MR.SANTHOSH GOKUL REDDY,BANGALORE vs. THE INCOME TAX OFFICER WARD-4(3)(4), BANGALORE

ITA No. 2735/Bang/2018 Page 5 of 15 the adoption of guideline value of the property on the date of transfer; but this is only permissible where the amount of consideration on a part thereof has been received by way of account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account. It is submitted that in the case on hand, neither is the sale agreement dated 03.08.2013 registered nor has the consideration of Rs.2,00,000/- said to be received in cash prior to the upward revision of the guideline value been received through banking channels as required by the proviso to section 50C of the Act. It is submitted that in this factual and legal matrix of the case, the authorities below have correctly held that the assessee has failed to establish the genuineness of sale agreement dated 03.08.2013 and consequently correctly computed the assessee’s STCG on sale of the said property by adopting the full value of consideration at the guideline value / stamp authority value prevailing when the transfer was registered vide sale deed dated 13.10.2014. In view of the above, it is prayed that the orders of the authorities below on the re-computation of the assessee’s share in STCG on sale of the aforesaid property be upheld. Reliance was placed on the decision of the Ahmedabad Bench of ITAT in the case of Dharamshibhai Sonani Vs. ACIT in 1237/Ahd/2013 dated 30.09.2016.

5.3.1 I have considered the rival submissions and carefully perused the material on record. The facts of the matter before us is that the assessee along with three others sold property No.30, situated in Sy. No. 56 at Kasavanahalli Village, Varthur Hobli, Bangalore East Taluk for a consideration of Rs.1.5 Crore. The assessee’s 1/4th share therein was Rs.37,50,000/- and the STCG thereon was worked out at Rs.2,79,095/-. In the course of assessment proceedings, the AO observed that the guidance value/stamp duty value of the aforesaid property as on the date of transfer thereof vide registered sale deed dated 13.10.2014 was Rs.2,03,00,000/- and proposed to invoke the provisions of section 50C of the Act. The assessee submitted that in respect of this property, it had entered into a sale agreement on 03.08.2013 whereby part consideration of Rs.2,00,000/- had been received in cash and since the

ITA No. 2735/Bang/2018 Page 6 of 15 guideline value of the said property was Rs.1,26,76,500/-(@ 1500 for 8051 sq.ft.) was lower than the sale consideration of Rs.1.5 Crore as per sale agreement dated 03.08.2013, the assessee has correctly worked out the STCG by adopting the full value of consideration at Rs.1.5 Crore. The AO was of the view that the assessee’s case was hit by the provisions of section 50C of the Act and doubted the genuineness of the sale agreement dated 03.08.2013 as the consideration was received in cash and sale agreement was not registered. He rejected the assessee’s claims and proceeded to invoke the provisions of section 50C of the Act and recomputed the assessee’s share of STCG by adopting the full value of consideration at the guidance value of Rs.2,03,00,000/- prevailing as on the date of transfer of the aforesaid property vide sale deed dated 13.10.2014.

5.3.2 On appeal, the CIT(A) upheld the AO’s view in adopting the guideline value/stamp duty value, prevailing as on the date of transfer of the said property vide registered deed dated 13.10.2014, as the full value of consideration for computing the capital gains thereon. In coming to this view, apart from considering the provisions of section 50C of the Act and the judicial pronouncements of the Ahmedabad bench of ITAT in the case of Dharamshibhai Sonani (ITA No.1237/Ahd/2013), the CIT(A) also observed and concurred with the view of the AO that the genuineness of the sale agreement dated 03.08.2013 was neither established nor was the consideration of Rs.2 lakhs received therein by banking channels as laid out in section 50C of the Act but was claimed to have been received by cash. In this context, I have perused the decision of the ITAT Ahmedabad Bench in the case of Dharamshibhai Sonani (supra), wherein the facts are on a similar issue of what value is to be adopted as consideration for computation of capital gains: Whether that guideline value prevailing on the date of sale agreement or on the date of transfer by way of Registered sale deed; depending on the facts of each case. In that case, the assessee had claimed to have registered an agreement to sell on 29.06.2005 and partial sale consideration was received through banking channels. In the case on hand, however,

ITA No. 2735/Bang/2018 Page 7 of 15 the facts are different. Not only sale agreement dated 03.08.2013 has not been registered but also the consideration of Rs.2,00,000/- stated to be received, is in cash and not through banking channels; thereby disproving the assessee’s claim that the sale agreement dated 03.08.2013 is genuine.

5.3.3 In the case of Dharamshibhai Sonani (supra), the Ahmedabad Bench of ITAT has, inter alia, considered the issue before us in detail, the provisions of section 50C of the Act; the retrospective applicability of the proviso to section 50C(1) of the Act, the memorandum explaining the provisions of Finance Bill, 2016 in this regard and the facts of that case and at paras 3 to 9 thereof held as under:

“[3] I have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position. [4] The fundamental purpose of introducing section 50C was to counter suppression of sale consideration on sale of immovable properties, and this section was introduced in the light of widespread belief that sale transactions of land and building are often undervalued resulting in leakage of legitimate tax revenues. This Section provides for a presumption, a rebuttable presumption though-something with which I am not concerned for the time being, that the value, for the purpose of computing stamp duty, adopted by the stamp duty valuation authority represents fair indication of the market price of the property sold. Section 50C(1) provides that, "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 or assessable 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 or assessable 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". The trouble, however, is that while the sale consideration is fixed at the point of time when agreement to sell is entered into, there is sometimes considerable gap in parties agreeing to a transaction (i.e. agreement to sell) and the actual execution of the transaction (i.e. sale deed), and yet, it is the value as on the date of execution of sale deed which is recognized by Section

ITA No. 2735/Bang/2018 Page 8 of 15 50C for the purpose of computing the capital gain because that is what is relevant for the purpose of computing stamp duty for registration of sale deed. The very comparison between the value as per sale deed and the value as per stamp duty valuation, accordingly, ceases to be devoid of a rational basis because these two values represent the values at two different points of time. In a situation in which there is significant difference between the point of time when agreement to sell is executed and when the sale deed is executed, therefore, should ideally be between the sale consideration as per registered sale deed, which is fixed by way of the agreement to sell, vis-à-vis the stamp duty valuation as at the point of time when agreement to sell, whereby sale consideration was infact fixed, because, if at all any suppression of sale consideration should be assumed, it should be on the basis of stamp duty valuation as at the point of time when the sale consideration was fixed. Income Tax Simplification Committee set up in 2015, headed by Justice R V Easwar- a former judge of Delhi High Court and one of the most illustrious former Presidents of this Tribunal, took note of this incongruity and, in its very first report (http://taxsimplification.in/REPORT.pdf), observed as follows: 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 I.T.A. No.1237/Ahd/2013 Assessment Year: 2008-09 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 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.

ITA No. 2735/Bang/2018 Page 9 of 15 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. [5] True to the work ethos of the current Government, it was the first time that within four months of the Tax Simplification Committee being notified, not only the first report of the Committee was submitted, but the Government also walked the talk by ensuring that the several statutory amendments, based on recommendations of this report, were introduced in the Parliament. So far as Section 50 C is concerned, the Finance Act 2016, with effect from 1st April 2017, inserted the following provisos to Section 50C: Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the 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." [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

ITA No. 2735/Bang/2018 Page 10 of 15 of consideration for the purposes of computation of capital gains. The Income Tax Simplification Committee (Easwar Committee) has I.T.A. No.1237/Ahd/2013 Assessment Year: 2008-09 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. 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. [7] While the Government has thus recognized the genuine and intended hardship in the cases in which the date of agreement to sell is prior to the date of sale, and introduced welcome amendments to the statue to take the remedial measures, this brings no relief to the assessee before me as the amendment is introduced only with prospective effect from 1st April 2017. There cannot be any dispute that this amendment in the scheme of Section 50C has been made to remove an incongruity, resulting in undue hardship to the assessee, as is evident from the observation in Easwar Committee report to the effect that "The (then prevailing) 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" recognizing the incongruity that the date agreement of sell has been ignored in the statute even though it was crucial as it was at this point of time that the sale consideration is finalized. The incongruity in the statute was glaring and undue hardship not in dispute. Once it is not in dispute that 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. In support of

ITA No. 2735/Bang/2018 Page 11 of 15 this proposition, I find support from Hon'ble Delhi High Court's judgment in the case of CIT Vs Ansal Landmark Township Pvt Ltd [(2015) 377 ITR 635 (Del)], wherein approving the reasoning adopted an order authored by me during my tenure at Agra bench [i..e Rajeev Kumar Agarwal Vs ACIT (2014) 149 ITD 363 (Agra)] which centred on the principle that when legislature is reasonable and compassionate enough to undo the undue hardship caused by the statute "such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically". In this case, it was specifically observed, and it was this observation which was reproduced with approval by Their Lordships, as follows: "Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non-deduction of tax at source by declining the deduction in respect of related payments, even when the I.T.A. No.1237/Ahd/2013 Assessment Year: 2008-09 corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004" [8] Their Lordships were pleased to hold that this reasoning and rationale of this decision "merits acceptance". The same principle, when applied in the present context, leads to the conclusion that the present amendment, being an amendment to remove an apparent incongruity which resulted in undue hardships to the taxpayers, should be treated as retrospective in effect. Quite clearly therefore, even when the statute does not specifically state so, such amendments, in the light of the detailed discussions above, can only be treated as retrospective and effective from the date related statutory provisions was introduced. Viewed thus, the proviso to Section 50 C should also be treated as curative in nature and with retrospective effect from 1st April 2003, i.e.

ITA No. 2735/Bang/2018 Page 12 of 15 the date effective from which Section 50C was introduced. While the Government must be complimented for the unparalleled swiftness with which the Easwar Committee recommendations, as accepted by the Government, were implemented, I, as a judicial officer, would think this was still one step short of what ought to have been done inasmuch as the amendment, in tune with the judge made law, ought to have been effective from the date on which the related legal provisions were introduced. As I say so, in addition to the reasoning given earlier in this order, I may also refer to the observations of Hon'ble Supreme Court, the case of CIT Vs Alom Extrusion Ltd [(2009) 319 ITR 306 SC)], to the following effect: "Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only w.e.f. 1st April, 2004, would become curative in nature, hence, it would apply retrospectively w.e.f. 1st April, 1988 (i.e. the date on which the related legal provision was introduced). Secondly, it may be noted that, in the case of Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364: (1997) 224 ITR 677 (SC), the scheme of s. 43B of the Act came to be examined. In that case, the question which arose for determination was, whether sales-tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales-tax law should be disallowed under s. 43B of the Act while computing the business income of the previous year? That was a case which related to asst. yr. 1984-85. The relevant accounting period ended on 30th June, 1983. The ITO disallowed the deduction claimed by the assessee which was on account of sales-tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under s. 43B which, as stated above, was inserted w.e.f. 1st April, 1984. It is also relevant to note that the first proviso which came into force w.e.f. 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Ltd. Etc. (supra). However, the assessee contended that even though the first proviso came to be inserted w.e.f. 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively from 1st April, 1984, when s. 43B stood inserted. This is how the question of retrospectivity arose in Allied Motors (P) Ltd. Etc. (supra). This Court, in Allied Motors (P) Ltd. Etc. (supra) held that when a proviso is inserted to remedy unintended 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.

ITA No. 2735/Bang/2018 Page 13 of 15 (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 I.T.A. No.1237/Ahd/2013 Assessment Year: 2008-09 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 April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003. [9] So far as the amendment to Section 50C being retrospective in effect is concerned, there is no doubt about the legal position. I hold the provisos to Section 50C being effective from 1st April 2003. This is precisely what the learned counsel has prayed for. In his detailed written submissions, he has made out of a strong case for the amendment to Section 50C being treated as retrospective and with effect from 1 st April 2003. The plea of the assessee is indeed well taken and deserves acceptance. What follows is this. The matter will now go back to the Assessing Officer. In case he finds that a registered

ITA No. 2735/Bang/2018 Page 14 of 15 agreement to sell, as claimed by the assessee, was actually executed on 29.6.2005 and the partial sale consideration was received through banking channels, the Assessing Officer, so far as computation of capital gains is concerned, will adopt stamp duty valuation, as on 29.6.2005, of the property sold as it existed at that point of time.” 5.3.4 I respectfully follow and draw support from the ratio of the decision of the ITAT Ahmedabad Bench of the case of Dharamshibhai Sonani (supra), the principles enshrined therein. Taking into consideration the legal proposition, the provisions of section 50C(1) of the Act and peculiar facts and circumstances of the case on hand, I am of the view that in the instant case, the genuineness of the sale agreement dated 03.08.2013 put forth by the assessee is not established; as its existence at that point of time i.e., on 03.08.2013, is not corroborated since neither is the said agreement registered nor the partial consideration of Rs. 2 lakhs said to be received at that point obtained through banking channels; but in cash. In this legal and factual matrix of the case, as discussed above, I uphold the orders of the authorities below in adopting the guideline value / stamp duty value prevailing on date of transfer of the said property vide registered sale deed dated 13.10.2014 i.e., at Rs.2,03,00,000/- to compute the capital gains on transfer thereof and the assessee’s share at 1/4th thereof at Rs.16,04,096/-. Consequently, grounds raised at Sl. Nos. 2, 2.1 and 2.2 are dismissed.

Order pronounced in the open court on this 15th day of February, 2019.

Sd/- Sd/- (N. V. VASUDEVAN) (JASON P BOAZ) Judicial Member Accountant Member Bangalore. Dated: 15th February, 2019. /NS/*

ITA No. 2735/Bang/2018 Page 15 of 15

Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order

Assistant Registrar, ITAT, Bangalore.