S.MURALIDHARAN,CHENGALPATTU vs. ITO INTERNATIONAL TAXATION 1(2), CHENNAI

This appeal by the assessee is arising out of the order passed by the Commissioner of Income Tax (Appeals)-16, Chennai in dated 31.01.2018. The assessment was framed by the Income Tax Officer, International Taxation 1(2), Chennai for the assessment year 2008-09 u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 29.03.2016.

The only issue argued before the Tribunal by the ld.counsel for the assessee is that the authorities below erred in applying the provisions of section 50C of the Act to the transaction of the assessee as it is amended w.e.f. 01.10.2009 by the Finance (No.2) Act, 2009, wherein in place of ‘or assessed’, “or assessable” is inserted.

Brief facts are that the assessee along with four other family members has sold immovable vacant land to the extent of 4.27 acres vide sale deed in Document No.8630/10 dated 20.09.2010 registered in the office of Sub-Registrar of Suramangalam. This sale deed is executed by one Shri Sreenivasan, Power of Attorney holder of the assessee conveying ownership in 900 sq.ft., of undivided interest in the land of 4.27 acres in Survey No.141/2B, Algapuram Pudur Village, Suramangalam Sub Registrar, Salem forming part of the land for which Shri M Sreenivasan acquired this property by way of agreement for sale dated 17.04.2006. The registered Power of Attorney was executed in favour of Shri Sreenivasan by assessee and other co-owners on 17.04.2007. The assessee has 1/5th share in the property at Rs.21.35 lakhs. The assessee sold this property vide agreement to sale dated 17.04.2006 and received advance of Rs.25 lakhs. According to AO, all the five co-owners sold this property for a total consideration of Rs.1,06,75,000/- and assessee’s - 3 - 1/5th share being Rs.21.35 lakhs. The AO obtained document from Stamp Valuation Authority fixing the rate at Rs.175/- per sq.ft., as on 13.02.2008, period which falls in assessment year 2008-09, when the first document registered by way of Power of Attorney through Sreenivasan on behalf of assessee. The assessee’s Power of Attorney has valued the property at the rate of Rs.125/- per sq.ft., as against Rs.175/- per sq.ft., fixed by Stamp Valuation Authority. Therefore, according to AO, the value of the property as per Stamp Valuation Authority works out to Rs.3,25,45,727/- and assessee’s share 1/5th being works out to Rs.65,09,145/-. Accordingly, the AO treated the differential amount of Rs.43,89,145/- as sale consideration also excluding the amount of Rs.21,35,000/- declared by assessee. Therefore, the AO treated the sale consideration on behalf of assessee at Rs.65,09,145/- and indexed the cost of acquisition at Rs.1,17,639/- and assessed the long term capital gains at Rs.63,91,506/-. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) also confirmed the action of the AO and upheld the assessment made by AO. Aggrieved, assessee is in appeal before the Tribunal.

The ld.counsel for the assessee before us stated that the property is not registered and sale deed was registered only on 20.09.2010, whereas property was sold by way of registered Power - 4 - Attorney dated 21.04.2007. The ld.counsel for the assessee stated that once the Power of Attorney transaction is recognized as sale transaction, the provision of section 50C as amended by the Finance (No.2) Act, 2009 w.e.f. 01.10.2009 inserting the word “or assessable” in section 50C of the Act is applicable from transactions entered into on or after 01.10.2009, whereas according to Revenue this Power of Attorney was entered on 21.04.2007 and hence, the transaction assessed on the basis of Power of Attorney, the application of provisions of section 50C of the Act for assessing by the stamp valuation authority will apply to the present case. The ld.counsel for the assessee relied on the decision of Hon’ble High Court of Madras for this proposition in the case of CIT vs. R. Sugantha Ravindran reported in [2013] 352 ITR 0488, wherein it is held that sale consideration received by assessee under an unregistered sale agreement coupled with Power of Attorney, capital gain is to be computed on the basis of sale consideration mentioned in the sale agreement and provisions of section 50C of the Act, cannot be invoked as the amendment in section 50C of the Act by the Finance (No.2) Act, 2009 w.e.f. 01.10.2009 is prospective, wherein the word “assessable” was inserted. Apart from this, the ld.counsel also relied on the CBDT Circular No.5/2010 (F.no.142/13/2010-SO(TPL) dated 03.06.2010 issued by the Board wherein it is made clear that amendment made by the Finance - 5 - (No.2) Act, 2009 is only prospective in nature and cannot be applied retrospectively. The Hon’ble Madras High Court finally held in para 10 as under:- 10.Even otherwise, we are of the firm view that the insertion of words "or assessable" by amending Section 50C with effect from 01.10.2009 is neither a clarification nor an explanation to the already existing provision and it is only an inclusion of new class of transactions namely the transfers of properties without or before registration. Before introducing the said amendment, only the transfers of properties where the value adopted or assessed by the stamp valuation authority were subjected to Section 50C application. However after introduction of the words "or assessable" after the words "adopted or assessed", such transfers where the value assessable by the stamp valuation authority are also brought into the ambit of Section 50C. Thus such introduction of new set of class of transfer would certainly have the prospective application only and not otherwise. Hence the assessee's transfer admittedly made earlier to such amendment cannot be brought under Section 50C.

On the other hand, the ld. Senior DR could not counter the arguments made by ld.counsel for the assessee.

We have heard rival contentions and gone through facts and circumstances of the case. Admitted facts are that the transaction entered on the basis of Power of Attorney is dated 21.04.2007. This fact is not contradicted by ld. Senior DR. The assessee has also produced copy of Power of Attorney, copy of sale deed and agreement by virtue of which advance was received. Admittedly, the capital gain was computed by Revenue during assessment year 2008-09 on the basis of Power of Attorney dated 21.04.2007 and the - 6 - Section 50C of the Act, wherein the word “or assessable” was inserted by the Finance (No.2) Act, 2009, w.e.f. 01.10.2009. Therefore, the provisions of section 50C of the Act will not apply to the present transaction. Hence, we delete the excess capital gains assessed on the alleged sale consideration assessed on the basis of stamp duty valuation. The long term capital gains will be assessed only on sale consideration declared in the agreement to sale coupled with Power of Attorney dated 21.04.2007. In term of the above, we direct the AO to re-compute the long term capital gains accordingly.

In the result, the appeal filed by the assessee is allowed.