INCOME TAX OFFICER, CHENNAI vs. SHRI VINAY GRANDHI, CHENNAI

2 - 1 . Order of CIT(A) is erroneous both on law and facts. 2 Whether the CIT(A) is correct in holding that the proviso to Sec 50 made applicable w.e.f. 01/04/2017 is applicable retrospectively?. 3 Whether the CIT(A) is correct in applying the amended provisions in favour of the assessee which is contrary to the settled legal proposition that while interpreting the beneficial provisions, the same should be interpreted strictly and when there is any ambiguity, it should be done in favour of Revenue? 4 Whether the CIT(A) is correct in holding that capital gains are to computed by considering the fair market value of the property as on date of sale agreement i/e 24/1/2005 and not as per date of registration i.e 5.11.2008 by interpreting provision to sec 50C in a liberal manner though the proviso came into force w.e.f, 01/04/2017 only? As evident, the sole subject matter of revenue’s appeal is computation of capital gains in the hands of the assessee.

The Ld. Sr. DR supported the assessment framed by Ld. AO and submitted that proviso to Sec. 50C(1) was applicable prospectively. The Ld. AR, on the other hand, relied on the decision of Hon’ble High Court of Madras in CIT V/s Vummudi Amarendran (120 Taxmann.com 171; 28.09.2020) to support the impugned order.

Having hard rival submissions and after due consideration of material facts, our adjudication would be as under.

The assessee, as joint owner of a vacant land measuring 66242 Square Feets, R.S.No.35/153 in Block No.6 and R.S. No. 36/49 in Block No. 7 situated at Mackey Garden, Chennai, sold the same during the year and computed negative Long-Term Capital Gains (LTCG) of Rs.4.39 Lacs. The same was disclosed in the return of income and benefit of carry-forward of the loss was sought by the assessee. It was noted by Ld. AO that though the sale deed was registered during November, 2008, the consideration as received by the assessee was based on agreement of sale dated 04.09.2004. While computing the capital gains, the assessee adopted sale consideration as per sale agreement. However, during the course of 3 - assessment proceedings, Ld. AO, invoking the provisions of Sec.50C, re-computed LTCG at Rs.487.46 Lacs. The same was due to the fact that Ld. AO adopted sale consideration as determined by the sub- registrar for the purpose of stamp duty while registering the document on 05.11.2008 whereas the assessee had adopted sale consideration as agreed upon between the parties as per sale agreement dated 04.09.2004.

The Ld. CIT(A) noted that proviso to Sec.50C(1) as inserted w.e.f. 01.04.2017 (wrongly referred to as 01.04.2016 in the impugned order) would be applicable retrospectively. As per the new proviso, where the date of agreement fixing the amount of consideration and date of registration for the transfer of capital asset are not the same, the value adopted or assessed or assessable by the stamp duty valuation authority on the date of agreement may be taken for the purpose of computing full value of consideration for such transfer. The amendment brought in by Finance Act, 2016 was curative in nature because Section 43CA already had similar provision and in order to cure the discrepancy, the said proviso was introduced. Extending the benefit of proviso to the case of the assessee, it was noted that agreement to sale was entered on 24.10.2005 and the assessee received cheque payment of Rs.112.60 Lacs on the date of agreement. Accordingly, Ld. AO was directed to recompute the capital gains based on the value that prevailed on the date of agreement i.e., 24.10.2005 and not on the date of registration after making reference to valuation cell of the department to determine the fair market value. Aggrieved, the revenue is in further appeal before us.

We find that the short question that arises for our consideration is whether Ld. CIT(A) was correct in granting the benefit of proviso to Sec.50C(1) to the assessee during this year. This proviso has been inserted by Finance Act, 2016 w.e.f. 01.04.2017. We find that the proviso has been held to be retrospective in nature by Hon’ble Madras High Court in CIT V/s Vummudi Amarendran (120 Taxmann.com 171; 28.09.2020) wherein it has been held as under: - 7. Before we proceed to consider as to whether proviso inserted in Section 50C of the Act has to be read retrospective or prospective, we need to point out that the Assessing Officer did not doubt the bona fides of the transaction done by the assessee, since the Assessing Officer accepted the fact that the assessee had entered into an Agreement for Sale of the property in question vide Agreement for Sale dated 4-8-2012, wherein agreed sale consideration was Rs.19 Crores and the assessee had received Rs.6 Crores by way of account payee cheque on the date of signing the Agreement. This fact was noted by the CIT(A) and held that the Agreement cannot be treated to be ante-dated as the assessee had received Rs. 6 crores as advance on the date of Agreement through banking channel. The only reason for the Assessing Officer to adopt higher value is based upon the guideline value fixed by the State Government. The question would be as to what is the effect of the guideline value fixed by the Government and the purpose behind fixing the same. This aspect was clearly explained in the case of J. Jayalalitha. It has been pointed out that the guideline value has relevance only in the context of section 47A of the Indian Stamp Act (as amended by Tamil Nadu Act 24 of 1967) which provides for dealing with instruments of conveyance which are undervalued. The guideline value is a rate fixed by the authorities under the Stamp Act for the purpose of determining the true market value of the property disclosed in an instrument requiring payment of stamp duty. Thus the guideline value fixed is not final but only a prima facie rate prevailing in an area to ascertain the true or correct market value. It is open to the Registering Authority as well as the person seeking registration to prove the actual market value of the property. The authorities cannot regard the guideline valuation as the last word on the subject of market value but only a factor to be taken note of, if at all available in respect of an area in which the property transferred lies. It was further pointed out that this position is made clear in the explanation to Rule 3 of the Tamil Nadu Stamp (Prevention of Undervaluation of Instruments) Rules, 1968; this explanation also will have to be read in conjunction with explanation to section 47(A) of the Indian Stamp Act (as amended by the Tamil Nadu Act 24/1967). It was further pointed out that undue emphasis on the guideline value without referred to the setting in which it is to be viewed will obscure the issue for consideration. Further it was held that in any event, if for the purpose of the Stamp Act, guideline value alone is not a factor to determine the value of the property, its worth will not be any higher in the context of assessing the true market value of the properties in question to ascertain whether the transaction has resulted in any offense so as to give a pecuniary advantage to one party or other.

Thus, the Assessing Officer could not have based his conclusion solely based on the guideline value which has been held to be only a prima facie rate prevailing in the area to ascertain the true or correct market value and it is not the last word on the subject of market value but only a factor to be taken note of. As pointed out earlier, the genuinity of the transaction done by the assessee was not doubted and the receipt of advance was through banking channel by way of a demand draft.

Therefore, in our considered view the Assessing Officer could not have based his finding solely relying upon the guideline value especially when the Assessing Officer is not a person who is computing stamp duty under the provisions of Indian Stamp Act on the Deed of conveyance. Having observed so we need to take note of the next issue would be as to whether the proviso to Section 50C could be read to be prospective or retrospective. Section 50C(1) proviso reads as follows: "Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capita 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.'' 10. Reading of the above proviso would show that the legislature took note of the fact that there are several occasions where the Agreements are entered into between a willing vendor and willing purchaser on an agreed sale consideration, the Agreement is reduced into writing and in many a cases a substantive portion of the sale consideration is given to the vendor as advance on the date of execution of the Agreement. There are other types of transaction where the vendor executes Power of Attorney in favour of the intending purchaser empowering him to sell the property at any time he proposes to do so. In fact this was also a subject matter of consideration, when the legislature though to introduce the amendment to section 50C of the Act. There may be cases where the sale consideration will be taken as deferred payment subject to certain contingencies. However the case on hand is very straight forward case, where there is an Agreement for Sale, agreeing to sell the property at Rs. 19 Crores and a sum of Rs.6 Crores has been received as advance sale consideration. The proviso to Section 50C(1) of the Act deals with cases where the date of the agreement, fixing the amount of consideration and the date of registration for the transfer of the capital assets 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. Thus an amendment by insertion of proviso seeks to relieve the assessee from undue hardship. 11. The Hon'ble Supreme Court in CIT v. Calcutta Export Co. [2018] 93 taxmann.com 51/255 Taxman 293/404 ITR 654, considered the question as to whether the amendment made by the Finance Act 2010 to Proviso of Section 40(a)(ia) of the Act is curative in nature and it has to given retrospective operation from the date of insertion of the said proviso i.e., with effect from Assessment Year 2005-06. It was pointed out that the purpose of the amendment made by the Finance Act 2010 is to solve the anomalies with the instrument of section 40(a)(ia) of the Act, caused to the bona fide tax payer. It was further held that the amendment even if not given any operation retrospectively, may not materially to be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assesses having substantial turnover and equally huge expenses and necessary cushion to absorb the effect; however a marginal and medium tax payer who work at low gross product rate and when expenditure becomes subject matter of an order under section 40(a)(ia) is substantial, can suffer severe adverse consequence if the amendment made in 2010 is not given retrospective operation i.e., from the date of substitution of the provision. Thus, the amendment made by the Finance Act 2010 being curative in nature was held to be retrospective in operation. In the above decision, the Hon'ble Supreme Court took note of the fact that the statutory amendment was being made to remove undue hardship to the assessee or held to be retrospective.

The Honble Supreme Court in Kolkata Export Company took note of the earlier decisions on the same issue in the case of Allied Motors (P.) Ltd. v. CIT [1997] 91 Taxman 205/224 ITR 677, Whirlpool of India Ltd. v. CIT [2000] 245 ITR 3, CIT v. Amrit Banaspati Co. Ltd. [2002] 123 Taxman 74/255 ITR 117 (SC) and CIT v. Alom Enterprises [2009] 185 Taxman 416/319 ITR 306 and held that the new proviso should be given retrospective effect from the insertion on the ground that the proviso was added to remedy unintended consequences and supply an obvious omission. The proviso ensured reasonable interpretation and retrospective effect would serve the object behind the enactment. Thus by taking note of the above decisions, we have no hesitation to hold that the proviso to Section 50C(1) of the Act should be taken to be retrospective from the date when the proviso exists. The CIT(A) while allowing the assessee's appeal vide order dated 25-7-2019, took note of the submissions made by the assessee wherein they placed reliance on the decision of the Ahmadabad Bench of the Tribunal in the case of Dharamshibhai Sonani v. Asstt. CIT [2016] 75 taxmann.com 141/161 ITD 627, order of the Delhi Bench of the ITAT in the case of Income tax Officer v. Modipon Ltd. [2015] 57 taxmann.com 360/154 ITD 369.

On a reading of the order passed by the CIT(A), it is interesting to note the report submitted by the Income-tax Simplification Committee set up in 2015, headed by a Former Judge of the High Court, Delhi.

Mr. T. Ravikumar, learned Senior Standing Counsel is right in a submission that this report is not binding or cannot be taken to have a statutory force. Nevertheless, Simplification Committee was consisted of experts in the field of taxation and it would be worthwhile and interesting to note as to why they have considered the insertion of the proviso to section 50(C) of the Act should be held to be retrospective; In the report there is an extract of Memorandum explaining provisions of Finance Bill 2016 which reads 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 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. 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. Taking note of the above Memorandum, it was pointed out that once a statutory amendment is being made to remove an undue hardship to the assessee or to remove an apparent incongruity, such an amendment has to be treated as effective from the date on which the law, containing such an undue hardship or incongruity, was introduced. The report also referred to the decision in the case of Alom Enterprises (supra).

Reverting back to the decisions relied on by the Revenue, the decision in Bagri Impex (P.) Ltd. (supra) is distinguishable on facts as the assessee therein contended that the date of agreement should be taken as date on which the property was transferred by bringing the same within the ambit of section 2(47) of the Act, which is not the case before us. In Ambattur Clothing Co. Ltd. (supra), the assessee contended that since the buyer wanted the Sale Deed to be released after registration, they had paid stamp duty as per the guideline value which is higher than the sale consideration agreed to be paid on the instruments. This explanation offered by the assessee was found to be factually incorrect and rejected and in the background of the said facts, the Honble Supreme Court observes that the Assessing Officer was justified in treating the value adopted by the stamp valuation authority as the deemed sale consideration, received/accruing as a result of transfer.

On going through the facts of the case on hand, we find that no such observation was made by the Assessing Officer. The assessee's consistent case was that the sale consideration agreed to be paid to him by the purchaser was Rs. 19 crores and Rs.6 crores was received as advance on the date of entering into the Agreement for Sale. However, the Assessing Officer disbelieved the same and applied the guideline value at Rs. 27 crores on the date when the Sale Deed was executed and registered. Therefore, in our considered view, the decision in Ambattur Clothing Co. Ltd. (supra) cannot be applied with the facts and circumstances of the case on hand.

Mr. T. Ravikumar, learned counsel is right in a submission that the observations made by the Tribunal qua the decision of the Honble Supreme Court in Vatika Township (supra) is incorrect. In fact we find that the Tribunal did not assign any reasons as to why the decision in Vatika Township do not apply to the facts of the case. In fact the decision in Vatika Town Ship should be referred for the purpose as to when a Statute can be treated to be clarificatory and when not?. The legal principle laid down therein ought to have been taken note of by the Tribunal. Therefore, the Tribunal may not be fully right in stating that the judgment in Vatika Township (supra) will not be applicable to the facts as the judgment needs to be looked into to consider the legal principle of retrospectivity, retro activity or prospectivity. In any event, the ultimate conclusion arrived at by the Tribunal confirming the above order passed by the CIT(A) cannot be found faulted with.

For all the above reasons, the appeal filed by the Revenue is dismissed. The Substantial Questions of Law raised in these appeals are answered against the Revenue and in favour of the assessee. No costs.