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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI ABRAHAM P. GEORGE
O R D E R Per Asha Vijayaraghavan, Judicial Member
This appeal by the assessee is against the order dated 24.06.2014 of the CIT(Appeals)-I, Bangalore relating to assessment year 2010-11.
The assessee is an individual deriving income from salary, house property and other sources. For the A.Y. 2010-11, the assessee filed its return of income on 11.5.2001 declaring total income of Rs.11,28,330. The return was processed u/s. 143(1) and the case was selected for scrutiny by issue of notice u/s. 143(2) of the Act.
The Assessing Officer observed that during the assessment year under consideration, the assessee had sold immovable property, however, the assessee has shown long term capital loss of Rs.6,96,960 arising on transfer of such sale. The AO computed long term capital gains of Rs.41,13,333 after analyzing the documents/papers relating to transfer of the aforesaid property,
4. Aggrieved, the assessee filed appeal before the CIT(Appeals) and in the statement of facts submitted as follows:-
“2.1 It was explained to the learned A.O., that the aforesaid property was purchased by the appellant along with one Dr. KM Veerappa Reddy by entering into an agreement of purchase on 5th February, 2005 for a total consideration of Rs. 2,09,08,800/-. The appellant’s one half share in the aforesaid consideration in terms of the agreement dated 5th February, 2005 worked out to Rs. 1,04,54,400/ -, which has since been discharged by the appellant and reflected in his statement of affairs right from the year ended 31/03/2005. Thereafter, the appellant and the said Sri K.M Veerappa Reedy got the said property registered under the registered sale deed dated 24/02/2005 in which the sale consideration was shown at Rs. 5,00,000/- for the purposes of registration. 2.2 Coming to the sale of the property during the year under consideration, it was explained to the learned A.O. that the appellant had similarly entered into a sale agreement dated 24th June, 2009 under which, the purchaser of the property Smt. Vishalakshi, had agreed to pay valuable sale consideration of Rs.2,61,36,000/-. The consideration payable under the agreement to sell dated 24th June, 2009 to the appellant and Shri KM Veerappa Reddy has also been discharged by the said purchaser.
Once again, for purposes of registration of the sale deed, a sum of Rs.59,24,000/- was shown as the consideration for stamp duty purposes. However, at the time of registration, the Sub-Registrar fixed the guideline value of the property at Rs. 88,85,000/-, on which the stamp duty was paid by the Purchaser. 2.3 In light of the above factual position, the appellant explained that he had computed the capital gains on the sale of the above property during the year under appeal by adopting the following figures: [a] Sale Consideration being one-half of the amount accruing to the appellant under the agreement to sell dated 24th June, 2009 which works out to a sum of Rs. 1,30,68,000/-. [b] Cost of acquisition being one-half of the amounts paid for the purchase of the property under the agreement to sell dated 5th February, 2005, which works out to Rs. 1,04,54,400/-. [c] Indexation of the cost of acquisition was claimed. 2.4 While considering the above working of the capital gains, the learned AO embarked on an in-depth analysis of the provisions of the Income tax Act, 1961 particularly, the provisions of section 2[47] of the Act. He thereafter referred to the provisions of the Transfer of Property Act and the Registration Act and has discussed the need for registration of the sale deed and the advantages thereof etc. He finally concluded that any transfer of an immovable property could be legally and lawfully transferred/conveyed only under a registered deed of conveyance. He held that the transactions in the nature of agreement to sell do not convey the title and does not amount to transfer under the Act. In light of the aforesaid view taken, the learned AO held that the consideration as mentioned in the agreement to sell dated 05.02.2005 as well as the agreement to sell dated 24.06.2009 was liable to be ignored for the purposes of computing the capital gains under the Act. 2.5 After casting away both the agreements mentioned above, the learned A.O. did not accept the computation of capital gains as claimed by the appellant. He held that the sale consideration of Rs.1,30,68,000/- shown by the appellant in terms of the agreement to sell dated 24.06.2009 cannot be accepted. He held that the consideration to be adopted for computation of capital gains was Rs.59,24,000/- as per the registered sale deed. Thereupon, he invoked the provisions of section 50C of the Act and held that the sale consideration required to be adopted was Rs.88,85,000/ - as there was no objection to the adoption of the same for payment of stamp duty purposes. In other words, the learned A.O. reduced the sale consideration shown by the appellant from Rs.1,30,68,000 to a sum of Rs.44,42,500/ - [one- half share of Rs. 88,85,000/-]. 2.6 Similarly, with regard to the cost of acquisition, the learned A.O. held that the amounts paid in terms of the sale agreement dated 05.02.2005 cannot be accepted. He held that the consideration shown in the registered sale deed dated 24th February, 2005 of Rs.5,00,000/- alone requires to be adopted. Hence, he took the consideration at Rs.2,50,000/ - [one-half of Rs. 5,00,000/-] and proceeded to indexed the same. Infact, the learned A.O. did not even consider the stamp duty and registration charges paid by the appellant under the Sale Deed dated 24th February, 2005. In this manner, the learned AO, computed the long term capital gains of Rs. 41,13,333/ - and made an addition to the returned income in the order passed u/s 143[3] of the Act dated 22/03/2013 as against the loss of Rs. 6,96,960/ - claimed by the appellant.”
Aggrieved by the order of assessment so passed, the assessee filed appeal before the CIT(Appeals).
It was firstly submitted before the CIT(A) that the AO is not just justified in computing the long term capital gains of Rs. 41,13,333/- as against the loss of Rs. 6,96,970/ - claimed by the assessee as the computation of capital gains is regulated under the provisions of section 48 of the Act and the same requires that, the full value of sale consideration accruing of the transfer of the capital asset to be adopted. Thereafter, the expenditure incurred wholly and exclusively in connection with the transfer is allowed as a deduction along with the cost of acquisition of the property and any costs of improvement. Further, in case of a long term capital asset, benefit of indexation of the cost of acquisition as well as cost of improvement is also available. This is in essence, the computational mechanism provided u/s. 48 of the Act.
The assessee further submitted that the AO has referred to the provisions of section 2[47] of the Act and the provisions of the Transfer of Property Act and Registration Act to arrive at the conclusion that a valid transfer of title can only be done thought a registered deed of conveyance. However, the question that arises for consideration is not whether there is a transfer of capital asset for the purposes of the Act. There is no dispute on the question of transfer either with regard to the acquisition of the property by the appellant or with regard to the sale of the property by the appellant. Thus, the transfer is admitted.
The argument of the ld. AR before the CIT(Appeals) was as follows:-
“4.2 The real question to be addressed is with regard to the amounts to be adopted for purpose of computing the capital gains u/s. 48 of the Act. Here, the provision of section 2[47] of the Act has no role to play. It does not require or impinge on the amounts to be adopted as cost or consideration for computing the capital gains u/s. 48 of the Act. In fact, there is no provision under the Act which states that the sale consideration has to be taken from the registered deed of conveyance. There is also no provision under the Act that specifies that the cost of acquisition has to be worked out on the basis of the registered sale deed executed in favour of the appellant. The term “Full Value of consideration” is not defined under the Act. However, the tern’, “cost of acquisition” is defined u/s. 55[2] of the Act, but, this definition is restricted to certain situations and assets, which is not relevant in the instant case. 4.3 Thus, the aforesaid terms have to be understood having regard to its plain meaning. There cannot be two views on the plain meaning of the term ‘full value of consideration accruing to the appellant” would mean the entire amount due to the appellant on the sale of the property. There is nothing in section 48 of the Act, which states that the same has to be ascertained from the examination of the registered deed of conveyance. Similarly, even with regard to the cost of acquisition, there is nothing in the provisions of section 48 of the Act, to infer that, the same must be adopted from the registered sale deed in favour of the appellant. If that were to be the intention, then there cannot be any allowance for cost of improvement, which may admit of any kind of expenditure, including in certain cases, the expenditure on perfecting of title of the vendor, which may not form part of the registered deed of conveyance. Hence, the view taken by the learned A.O. is totally misconceived and opposed to the statutory provisions of the Act and therefore, the computation of capital gains as worked out by the learned A.O. requires to be vacated and the loss reported by the appellant deserves to be accepted. It is prayed accordingly.”
The CIT(Appeals) culled out the facts of the case at para 3.1 of his order as under:-
“3.1 (i) There was an agreement for sale dated 05.02.2005 between Shri M. Thimma Reddy (the seller) and Shri Bhavadeep Reddy (the appellant) and Shri (Dr.) K.M. Verappa Reddy for sale of aforesaid property for a consideration of Rs. 1,600 per sq. ft. totaling to Rs. 2,09,08,800 and the appellant’s share would be Rs. 1,04,54,400/-. (ii) Subsequently vide deed of Absolute sale dated 24.02.2005 between Shri M. Thimma Reddy and Shri Bavadeep Reddy the - appellant and Shri K.M. Verappa
Reddy for transfer of aforesaid property for a consideration of Rs. 5,00,000/- only. (iii) The appellant and Shri (Dr) K.M. Verappa Reddy entered into an agreement for sale dated 24.06.2009 with Smt. S. Vishalakshmi to the said property for a consideration of Rs. 2,61,36,000. (iv) Subsequently, vide deed for absolute sale dated 12.08.2009 transferred to the property with a consideration of Rs. 59,24,000 and value as per stamp duty purpose Rs. 88,85,000/-.”
The CIT(Appeals) observed that the AO while completing the assessment computed the long term capital gains of Rs. 41,13,333, based on the deed of absolute sale dated 12.08.2009 wherein fair market value for the stamp duty purpose was adopted at Rs. 88,85,000 as under:-
Date of purchase 07.02.2005 Purchase cost Rs.5,00,000 Date of Sale 12.08.2009 Sale Consideration (FMV) Rs.88,85,000 Appellant’s share of sale consideration Rs.44,42,500 Indexed cost of acquisition 2,50,000X632/480 Rs.3,29,167 Long Term Capital Gains (44,42,500 – 3,29,167) 41,13,333
Before the CIT(Appeals), the assessee submitted that – (a) Sale consideration being one-half of the amount to the appellant under the agreement to sell dated 24.06.2009 which worked out to a sum of Rs. 1,30,68,000. (b) Cost of acquisition being one-half of the amount paid for the purchase of the property under the agreement to sell dated 05.02.2005 which worked to Rs. 1,04,54,400. (c) Indexation of the cost of acquisition was claimed.
The CIT(Appeals) observed that the assessee has furnished a confirmation from Shri. Thimma Reddy, confirming that, he had received a sum of Rs. 1,04,54,400 in terms of the Agreement to sell dated 05.02.2005. However as per absolute sale deed dated 24.02.2005 sale consideration was Rs. 5,00,000. This fact also finds strength that stamp duty was paid only of Rs. 45,200 and registration and other charges of Rs. 5,685. Similarly, while making sale vide deed absolute sale on 12.08.2009 sale consideration was shown at Rs. 59,24,000 on which a sum of Rs. 5,97,080 and Rs. 89,150 was paid towards stamp duty and registration charges respectively. The CIT(A) observed that AO has adopted F.M.V. of Rs. 88,85,000 by invoking of provision of section 50C of the Act. Shri Thimma Reddy (the seller) gave confirmation that he had received consideration Rs. 2,09,08,800 and assessee’s share would be Rs. 1,04,54,400. However, the CIT(A) was of the view that there was no other information and also the CIT(A) observed as to whether he had offered income as capital gains. In the absence of such information, the CIT(A) concluded that confirmation is not reliable and not acceptable.
The CIT(A) was of the view that as per Purchase Deed dated 24.02.2005, computation of long term capital gains was proper and therefore he confirmed the order of the AO, however, with minor modification that cost of acquisition has to be increased by Rs.50,885 being stamp duty & registration charges and indexed cost has to be deducted from fair market value of Rs.88,85,000. The CIT(Appeals) thus partly allowed the assessee’s appeal on this issue.
14. Aggrieved, the assessee is in appeal before raising the following grounds of appeal:-
“1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A] is not justified in upholding that the computation of long term capital gains by adopting a sum of Rs. 88,85,000/- as the full value of consideration as per section 50C of the Act ignoring the fact that the actual sale consideration received by the appellant was Rs.1,30,68,000/- as per the sale agreement entered into by the appellant, which was also offered by the appellant under the facts and in the circumstances of the appellant’s case.
3. The learned CIT[A] is not justified in holding that the cost of acquisition of the property sold by the appellant was Rs. 5,50,885/- relying only on the registered sale deed for ascertaining the cost of acquisition instead of adopting the sum of Rs. 1,04,54,400/- paid by the appellant as per the sale agreement, which is also confirmed by the vendor of the property under the facts and in the circumstance of the appellant’s case.
Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies himself liable to be charged to interest u/s.234-A, 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant’s case and the levy deserves to be cancelled.
5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant
may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
The facts of the case have to be clearly understood to arrive at the conclusion. The facts of the case are that the property situated at Sy.No.38/282 of Ibbalur Village, Begur Hobli, Bangalore South Taluk was purchased by the assessee along with one Dr. K.M. Veerappa Reddy by entering into agreement of purchase on 5.2.2005 for a total consideration of Rs.2,09,08,800. The assessee’s half share works out to Rs.1,04,54,400. which had been discharged by the assessee and reflected in the statement of affairs for the year ended 31.3.2005.
16. Thereafter the assessee and his co-owner Dr. K.M. Veerappa Reddy got the said property registered under Registered Sale Deed dated 24.2.2005 in which sale consideration was shown at Rs.5,00,000 for the purpose of registration.
17. As regards the sale of property during the A.Y. 2010-11, the sale agreement dated 24.6.2009 was entered into, under which the purchaser of the property, Smt. S. Vishalakshi, had agreed to pay sale consideration of Rs.2,61,36,000. Here also for the purpose of sale deed, a sum of Rs.59,24,000 was shown as consideration for stamp duty purposes. However, at the time of registration, the Sub-Registrar fixed the guideline value of the property at Rs.88,85,000 on which stamp duty was paid by the purchaser.
The assessee explained before the lower authorities that while computing capital gains on sale of the property during the year under appeal, the following figures are adopted:-
(a) Sale consideration being one-half of the amount accruing to the appellant under the agreement to sell dated 24.06.2009 which worked out to a sum of Rs. 1,30,68,000. (b) Cost of acquisition being one-half of the amount paid for the purchase of the property under the agreement to sell dated 05.02.2005 which worked to Rs. 1,04,54,400. (c) Indexation of the cost of acquisition was claimed.
The AO referred to the provisions of the Transfer of Property Act and Registration Act and concluded that transfer of immovable property can be legally and lawfully transferred only under a registered deed of conveyance. He was of the view that as mentioned in the agreement to sell dated 5.2.2005 as well as agreement to dated 24.6.2009 has to be ignored for the purpose of computing capital gain under the Act. He therefore adopted a sum of Rs.59,00,029 as per registered sale deed for the purpose of computation of capital gains, thereupon he invoked provisions of section 50C of the Act and held that sale consideration required to be adopted was Rs.88,85,000 as there was no objection to the adoption of the same for payment of stamp duty charges.
Further, with regard to cost of acquisition, the AO held that the amounts paid in terms of sale agreement dated 5.2.2005 cannot be accepted.
The CIT(Appeals) confirmed the order of the AO on the computation of capital gains. However, the CIT(Appeals) was of the view that cost of acquisition has to be increased by Rs.58,885 for stamp duty and registration charges and indexed cost has to be deducted from fair market value of Rs.88,85,000. Thus, the assessee’s appeal was partly allowed.
Before us, the ld. counsel for the assessee reiterated the submissions made before the CIT(A) and relied upon the decision of the coordinate Bench of this Tribunal in the case of S. Tejraj Ranka v. ACIT in for the A.Y. 2007-08, order dated 26.08.2015.
The ld. DR, on the other hand, relied upon the order of the CIT(Appeals).and supported the contention of the AO that only registered sale deed can be treated as a legal and lawful transfer of immovable property.
We have heard both the parties. We are of the opinion that though the AO has discussed at length about the provisions of section 2(47) of the Act, the same is not relevant with respect to amounts to be adopted as cost of consideration for computing capital gains u/s. 48 of the Act. There is no provision under the Act that specifies that cost of acquisition has to be worked out on the basis of registered sale deed executed in favour of the assessee. The term “full value of consideration” is not defined under the Act. Therefore, the plain meaning of the term “full value of consideration accruing to the appellant” would mean the entire amount due to the assessee on the sale of property. There is no mention in section 48 of the Act which states that sale has to be ascertained from the examination of the registered deed of conveyance.
The ld. counsel for the assessee took us through Page 12 of the paperbook wherein clause 3 of the Agreement to Sell dated 5.2.2005 reads as follows:- “3. In part performance of this contract to sell the schedule property, the first party has delivered unto and put the second party in Khas possession of the said property, which the latter is entitled to hold posses and develop, pending execution and registration of the intended deed of sale.”
The ld. counsel for the assessee also pointed out to the payment details at page 17 of the paperbook as follows:-
Date of payment Cheque/DD No. Amount Rs. 31.01.2005 741091 975,000 05.02.2005 319263 550,000 24.02.2005 319291 500,000 08.04.2005 983470 500,000 18.04.2005 983471 500,000 17.06.2005 277811 1,000,000 24.06.2005 325017 1,500,000 07.10.2005 332395 2,000,000 03.02.2006 340399 2,500,000 20.05.2006 348951 429,400 10,454,400
The fact remains that the assessee has parted with the payment of Rs.1,04,54,400 and the possession of the property has been handed over to the assessee. Therefore, u/s. 2(47) transfer of the said property has taken place, which is an admitted fact and the only issue is with regard to, whether the amount paid by the assessee as per the sale agreement being the sum of Rs.1,04,54,400 would be the cost of acquisition and not the sum of Rs.5,50,885 as per the registered sale deed. Secondly, while computing long term capital gains by adopting the sum of Rs.88,85,000 as per section 50C of the Act, the CIT(A) has ignored the sale consideration as per the sale agreement entered into by the assessee for a sum of Rs.1,30,68,000.
In the case of S. Tejraj Ranka (supra), this Tribunal dealt with the issue of exemption u/s. 54F of the Act and held as follows:-
“13. The claim of the Assessee, in the present case, is that he has constructed a residential house and is therefore entitled to exemption u/s.54F of the Act. The term ‘residential house’ is not defined in the Act. Therefore the said expression should be understood in the normal sense of a house, which is habitable. There is no dispute that the Assessee in fact paid a sum of Rs.52,60,292 to the developer for acquiring a flat which was habitable with all amenities in place. The confirmation of the developer/builder is on record. In addition to the same, the Assessee also incurred stamp duty and registration charges of Rs.2,10,595. Thus the Assessee has invested a sum of Rs.54,70,887 in acquiring a residential house. The Assessee should therefore be allowed the deduction claimed u/s.54F of the Act, on a plain reading of the provisions of Sec.54F of the Act.
The Agreement dated 17.5.2007 is the first document between the developer and the Assessee for purchase of the property. This Agreement refers to only undivided share of land and flat measuring about 2025 Sq.ft. together with one covered car park for a consideration of Rs. 44,55,000 + registration charges of Rs.2,00,000 as per schedule E to this Agreement. Schedule E refers only to the cost of the built up area of 2025 sq.ft. at Rs.2,200 per sq.ft. Par-II of Schedule-E and Article IV of the Agreement gives a list of other charges to be paid by the Assessee.
15. The next document is the registered sale deed dated 25.6.2008 which is for a sum of Rs.22,05,000 which is towards undivided share of land and flat together with 2 covered car parks.
The third document is the letter dated 18.6.2008 by the developer which refers to a sum of Rs.52,60,292 as the total cost of the property paid by the Assessee. This letter refers to the basic cost of the property as Rs.22,05,000. 2 Car Parks have been valued at Rs.3,00,000. To this extent, there appears to be a contradiction between the registered sale deed and this letter of the builder. The other charges mentioned in this letter, in our view, cannot be regarded as immovable property to be included in the registered sale deed as value of property. These are all provided by the builder in his capacity as developer and building contractor for the Assessee. Therefore, in our view, there can be no adverse inference drawn against the Assessee.
The fact remains that the Assessee has parted with a sum of Rs.54,70,887 to acquire a “ residential house”, in the sense, a house which is habitable. Therefore as far as proceedings under the Act are concerned, the Assessee cannot be denied the benefit of deduction u/s.54F of the Act. The fact that there was undervaluation of the value of the property for the purpose of stamp duty, is an issue which is alien to the question of allowing deduction u/s.54F of the Act, when the evidence on record clearly shows investment in construction of “residential house” to the extent of Rs.54,70,887.
18. The AO and the CIT(A) have ignored the fact that the Assessee has in fact made investment to the extent of Rs.54,70,887 and therefore the deduction claimed u/s.54F of the Act ought to be allowed. The fact that there was discrepancy
between the amount set out in the registered document and the agreement with the builder has already been noticed by the State Registration Authorities and the Assessee is contesting those proceedings. Those proceedings will not have any bearing with regard to the claim of the Assessee for deduction u/s.54F of the Act, as the factum of investment in acquiring a residential house and payment of Rs.54,70,887 has been established and not disputed by the Revenue.
19. We are therefore of the view that the claim of the Assessee for deduction u/s.54F of the Act ought to be allowed as claimed by the Assessee. We hold and direct accordingly. The appeal of the Assessee is accordingly allowed.”
By applying the ratio of the decision of the coordinate Bench of this Tribunal in the case of S. Tejraj Ranka (supra) and drawing a parallel, we are of the opinion that there is a discrepancy between the amount set out in the registered document and the agreement to sell and also there has been application of section 50C of the Act. For computing capital gains u/s. 45, the profit should be computed on the basis of full value of consideration accruing to the assessee on transfer of capital asset and not merely on the amount mentioned in the conveyance deed. The actual consideration paid and received is not in dispute. Section 50C of the Act also postulates that full value of consideration would be the higher of the actual consideration received or the value adopted by the stamp authorities. Actual consideration paid or received for purchase of sale of immovable property should be taken into account and not the consideration mentioned in the conveyance deed alone. However, these proceedings will have no bearing with regard to the claim of deduction of assessee as the fact of payment has been established at the time of transfer, when the assessee entered into agreement of sale together with possession. Hence, the consideration shown in the agreement of sale has to be taken for the purpose of computing capital gains both for purchase and sale of the property and the department’s view that consideration shown in the registered sale deed should only be adopted is erroneous.
In the result, the assessee’s appeal is allowed.
Pronounced in the open court on this 28th day of October, 2015.