SHRI RAVI PRAKASH SAINI,JAIPUR vs. INCOME TAX OFFICER, WARD-4-3, JAIPUR

This appeal by the assessee is against the order dated 22.03.2018 of ld. CIT (Appeals)-1, Jodhpur (Camp at Jaipur) for the assessment year 2009-10. The assessee has raised the following grounds of appeal :-

“1. Addition of Short term Capital gain Rs. 19,60,438/- :-

That on the facts and in the circumstances of the case the Ld. CIT(A) Jodhpur has erred in law in confirming assessment of short term capital gain Rs. 19,60,438/- even when the capital assets ( Three Shops) were sold on 24/09/2007 for Rs. 13,51000/-by the appellant during the assessment year 2008-09 by way of sale agreement and Rs. 13 Lacs was received by the appellant by cheque No. 246918 dt. 24/09/2007 and balance Rs. 51000/- was to be paid at the time of registry. The three shops were bought by the assessee on 20/04/2007 for a consideration of Rs. 1356500/-.

That on the facts and in the circumstances of the case the Ld. CIT(A) Jodhpur has erred in holding short term capital gain is chargeable on the date of registry dt. 30/01/2009 and not on the date of agreement to sale in spite of Judgment of Supreme Court in the matter of Shri Sanjeev Lal Vs. CIT (2014) 365 ITR 389.

The sale deed was executed in pursuance of agreement to sale dt. 24/09/2007.

(b) Remand Report by AO :-

That on the facts and in the circumstances of the case the Ld. CIT(A) Jodhpur has erred in not appreciating remand report dt. 23/11/2016 in regard to sale of property by sale agreement.

3. Valuation to DVO :-

That on the facts and in the circumstances of the case the Ld. CIT(A) Jodhpur has erred in not referring matter for valuation to the DVO as required for computing fair capital gain under section 50C to avoid miscarriage of justice.

4. That the appellant reserves his right to add, amend or alter the ground of appeal on or before the date of appeal hearing.”

2. The only issue arises in this appeal of the assessee is regarding full value consideration under section 50C of the IT Act adopted by the AO as per the Stamp there was an agreement between the assessee at the time of purchase on 24.09.2007 and a substantial part of the consideration was received by the assessee on the date of agreement through cheque. Thus the grievance of the assessee is that the date on which the DLC rate prevailing has to be adopted under section 50C of the Act. The ld. A/R of the assessee has submitted that once the assessee has entered into an agreement dated 24.09.2007 and received a consideration of Rs. 13,00,000/- out of the total consideration of Rs. 13,51,000/- through cheque at the time of the said agreement, therefore, the stamp duty valuation as on the date of agreement would be taken for the purpose of considering the full value consideration under section 50C of the IT Act instead of the stamp duty valuation considered by the AO on the date of registration of the sale deed on 30.01.2009. In support of his contention, he has relied upon the decision of Delhi Benches of the Tribunal dated 09.01.2015 in case of ITO vs. Modipon Ltd. in and 2171/Del/2009. The ld. A/R has further submitted that since the property in question was purchased by the assessee in the year 2007 itself on 20th April, 2007, therefore, there was no change in the DLC rate at the time of purchase as well as at the time of agreement dated 24.09.2007. Due to the revision of the DLC rate subsequently the AO has made the addition.

Thus it is clear that the parties have agreed to the transaction of purchase and sale as well as the sale consideration at the time of the agreement dated 24.09.2007.

Since the assessee received the consideration of Rs. 13,00,000/- through cheque dated 24th September, 2007 at the time of agreement, therefore, for the purpose of adopting full value consideration under the provisions of section 50C the stamp duty valuation on the date of agreement should be taken into consideration. Though the proviso to section 50C(1) has been inserted by Finance Act, 2016, however, the amendment to the said section by insertion of the proviso are remedial in nature.

The Delhi Benches of the Tribunal in case of ITO vs. Modipon Ltd. (supra) have considered this issue in para 13 to 16 as under :-

“13. The aforesaid section provides that where consideration received or accruing as a result of the transfer by an assessee, of a capital asset being a land or building or both is less than the value adopted or assessed by stampvalue authority, the value so adopted by the stamp value authority shall be deemed to be full value of consideration u/s 48 of the Act. It is thus manifest that the value adopted by the stamp-valuation authority is deemed as the consideration for computation of capital gain. However, such valuation adopted by the stamp-valuation authority should be in respect of the transfer by the assessee, of the capital assets. Now, in the instant case, undisputedly on the execution of the sale-deed circle, rate was Rs.20,000/- per sq meter and therefore, the value adopted for the purpose of stamp-duty was Rs.4,03,20,000/- which was deemed as full value of consideration by the AO. The assessee on the other hand contends that circle-rate on the date of agreement registered with registrar of Ghaziabad was for Rs.13,000/- per sq meter, which works out to be the actual sale-consideration of Rs.2,62,08,000/- and therefore the said figure should be adopted instead of Rs.4,03,20,000/-. In our opinion, on the peculiar set of facts we find that the agreement to sale was duly registered, whereby, the total consideration was agreed to between parties works out to Rs.2,62,08,000/- and was adopted as the consideration for the payment of stamp- duty i.e.@ 4% of Rs.2,62,08,000/- i.e. Rs.10,48,320/-. In view thereof, the aforesaid valuation is also the value adopted by the stamp valuation authority in respect of transfer of the capital asset by the assessee. However subsequent to the said agreement to sell, there was change in the circle rate from 16th June 2014, whereby the valuation was enhanced from Rs.13,000/- to Rs.20,000/- per sq meter. This enhancement was beyond the control of the assessee (seller). It is also not the case of the revenue, that the buyer has given more than the consideration that has been accepted by the parties where they executed the agreement to sale. Furthermore on facts of a case, the Hon’ble Apex court held that registration of the transfer in accordance with the agreement to sale cannot be termed as the “date of transfer” as envisaged by Section 50C of the Act (Sanjeev lal & Anr. Vs. CIT & Anr. (2014) 365 ITR 389(SC)), wherein, it was held as under:- “In normal circumstances by executing an agreement to sell in respect of an immoveable property, a right in personam is created in favour of the transferee/vendee. When such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee, in whose favour the right in personam is created, has a legitimate right to enforce specific performance of the agreement, if the vendor, for some reason is not executing the sale deed. Thus, by virtue of the agreement to sell some right is given by the vendor to the vendee. The question is whether the entire property can be said to have been sold at the time when an agreement to sell is entered into. In normal circumstances, the aforestated question has to be answered in the negative. However, looking at the provisions of Section 2(47) of the Act, which defines the word “transfer” in relation to a capital asset, one can say that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred. Relevant portion of Section 2(47), defining the word “transfer” is as under:

“2(47) “transfer”, in relation to a capital asset, includes,-....

(ii) the extinguishment of any rights therein; or………”

Now in the light of definition of “transfer” as defined under Section 2(47) of the Act, it is clear that when any right in respect of any capital asset is extinguished and that right is transferred to someone, it would amount to transfer of a capital asset.”

“8. We have heard the rival contentions and carefully perused the record. The issue agitated before us revolves around section 50C of the Act. For the sake of convenience, we extract the section 50C(1) below: "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."

This section provides for adoption of value assessed/determined by the Stamp valuation authority for the purpose of payment of stamp duty (hereinafter "stamp duty value"), if the sale consideration disclosed in the sale deed is less than the stamp duty value. Section 50C was inserted by the Finance act 2002 w.e.f. 01.04.2003.

"5. Now, on these provisions the question arises as to what is the true interpretation of s.52, sub-s.(2). The argument of the Revenue was, and this argument found favour with the majority judges of the Full Bench, that on a plain and natural construction of the language of s.52, sub-s.(2), the only condition for attracting the applicability of that provision was that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeded the full value of the consideration declarered by the assessee in respect of the transfer by an amount of not less than 15% of the value so declared. Once the ITO is satisfied that this condition exists, he can proceed to invoke the provision in s.52, sub-s.(2), and take the fair market value of the capital asset transferred by the assessee as on the date of the transfer as representing the full value of the consideration for the transfer of the capital asset and compute the capital gains on that basis. No more is necessary to be proved, contended the Revenue. To introduce any further condition such as understatement of consideration in respect of the transfer would be to read into the statutory provision something which is not there; indeed, it would amount to re-writing the section. This argument was based on a strictly literal reading of s.52, sub-s.(2), but we do not think such a construction can be accepted. It ignores several vital considerations which must always be borne in mind when we are interpreting a statutory provision. The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be "drafted with divine prescience and perfect clarity". We can do no better than repeat the famous words of judge teamed heared Hand when he said:

.. it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing: be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary: but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning".

We must not adopt a strictly literal interpretation of s.52, sub-s.(2), but we must construe its language having regard to the object and purpose which the legislature had in view in enacting that provision and in the context of the setting in which it occurs. We cannot ignore the context and the collocation of the provisions in which s.52, sub-s(2) appears, because, as pointed out by Judge Learned Hand in the most felicitous language:

"...the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate recourse to the setting in which all appear, and which all collectively create."

Keeping these observations in mind we may now approach the construction of s.52, sub-s. (2).

The Hon’ble Supreme Court also observed that while interpreting a section it would be legitimate to consider what was the mischief and defect, which was sought to be remedied by an enactment. In that connection the speech made by the Finance Minister while moving the amendment is extremely relevant as it throws a considerable light on the objectives and purpose of enactment. However, as pointed out by Ld AR the purpose of introduction of Sec 50C was not mentioned by the Finance Minister at the time of moving amendment. It was also not explained in the Notes on clauses and Explanatory Memorandum attached to the relevant Finance Bill. However, the Hon'ble Madras High Court in the case of K.R. Palani Swamy and others Supra, while upholding the constitutional validity of Sec 50C, had an occasion to spell out the objective of introducing Sec 50c. The relevant observations are extracted below:

…………………………………………….

Tax could be evaded by breaking the law or could be avoided in terms of the law. When there is a factual avoidance of tax in terms of law, the legislature steps into amend the IT law to catch such an income within the net of taxation."

Hence the object of introduction of section 50C is to prevent under valuation of the real value of the property in the sale deed to avoid payment of tax or duty which the Government is entitled to, which, in our opinion, is akin to the Objective of introduction of section 52, which was existing earlier.

“There are many situations where the construction suggested on behalf of the Revenue would lead to a wholly unreasonable result which could never have been intended by the legislature. Take, for example, a case where A agrees to sell his property to B for a certain price and before the sale is completed pursuant to the agreement-and it is quite well known that sometimes the completion of the sale may take place even a couple of years after the date of the agreement-the market price shoots up with the result that the market price prevailing on the date of sale exceeds the agreed price, at which the' property is sold, by more than 15% of such agreed price, This is not at all an uncommon case in an economy of rising prices and in fact we would fine in a large number of cases where the sale is completed more than a year or two after the date of the agreement that the market price prevailing on the date of the sale is very much more than the price at which the property is sold under the agreement. Can it be contended with any degree of fairness and justice that in such cases, where there is clearly no under-statement of consideration in respect of the transfer and the transaction is perfectly honest and bonafide and, in fact, in fulfilment of a contractual obligation, the assessee, who has sold the property, should be liable to pay tax on capital gains which have not accrued or arisen to him? It would indeed be most harsh and inequitable to tax the assessee on Income, which has neither arisen to him nor is received by him, merely because he has carried out the contractual obligation undertaken by him. It is difficult to conceive of any rational reason why the legislature should have thought it fit to impose liability to tax on an assessee who is bound by law to carry out his contractual obligation to sell the property at the agreed price and honestly carried out such a contractual obligation. It would indeed be strange if obedience to the law should attract the levy of tax on income, which has neither arisen to the assessee nor has been received by him."

11.2 The Hon'ble Apex court in the case of K.P.Verghese, supra has held that the provisions of section 52(2), that was existing at the relevant point of time was not applicable to a honest and bona' fide transaction where the consideration received by the assessee was correctly declared or disclosed by him and there was no concealment or suppression of the consideration. The Hon'ble Supreme Court, after considering the speech of the Finance Minister, has understood that the object of introduction of section 52(2) was to curtail those transactions of sale of property, where the actual consideration received was understated in the sale deed. However, though the object of introduction of section 50C was not mentioned in the relevant Finance bill or in the speech of the Finance minister, yet, the Hon'ble Madras High Court in the case of K.R. Palani Swamy and others, Supra has stated that the provision of Sec 50C was inserted in the income-tax act to prevent large scale under valuation of real value of property in the sale deed, so as to defraud revenue which the government is legitimately entitled to, by pumping in black money. Thus we can see that the purpose of introduction of section 52(2) earlier and section 50C w.e.f. 01.04.2003 are for the purpose of achieving similar objectives.

11.3 In the instant case also, the assessee herein has fulfilled a contractual obligation on 30-6-2005, which the assessee is bound by law to carry out as per the sale agreement entered in March, 2003. Now the next question that requires to be addressed is whether there was any under' statement of actual consideration at the time when the sale agreements were entered into. The assessee has placed a copy of the certificate dated 16.04.2010 issued by the Jt. Sub Registrar, Visakhapatnam by way of additional evidence. According to the said certificate, the market value of the impugned property located at Allipuram Ward was Rs.5000/- as on 26.3.2003. According to the ld AR, the sale value agreed to by the parties, as per the sale agreement entered into on 27-03-2003 was more than the market value fixed by the Jt. Sub Registrar at the time the sale agreement was entered into. Thus according to Ld AR, there is no understatement or suppression of actual consideration. It is also not the case of revenue that there was any understatement of actual consideration.

In view of the above facts and circumstances of the case as well as the decision of the Delhi Benches of the Tribunal cited supra, the full value consideration as per the provisions of section 50C has to be adopted as per stamp duty valuation as on the date of agreement. The AO is directed to re-compute the full value consideration and then assess the capital gain, if any, arising from transfer of the property in question.