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| DATE: | September 16, 2013 (Date of publication) |
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| Click here to download the judgement (Chandra_50C.pdf) |
S. 50-C: Extent to which reliance can be placed by AO on stamp duty valuation explained
The assessee sold property for Rs. 25 lakhs. The AO held that as the property was valued by the stamp valuation officer at Rs. 78.48 lakhs and as the purchaser had paid stamp duty on that basis, the capital gain had to be worked out on that basis applying s. 50C(2). The assessee claimed that the property was tenanted and produced valuation reports to justify the sale consideration. On appeal by the assessee the CIT(A) held that the AO ought to have referred the matter to the DVO and directed him to adopt the value arrived at by an approved valuer. This was approved by the Tribunal. On appeal by the department to the High Court, HELD:
(i) S. 50-C is a rule of evidence in assessing the valuation of property for calculating capital gains and is rebuttable. It is well known that an immovable property may have various attributes, charges, encumbrances, limitations and conditions. The Stamp Valuation Authority does not take into consideration the attributes of the property for determining the fair market value and determines the value in accordance with the circle rates fixed by the Collector. The object of valuation by the Stamp Valuation Authority is to secure revenue on such sale and not to determine the true, correct and fair market value for which it may be purchased by a willing purchaser subject to and taking into consideration its situation, condition and other attributes such as it occupation by tenant, any charge or legal encumbrances;
(ii) If the assessee raises an objection that the value assessed by the stamp valuation authority u/s 50-C (1) exceeds the fair market value of the property on the date of transfer, the AO has to apply his mind on the validity of the objection and may either accept the valuation of the property on the basis of the report of the approved valuer filed by the assessee or invite refer the valuation of the capital asset to the DVO in accordance with s. 55-A. In all these events, the AO has to record valid reasons, which are justifiable in law. He is not supposed to adopt an evasive approach of applying the deeming provision without deciding the objection or referring the matter to the DVO u/s 55-A as a matter of course without considering the report of the approved valuer submitted by the assessee.
The observations of the court summed up in inter alia paras (i) and (ii) above, require be closely and mindfully read and understood. For an insightful grasp thereof, refer the observations in cited case law, -ref. Para. 9 of the judgment, albeit those are cases decided before the subject section 50C came to be enacted. Yet, in one’s view, those are every relelevance; if so, must hold good even post section 50 C, and ought not to be glossed over but need to be kept in sharp focus.
Often, one has come across cases in which the relevance and applicability of the said section to house property of a distinct kind, known as , – flats or apartments , that is, co-owned, as opposed to property exclusively owned by individual (s), has been gone into. In such cases, going by memory, both the taxpayers, so also the tax authorities do not seem to have raised and consciously considered certain crucial and clinching attendant facets/realities of life.
To set out briefly: The transaction for purchase of a flat or apartment, particularly while under construction but before its completion, the first purchase, invariably, has its initiation by the parties by entering into an ‘agreement TO sell’. Further, that is done at a very premature stage, -in common parlance known as ‘prelaunch booking’ or soon thereafter. It is at that point in time that the price/consideration to be paid/received is agreed upon once for all, subject to / pending a host of legal and other formalities , including the final and essential formality of completion of the construction and sale/conveyance to the purchaser (s). Experience shows that, such completion and sale/conveyance becomes a reality not until a few years thereafter, mostly but roughly not earlier than 3 to 5 years.
Presently, section 50 C, for all practical purposes, is taken to come into play for assessing capital gains arising on transfer/sale in the hands of its owner/possessor, holding it as a capital asset.
Now, a couple of crucial points of poser, though mutually contradicting but inter-related, need to be raised for serious deliberation in concerned circles, -to the end of reaching a rightful and sane conclusion, – not barring by the Revenue:
>Why, the provision can be rightly applied to a case of transfer, such as the one for which the price/consideration is agreed upon, as evidenced by proper documentation i.e. agreement to sell say, years before, but the actual registration of the sale / conveyance deed fructifies/takes place, for any genuine reason(s) beyond the control of either party, at a much later point in time?
> Why the underlying philosophy of the rules as embodied in the provision, be not extended / made applicable to ‘business income’ as well, with such modifications, as considered and decided to be appropriate/warranted ; instead of confining to the taxing of capital gains?
That is,- why by the same token of logic (or otherwise), such a “deeming” as enshrined in the provision is not to be extended also to transfer/sale of a property by one, such as a builder, holding and selling as stock-in-trade, hence assessable under the head of “business income?
The latter poser may have to be ideally examined, primarily keeping in view that, if any such measure as implied/suggested were to be resorted to, that might go a long way and help in dissuading the builder to desist from indulging in, be an effecdtive deterrent against, undue delays in completion of construction and conveyance within the agreed time frame.
The foregoing well-meaning feedback, while being based on individual sporadic thoughts, is solely intended to serve the purpose of social and other activists cum law experts to explore, if mind to do so.
(<left unedited)
An Add-on:
Section 50C is a part and parcel of the scheme of the provisions governing taxation of income chargeable under the head of capital gains. Going by one’s honest guess, nay perceptive view, the legislative intention is to bring within the ambit of the deeming provision, all kinds of property; but not excluding that special kind commonly known as ‘flat’ or ‘apartment’ ,- with special and peculiar characteristics of its own, and hence governed by suitably structured / tailored States’ laws (not left to be governed by the age-old TP Act.
The point that arises for consideration is whether the said section, with its present wording, is adequate and foolproof enough so as to perpetuate and successfully accomplish that intention,; that is, with no scope left for any lawful quarrel. To be precise, the point of grave doubt is pivoted on the wording, – “transfer by an assessee of a CAPITAL ASSET, BEING LAND OR BUILDING OR BOTH” (bold font supplied)?
No doubt, if disputed and litigated, and eventually taken to court, both the Revenue and taxpayer would try and contest, by relying on those numerous but mutually contradicting ‘rules of interpretation’, to support the respective stance. That means an assured ding dong battle (of wits) for years. In the event the matter is taken to the North, but the final verdict happens to be adverse to the Revenue, then as has always been the case, the government may think of, with no other option left at that late stage, and resort to the unsavory course of amending the law retrospectively.
Instead, if were to be guided by common sense, and based on sane and prudent thinking, the better course of action would be to amend the related /connected provisions, in order to, if so convinced and considered necessary, plug in all such correctives as appropriate to get rid of the obvious loopholes/lacunae.
In this context, according to the renowned legal luminary, an outstanding lawyer himself, any day, the intelligent preference must be to shun court litigation:
QUOTE
“There is the lighter side to the law- mainly fed by the ignorance and foibles of men. There are few places where the amusing and exasperating sides of human nature can be watched so closely and so continually in a court of law. There is your opponent, who, though vanquished, can argue still. There is your client whose cupidity is sometimes matched only by his illiteracy.”
UNQUOTE
< N A Palkhivala’s speech over All India Radio- Source: “Professionally speaking “(year 1968), Book – WE, THE PEOPLE).
Rider >
Key Note :
For a detailed discussion/ critical analysis of yet another similar instance of enactment, riddled with scope for genuine controversies , ref. the newly introduced section 194IA, suggest to go through the write-ups published on the website of Taxguru , also elsewhere; as well as in the law journal , – 2013 KLJ PART -7 pg. 126 and …PART 8 pg. 153.
No comment , as yet, from anyone else; reason is nobody’s guess.
Be that as has been the case even ever before, on my part, would draw the attention of the interested readers, if any, to a published article (since come to my notice) in the CA Journal Issue , September 2013 , pg 461, discussing the implications of section 43 C lately introduced with prospective effect from 1st April 2014.
Incidentally, while acknowledging with thanks, the usefulness of prompt report of such decided cases on this website, it should, none can disagree, serve a greater and more useful common purpose, should the professionals in active practice do not mind but care to spare some time for interaction with others. On as to why interaction, via such mutual feedback is ideally wanted/expected, for serving the common benefit and good, clues are conveyed through some of the facets thrown up and focused on in the published article cited in the preceding post herein- (2013 KLJ PART -7 , page 126…, at pg. 134,135, 136.