METAL EXTRUSION INDIA LTD,JAIPUR vs. ADDITIONAL COMMISSIONER OF INCOME TAX, CIRCLE-1, JAIPUR

fu/kZkfjrh dh vksj ls @Assessee by :Shri Rohan Sogani, CA jktLo dh vksj ls@ Revenue by : Shri Ashok Khanna, JCIT-DR lquokbZ dh rkjh[k@ Date of Hearing : 25/07/2019 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 25 /07/2019 vkns'k@ ORDER

PER VIJAY PAL RAO, JM

1. This appeal by the assessee is directed against the order dated 27-12-2018 of ld. CIT(A)-1, Jaipur for the Assessment Year 2015-16. The assessee has raised the solitary ground as under:- ‘’Addition of income u/s 50C for Rs. 1,71,600/ without considering the fact of entering into agreement coupled with bank transfer before increase in DLC Value (Circle Rate) is wrong and bad

2 M/s. Metal Extrusion India Ltd. vs Addl. CIT , Circle-1, Jaipur in law. The assessee had sold an immovable property for Rs. 34,50,000/- in A.Y. 2015-16. The AO through her order u/s 1434(3) of I.T. Act, 1961 has considered the stamp duty value of the said property as Rs. 36,21,600/- on the date of registry while ignoring the circle rate as on the date of agreement and added back Rs. 1,71,600/- to the income of the assessee.’’ 2.1 During the year under consideration, the assessee has sold an immovable property at Flat No. 303, Riya Plaza, Old H.B. Road, Ranchi for a consideration of Rs. 34.50 lacs vide sale deed dated 16-12-2014.The AO noted that the property was valued by the Stamp Duty Authority at Rs. 36,21,600/-. Accordingly, the AO proposed to make the addition to the capital gain by adopting full value consideration u/s 50C of the Act.

The assessee objected to the adoption of the stamp duty valuation as on the date of sale deed and contended that there was an agreement to sell between the parties on 31-07-2014 and therefore, as per proviso to Section 60C, the stamp duty valuation as on the date of agreement should be taken as full value consideration. The AO did not accept the contention of the assessee and adopted the full value consideration as per stamp duty valuation as on the date of sale deed and thereby made an addition of Rs.1,71,600/- to the capital income of the assessee. The assessee challenged the action of the AO before the ld. CIT(A) but could not prospective effect and not retrospective effect.

2.2 Before us, the ld.AR has referred to the agreement dated 31-07-2014 and submitted that as per sale agreement the sale consideration was agreed upon between the parties at Rs. 34.50 lacs and part payment of Rs. 1.00 lac was received by the assessee on the date of agreement through banking channel. He has referred to the bank statement wherein Rs. 1.00 lac is reflected as on 31-07-2014. The ld.AR has also referred to the sale deed dated 16-12-2014 and submitted that there is a reference of agreement dated 31-07-2014 in the sale deed. Thus there is no dispute regarding the agreement dated 31-07-2014 entered into between the parties as well as part consideration was received by the assessee through banking channel. The ld.AR has then referred to the DLC Rate of the property as on the date of agreement i.e. 31-07-2014 at Rs.32,90,680/- and submitted that sale consideration agreed upon between the parties and received by the assessee is more than the DLC rate as on the date of agreement. Hence, the ld.AR has submitted that once the DLC rate as on the date of agreement is less than the sale called for u/s 50C of the Act. As regards retrospective operation of proviso to section 50C of the Act, the ld.AR has relied on the following decisions.

2.3 On the other hand, the ld. DR has submitted that proviso to Section 50C was inserted by the Finance Act, 2016 w.e.f. 01-04-2017 and therefore, it is prospective in nature and cannot be applied for the year under consideration. He relied on the order of the ld. CIT(A).

2.4 I have considered the rival submissions as well as relevant material on record. There is no dispute that the Flat in question was sold by the assessee vide sale deed 16-12-2014 for a sale consideration of Rs. 34.50 lacs. It is also not in dispute that prior to the sale deed, there was an agreed to the transaction of purchase and sale of the flat in question for a sale consideration of Rs. 34.50 lacs. Part consideration of Rs. 1.00 lac was also received by the assessee as on the date of agreement i.e. 31-07- 2014. This payment of Rs. 1.00 lac received by the assessee is duly reflected in the bank account of the assessee placed at page no. 21 of the paper book and the entry in the bank account is duly reflected indicating the payment received from the purchaser Shri Deepak Kumar. Thus so far the existence of agreement and receipt of part consideration through banking channel as on the date of agreement dated 31-07-2014 is concerned, the same is not in dispute and also reflected in the sale deed dated 16-12-2014. At page no. 6 of the said sale deed, the reference of sale agreement dated 31-07-2014 is made alongwith part payment of Rs. 1.00 lac. Therefore, the question arises whether the stamp duty valuation on the date of agreement will be relevant for the purpose of adopting full value consideration u/s 50C of the Act or stamp duty valuation as on the date of sale deed will be considered for this purpose.

The assessee has relied on various decisions of the Coordinate Benches of Section 50C has been considered by the Tribunal. In case of Rahul G Patel vs DCIT (supra), the Ahemdabad Bench of the Tribunal has discussed this issue in para 14 to 18 as under:- ‘’14. 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

7 M/s. Metal Extrusion India Ltd. vs Addl. CIT , Circle-1, Jaipur has not 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 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 8 M/s. Metal Extrusion India Ltd. vs Addl. CIT , Circle-1, Jaipur 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. **

9 M/s. Metal Extrusion India Ltd. vs Addl. CIT , Circle-1, Jaipur 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."

10 M/s. Metal Extrusion India Ltd. vs Addl. CIT , Circle-1, Jaipur 17. 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 pending matters as already held by the ITAT in the case of Dharamshibhai Sonani (supra).

11 M/s. Metal Extrusion India Ltd. vs Addl. CIT , Circle-1, Jaipur 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.

Thus the Tribunal has held that the AO shall call for the Circle Rate for the purpose of stamp duty valuation as on the date of agreement and not on the date of subsequent sale deed. Similar view was taken by the ITAT Ahemdabd Bench in the case of Dharamshibhai Sonani vs ACIT (supra) in para 6 to 10 as under:-

‘’6. This amendment was explained, in the Memorandum Explaining the Provisions of Finance Bill 2016 (http://indiabudget.nic.in/ub2016- 17/memo/mem1.pdf), as follows: "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 12 M/s. Metal Extrusion India Ltd. vs Addl. CIT , Circle-1, Jaipur 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 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."

15 M/s. Metal Extrusion India Ltd. vs Addl. CIT , Circle-1, Jaipur consequences and to make the section workable a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P.) Ltd. Etc. (supra), held that the first proviso was curative in nature, hence, retrospective in operation w.e.f. 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P.) Ltd. Etc. (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (when the first proviso stood inserted). Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example—in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March (end of accounting year) but before filing of the Returns under the IT Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under s. 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under s. 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate w.e.f. 1st 16 M/s. Metal Extrusion India Ltd. vs Addl. CIT , Circle-1, Jaipur April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003."

17 M/s. Metal Extrusion India Ltd. vs Addl. CIT , Circle-1, Jaipur to-property-buyers-as-circle-rates-cut-50-pc/247805.html) and some other places. It is therefore possible that, at first sight, first proviso to Section 50C may seem to work to the disadvantage of the assessee in certain situation in the event of the word 'may' being construed as mandatory in application, but then one cannot be oblivious to the fact that this proviso states that "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 (emphasis supplied)" making it clearly optional to the assessee, and that, in any event, what has been brought by the lawmakers as a measure of relief to the taxpayers cannot be construed as resulting in a higher tax burden on the taxpayers. Of course, assuming that my understanding of this statutory provision is in harmony with the legislative intention, insertion of words "at the option of the assessee" between "stamp valuation authority on the date of agreement may and be taken for the purposes of computing full value of consideration for such transfer, in first proviso to Section 50C(1), could have made the legal provision even more unambiguous.’’ Thus the Tribunal held that proviso to Section 50C of the Act is effective from 01-04-2013 and amendment brought to Section 50C was treated as retrospective. The other decisions of the Tribunal as relied on by the ld.AR of the assessee have also taken consistent view that proviso to section 50C is having retrospective effect being remedial / clarificatory in nature. Following the decisions of the Coordinate Benches of the tribunal and in the absence of any contrary decision brought to my notice, I hold the DLC rate as on date of 31-07-2014 when agreement to sell was entered between the parties and part consideration received by the