sale consideration were received by the assessee before the registration of sale deed regularly on different intervals. As observed earlier, section 50C provides that where the consideration received or accruing as a result of 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 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. The question before us is, what could be the full value of sale consideration i.e. whether the value on which stamp duty was paid at the time of sale deed or the value declared in the sale agreement ? In such a situation where the assessee is not satisfied with adoption of sale value on which stamp duty was paid, then scheme of the Act prescribes a mechanism under sub- section (2) of section 50C for making a reference to the DVO to determine fair market value of the property. The reasons for such a mechanism is that stamp duty fee is only 4.95% (herein Gujarat) on the total sale consideration, which is a small amount and can be borne by any vendor/vendee. But for the purpose of Income Tax Act, the liability would enhance multi fold, and due to this reason, mechanism has been provided in the Act for the assessee to demonstrate that the value received by him was far less than one adopted for the purpose of stamp duty valuation. For this, he can make a request to the AO under section 50C(2) for making a reference to the DVO. It is pertinent to observe that the assessee entered into an agreement to sell on 8.2.2010. The AO has not 9 disputed this agreement. The assessee has received payment in pursuance of this agreement through account payee cheque. Let us take a situation where a vendee fails to get the sale deed executed. The assessee being vendor has a remedy for filing a suit for specific performance under the Specific Relief Act. The time limit to file a suit for specific performance has been provided in Indian Limitation Act, which is three years. In such situation, when the vendor files a suit for specific performance to force the vendee to purchase the property. In that situation, he will not pay anything over and above, the amount stated in the sale agreement. In that situation, the assessee would not get anything more than the amount mentioned in the agreement, though such situation may arise after three-four years on execution of the decree passed in a suit for specific performance. In between there may an appreciation or depreciation in the said property. Circle rate may rise or reduce. In other words, at the time of an agreement in respect of an immovable property, a right in persona is created in favour of the transferee/vendee. When such right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because vendee in whose favour right in persona is created has legitimate right to enforce such specific performance of the agreement, if the vendor for some reason is not executing the sale deed. Thus, by virtue of agreement to sell, some right is given to the vendee by the vendor. It is encumbrance on the property. At this stage, we would like to make reference to new proviso appended to section 50C by way of Finance Act, 2016 and the background, under which such provision has been incorporated. In 2015, Government of India has set up Income Tax Simplication Committee headed by Justice R.V.Easwar, former judge of Delhi High Court. The Committee in its reported observed as under: “6.1 RATIONALISATION OF SECTION 50C TO PROVIDE RELIEF WHERE SALE CONSIDERATION FIXED UNDER AGREEMENT TO SELL Section 50C makes a special provision for determining the full value of consideration in cases of transfer of immovable property. 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 or 10 assessable by any authority of a State Government (i.e. "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value of the consideration, and capital gains shall be computed on the basis of such consideration under section 48 of the Income-tax Act. The scope of section 50C was extended w.e.f. A.Y. 2010-11 to the transaction which were executed through agreement to sell or power of attorney by inserting the word "assessable" alongwith words "the value so adopted or assessed". Hence, section 50C is now also applicable in case of such transfers. The present provisions of section 50C do not provide any relief where the seller has entered into an agreement to sell the asset much before the actual date of transfer of the immovable property and the sale consideration has been fixed in such agreement. A later similar provision inserted by way of section 43CA does take care of such a situation. 6.2 It is therefore proposed to insert the following provisions in section 50C: (4) Where the date of an agreement fixing the value of consideration for the transfer of the asset and the date of registration of the transfer of the asset are not same, the value referred to in sub-section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement. (5) The provisions of sub-section (4) shall apply only in a case where the amount of consideration or a part thereof has been received by any mode other than cash on or before a date of agreement for transfer of the asset. ……”

Taking a clue from the report, a proviso has been appended by way of Finance Act, 2016 to section 50C and such proviso reads as under: "Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the 11 transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer: Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer."

This amendment was explained in the Memorandum explaining the provisions of Finance Bill 2016. It reads as under: Rationalization of Section 50C in case sale consideration is fixed under agreement executed prior to the date of registration of immovable property Under the existing provisions contained in Section 50C, in case of transfer of a capital asset being land or building on both, the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty shall be taken as the full value of consideration for the purposes of computation of capital gains. The Income Tax Simplification Committee (Easwar Committee) has in its first report, pointed out that this provision does not provide any relief where the seller has entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement, whereas similar provision exists in section 43CA of the Act i.e. when an immovable property is sold as a stock-in-trade. It is proposed to amend the provisions of section 50C so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration. It is further proposed to provide that this provision shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee 12 cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property. 30 These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years."

If we take all these aspects in their settings as a whole, then it would indicate that earlier whenever an assessee disputed adoption of sale equivalent to the amount on which stamp duty is paid, then reference to the DVO is made under section 50C(2). Normally, as observed earlier, when a sale agreement was executed, payment was received in part performance of the agreement, then vendor would not get anything more than the amount agreed in the sale agreement. There may be a time gap between execution of agreement to sell and execution of sale deed. In between if circle rate is being enhanced, then he would like to challenge adoption of higher sale value on the strength of sale agreement. In that situation, unnecessary energy would be devoted in ascertaining fair market value of the property on the date of sale. The encumbrance on the property by virtue of sale agreement would also goad the DVO to determine the fair market value of the property on the date of sale at a lesser amount than the value adopted for the purpose of payment of stamp duty. We have already made a reference to Specific Relief Act and how a vendor or vendee could enforce the sale agreement under Specific Relief Act. Under such enforcement, they would settle their right on the basis of agreed terms in the sale agreement. This proviso would only simplify this exercise i.e. instead remitting the matter to the DVO under section 50C(2), he would conduct an inquiry as to what could be value of the property on the date of execution of the agreement, and whether such agreement has created any encumbrance or not. There could be a difference in the actual sale consideration than the amount on which stamp duty was paid. This proviso has simplified this thing. It contemplates that stamp duty valuation of the property for the purpose of stamp duty payment on the date of agreement can be deemed as full consideration of the capital asset. Thus, in this way, the proviso can be construed as clarificatory in nature, and can be applied on 13 pending matters as already held by the ITAT in the case of Dharamshibhai Sonani (supra).

In the present case, we find that the assessee has contended that consideration of Rs.3,00,11,000/- is more than the valuation for the purpose of stamp duty as on 8.2.2010. No where the assessee has pointed out specific rate on the date of agreement. Therefore, we allow these two grounds of appeal for the statistical purpose. We set aside this issue to the file of the AO. The ld.AO shall call for circle rate for the purpose of stamp duty valuation of this property as on 8.2.2010. He shall determine the sale value of the property on the basis of circle rate applicable on this property on 8.2.2010, and thereafter compute long term capital gain assessable in the assessment year 2013-14. In other words, transfer of this property would be construed on 5.6.2012, but the full value of consideration is to be equivalent to the amount on which stamp duty was payable on 8.2.2010.”

In the light of the above discussion, if we examine the facts of the present case, then it would reveal that an agreement enforceable in law was executed by the assessee on 30.12.2010. For the purpose of demonstrating authenticity of this agreement, corroborative evidence in the shape of receipt of part payment through banking channel has been furnished. In other words, the assessee has received part payment of the sale consideration at the time of sale agreement, and those payments have also been recognized in the final sale deed. Therefore, we do not have hesitation in concluding that agreement executed on 30.12.2010 has been given effect by the parties which resulted in execution of the sale deed roughly after one and half years. Circle rate at the time of execution of agreement was lesser than one adopted by the parties as sale consideration. Therefore, the facts in the case of Rahul G. Patel (supra) are fully applicable on the facts of the present case, and full sale consideration for the purpose of computing long term capital gain in the 14 hands of the assessee is to be adopted at Rs.81 lakhs being 25% of share of Rs.3,24,00,000/-.

In ground no.5, the assessee has pleaded that receipt of Rs.20,10,000/- should be not considered as part of consideration of rights and chargeable to capital gain. The ld.counsel for the assessee submitted that this ground was consequent to issue raised in the appeal of the Revenue, which has already been dismissed on account of low tax effect involved therein. Therefore, the assessee is not pressing this ground of appeal.

In the result, appeal of the assessee is partly allowed. Order pronounced in the Court on 8th September, 2020 at Ahmedabad.