SHRI PANKAJ KESRICHAND SHAH,NANI DAMAN vs. THE INCOME TAX OFFICER, WARD-4, DAMAN

PDF · subscribers
ITA 1812/AHD/2016Status: DisposedITAT Surat28 March 2019AY 2011-128 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the amended proviso to Section 50C is not applicable because the transaction was based on a lease deed executed in 1996, not an agreement to sell. Therefore, the case laws relied upon by the assessee regarding the retrospective application of the amended proviso were not applicable. However, the Tribunal found that the AO disputed the stamp duty valuation of the property. Consequently, the AO should have referred the property for valuation to the DVO as on the date of the sale deed's execution. The Tribunal relied on the principles laid down in Sushil Kumar Agarwal v. CIT and CIT v. Shri Chandra Narain Chaudhari, which mandate a reference to the DVO when the assessee disputes the stamp duty valuation. The Tribunal directed the AO to refer the property to the DVO for valuation on the date of sale. The Tribunal also noted that the assessee could claim the rent capitalization method before the DVO. The issue was set aside to the AO for re-computation of long-term capital gains after obtaining the DVO's valuation.

What were the facts?

The assessee, Shri Pankaj Kesrichand Shah, appealed an order by the CIT(A)-Valsad, which upheld the AO's addition of Rs. 83,37,743/- on account of capital gains. This addition arose from the transfer of lease rights of agricultural land originally leased by the assessee's father in 1996 for 99 years. The AO invoked Section 50C, using the stamp duty valuation of Rs. 3,35,90,000/- for the sale deed, attributing a share of Rs. 1,11,96,666/- to the assessee. The AO calculated the indexed cost of acquisition at Rs. 28,58,923/- (assessee's share), leading to the capital gain. The assessee argued the transaction was a conversion of leasehold to freehold, an improvement of title, and the consideration was based on reversion rights. The CIT(A) confirmed the addition, viewing it as a transfer of a capital asset attracting capital gains and deeming Section 50C applicable.

What were the issues?

1. Whether the transaction of assigning lease rights constitutes a transfer of a capital asset attracting capital gains under the Income Tax Act, 1961, specifically under Section 2(47)? - Assessee's contention: The transaction was merely a conversion of leasehold to freehold, an improvement of title, and the consideration received was based on reversion rights. The assessee also argued that the amended proviso to Section 50C, made retrospective by the Tribunal in Dharamshibhai Sonani, should apply, considering the stamp duty valuation as of the agreement to sell date (13.05.1996). - Revenue's contention: The transaction was a transfer of a capital asset attracting capital gains. The CIT(A) held that the execution of a sale deed by the vendor and confirming party receiving consideration amounts to a transfer. The amended proviso to Section 50C is not applicable as it was a lease deed, not an agreement to sell. 2. Whether the Assessing Officer (AO) was duty-bound to refer the property for valuation to the District Valuation Officer (DVO) when the assessee objected to the stamp duty valuation, as per Section 50C of the Act? - Assessee's contention: The AO should have referred the property to the DVO for valuation, relying on cases like Sushil Kumar Agarwal v. CIT and CIT v. Shri Chandra Narain Chaudhari. The assessee also submitted a valuation report valuing the property at Rs. 7,92,000/- using the rent capitalization method. - Revenue's contention: The DVO cannot be dictated as to which method of valuation to apply.

Which sections of the Income-tax Act were involved?

Section 2(47),Section 50C,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, SURAT BENCH, SURAT

Before: SHRI RAM LAL NEGI & SHRI O.P.MEENA

For Appellant: Shri Rasesh Shah, CA
For Respondent: Shri Dilip Kumar, Sr. D.R
Hearing: 26.03.2019Pronounced: 28.03.2019

Pankaj Kesrichand Shah v. ITO-W-4, Daman /I.T.A. No. 1812/AHD/2016/A.Y.11-12 Page 1 of 8

आयकर अपील�य अ�धकरण,सुरत �यायपीठ, सुरत IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI RAM LAL NEGI, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER I.T.A. No.1812/AHD/2016 Assessment Year: 2011-12 Shri Pankaj Kesrichand Shah, Vs. The Income Tax Officer, House No. 109, Jain Street, Ward- 4, Daman. Nani Daman. [PAN: AEQPS 7179 Q] Appellant Respondent Assessee by Shri Rasesh Shah, CA Revenue by Shri Dilip Kumar, Sr. D.R. Date of hearing 26.03.2019 Date of pronouncement 28.03.2019 O R D E R PER O. P. MEENA, AM: 1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-Valsad(in short “the CIT (A)”) dated 08.02.2016 pertaining to Assessment Year 2011-12, which in turn has arisen from the assessment order passed under section 143 (3) dtd. 13.03.2014 of Income Tax Act, 1961 (in short ‘the Act’) by the Income Tax Officer, Ward- 4, Daman (in short “the AO”).

2.

Ground No’s. 1 to 4 of the appeal are in substance relates to confirming action of the AO of addition made on account of capital gains

Pankaj Kesrichand Shah v. ITO-W-4, Daman /I.T.A. No. 1812/AHD/2016/A.Y.11-12 Page 2 of 8

of Rs.83,37,743/- on assignment of lease rights by invoking the provisions of section 50C of the Act.

3.

Succinctly, facts as culled out from the orders of lower authorities are that Shri Kesri Chand M Shah (father of the assessee) was owner of has, leased out Agricultural Land in 1996 to Shri Vallabh G Kabra for a period of 99 years on total consideration of Rs. 51 Lakh out of which Rs.48 Lakh was paid as advance lease rent and balance was to be paid over 99 years @ 3,030 per year. The information obtained from Sub Registrar, Moti Daman revealed that the assessee along with his two brothers namely Shri Pramod K Shah and Shri Satish K Shah have transferred this land by way of seven sale deed of which stamp duty valuation was at Rs.3,35,90,000/- in which assessee`s share comes to Rs.1,11,96,666/-. The AO has also obtained fair market value as on 01.04.1981 @ Rs.9 per sq. meter in Dunehta locality of Nani Daman. Accordingly, the AO has considered sale consideration as per provision of section 50C of the Act at Rs.3,35,90,000/- in which 1/3rd share of the assessee calculated at Rs.1,11,96,666/- as sale consideration . The AO has worked out fair market value as on 01.04.1981 at Rs. 12,06,297 i.e. [ 9* 134033= Rs. 12,06,297] and index cost of acquisition at Rs. 85,76,771[ 12,06,297x 711/100] in which 1/3rd share of the assessee was worked out at Rs.28,58,923/-. Accordingly, the AO worked out capital

Pankaj Kesrichand Shah v. ITO-W-4, Daman /I.T.A. No. 1812/AHD/2016/A.Y.11-12 Page 3 of 8

gains at Rs.83,37,743/- i.e. [ 1,11,96,666- 25,58,923] and made addition accordingly.

4.

Being aggrieved, the assessee filed an appeal before the ld. CIT(A). It was submitted that by executing sale deed, the assessee has merely converted the property from leasehold to freehold. The conversion of property into freehold is nothing but improvement of title over the property. In addition, the consideration received by the assessee is as per reversion rights clause incorporated in the lease deed by Shri Kesrichand M Shah. Majority portion of the consideration is received by the lessee as the confirmatory party. Even if amount received towards conversion rights is taxable, then the amount of sale consideration will be Rs.1,00,000/- per acre. The total area is 1,34,033 sq. meter i.e. 33.12 acre approx. Hence, total consideration received by the assessee along with his two brothers is at Rs.33,50,825/- in which share of the assessee is comes to Rs.11,16,942/. However, CIT (A) observed that the appellant along with his brothers by claiming as vendors along with lessee as a confirming party has executed sale deed. The vendor as well as the confirming party has received consideration from the purchaser. Therefore, it is a transfer of capital asset, which attracts capital gains. The contention of the A. R. that the Appellant should be charged in the year of execution of lease deed i.e. 1997-98 cannot work as an embargo

Pankaj Kesrichand Shah v. ITO-W-4, Daman /I.T.A. No. 1812/AHD/2016/A.Y.11-12 Page 4 of 8

on the charging of capital gains in the year under consideration. As per Transfer of Property Act, an owner enjoys bundle of rights. Whenever there is extinguishment of any rights out of bundle of rights, it amounts to transfer of one of the rights under section 2(47) of the Act, thus, attracting capital gains. If the submission of the assessee that transfer of leasehold right is the end of the matter then why the assessee along with his two brothers claimed as vendors / owners of the land sold. Therefore, CIT (A) viewed that there is no infirmity in charging the long- term capital gain tax. The issue of applicability of section 50C is concerned the same is applicable as in the sale deed, the Sub Registrar has clearly written the fair market value of the property assessed by the Stamp Duty Authorities for the purpose of stamp duty. Therefore, provisions of section 50C are attracted. Accordingly, the addition the long-term capital gain of Rs.83,37,743/- was confirmed.

5.

Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee referred the clause 8 (c ) of lease deed (PB-273-300) according to which the lessee has an option to purchase reversion in respect of the demised land or any part thereof on the payment of Rs.40,000 per one acre if the lessor has been able to give marketable title in respect of demised land or any portion thereof so purchased, and in that event, he shall execute a deed of conveyance

Pankaj Kesrichand Shah v. ITO-W-4, Daman /I.T.A. No. 1812/AHD/2016/A.Y.11-12 Page 5 of 8

and or conveyance in respect of thereof in favour of the lessee as per his instruction to any other party or his nominee. Therefore, the learned counsel for the assessee contended that as per amended proviso to section 50C by Finance Act, 2016 would apply, which has been held as retrospective by the tribunal in the case of Dharamshibhai Sonani [2016] 75 taxmann.com 141 (Ahmedabad -Trib) and therefore, stamp duty valuation as on agreement to sale dtd. 13.05.1996 would be considered as sale consideration for the purpose of computation of capital gains. The learned counsel for the assessee further submitted that when the assessee has objected to stamp duty valuation, then the AO was duty bound to refer the property sold for valuation to DVO. The assessee has filed a copy of valuation report dtd. 31.01.2018, which has valued the property sold on rent capitalization method at Rs.7,92,000/- (PB-246to 267). Therefore, it was urged that the AO should have referred the property for valuation to DVO for determining the valuation of land sold by the assessee. In support of his contention that the AO should have referred the property for determination of valuation to DVO, the learned counsel for the assessee placed reliance in the case of Sushil Kumar Agarwal v. CIT [2015] 372 ITR 0083 (Cal) , CIT v. Shri Chandra Narain Chaudhari I.T.A.No. 287 of 2011 dtd. 29.08.2013 of Hon`ble Allahabad High Court (copy filed PB-1 to 9). The learned counsel for the assessee also contended that valuation of property should be done on the basis

Pankaj Kesrichand Shah v. ITO-W-4, Daman /I.T.A. No. 1812/AHD/2016/A.Y.11-12 Page 6 of 8

of rent capitalization method as held by the Co-ordinate Bench of Kolkata Tribunal in the case of Shri Prafulla Kumar Bhose v. ITO, Ward 38(3) Kol [I.T.A.No. 316/KOL/2015 dtd. 18.11.2015].

6.

Per contra, the ld. Sr. D.R. referred the lease deed and submitted that it is a lease deed and not agreement to sale, hence, the amended proviso to section 50C would not applicable as it applies to agreement to sale which is registered and not in the case of lease deed. The ld. Sr. D.R. also submitted that DVO could not be asked to which method of valuation he should apply while making valuation to the property so sold.

7.

We have heard the rival submissions and perused the relevant material on record. We find that the AO, relying on the provisions of section 2(47)(v) of the IT Act, treated the property as a capital asset and treated the profit from sale of such property as long-term capital gain in the hands of the assessee. Further, the AO has also invoked the provisions of section 50C and adopted the stamp duty valuation of the property for the year under consideration as against the fair market value claimed by the assessee. The assessee has claimed that for the purpose of stamp duty valuation, the AO should have applied the stamp duty valuation as on date of agreement to sale and not the value adopted by the Stamp Duty Authorities as on sale of leased land. We find that the ld. Sr. D.R. has rightly pointed out that amended proviso to section

Pankaj Kesrichand Shah v. ITO-W-4, Daman /I.T.A. No. 1812/AHD/2016/A.Y.11-12 Page 7 of 8

50C is not applicable as there was no agreement to sale but a lease deed made by the father of the assessee in year 1996. Therefore, proviso to 50C is not applicable. Consequently, case laws relied thereon are also not applicable. We find that the AO has disputed the stamp duty valuation of property under consideration. Therefore, the AO should have referred the property for valuation as on date of execution of sale deed. The learned counsel for the assessee has placed reliance in the case of Sunil Kumar Agarwal v. CIT [2015] 372 ITR 0083 (Cal) wherein it was held that where according to assessee, agreed consideration as per conveyance deed was highest prevailing market price of property, it would follow that assessee disputed higher valuation made by Stamp valuation authority and in such case, Assessing Officer should have referred matter to a Valuation Officer as contemplated under section 50C. Similar finding were given by the Hon`ble Allahabad High Court in the case of ITO Allahabad v. Shri Chandra Narain Chaudhari [I.T.A.No. 287 of 2011 dtd. 29.08.2013(supra). Therefore, we are of the considered opinion that the AO should have referred the property for valuation to DVO. Accordingly, we direct the AO for making a reference to DVO for valuation of property on date of sale in accordance with law. So far, the claim of the assessee that property should be valued as per rent capitalization method. We are of the view that it is for the assessee to claim such method of valuation before the DVO, as the land in question

Pankaj Kesrichand Shah v. ITO-W-4, Daman /I.T.A. No. 1812/AHD/2016/A.Y.11-12 Page 8 of 8

was subject matter of rent of lease. In view of these facts and circumstances, the issue is set-aside to the file of the AO to refer to DVO in accordance with law and compute the long-term capital gain after valuation.

8.

In the result, the appeal of the assessee is allowed for statistical purposes.

9.

The order pronounced in the open Court on 28. 03.2019.

Sd/- Sd/- (RAM LAL NEGI) (O.P.MEENA) (�याियकसद�यतथा/JUDICIAL MEMBER) (लेखासद�यकेसम� /ACCOUNTANT MEMBER) सुरत/ Surat, �दनांक Dated: 28th March, 2019/S.Gangadhara Rao, Sr.PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat

More judgments on Section 2(47)

All 851 judgments and leading authorities on Section 2(47) →

Recent GST High Court judgments

Search GST case law →