Dharamshibhai Sonani vs. DCIT (ITAT Ahmedabad)

The assessee, along with a co-owner, sold land at Village Behstan, Surat, on 24.04.2007 at stated consideration of Rs.45,00,000/-. On that day, according to the stamp duty valuation authority, this land was valued at Rs.76,21,800/-. The Assessing Officer sought to add Rs.15,60,900/- to the value of sale consideration, for the purpose of computing capital gains, received by the assessee. The assessee explained that though a registered “agreement to sell” was executed on 29.06.2005, the sale deed of land could finally be executed only on 24.04.2007 since the land was agricultural land, since the buyer was a private limited company, which could have purchased only non-agricultural land, and since land was required to be converted into non-agricultural land before execution of sale deed. The stamp duty valuation as on 24.04.2007 was therefore, according to the assessee, not relevant for ascertaining whether the sale consideration was suppressed which is what is relevant for the purpose of section 50C. This explanation was, however, rejected. What, according to the Assessing Officer, was relevant was the date on which sale deed is executed. The Assessing Officer proceeded to adopt sale consideration, under section 50C, at stamp duty valuation rate. Aggrieved, assessee carried the matter in appeal before the learned CIT(A) but without any success. On further appeal to the Tribunal HELD allowing the appeal:

(i) 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 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.

(ii) The trouble 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 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.

(iii) 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 in fact 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.

(iv) The Proviso to Section 50C inserted by the Finance Act 2016, with effect from 1st April 2017, on the recommendation of the Income Tax Simplification Committee (Easwar Committee) recognizes the genuine and intended hardship in the cases in which the date of agreement to sell is prior to the date of sale and introduces welcome amendments to the statue to take the remedial measures. However, this brings no relief to the assessee 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.

(v) 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. (CIT Vs Ansal Landmark Township Pvt Ltd [(2015) 377 ITR 635 (Del)], Rajeev Kumar Agarwal Vs ACIT (2014) 149 ITD 363 (Agra), CIT Vs Alom Extrusion Ltd [(2009) 319 ITR 306 SC)], Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364: (1997) 224 ITR 677 (SC)

(vi) 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. 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, 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.

(vii) The amendment in Section 50C was brought in to provide relief to the assessee in a situation in which the stamp duty valuation of a property has risen between the date of execution of agreement to sell and execution of sale deed, as is the norm rather than exception, but the real estate market is now traversing through a difficult phase and there can be situations in which there is a fall in the stamp duty valuation rates with the passage of time. Such a situation has actually arisen in many places in the country, such as in Gurgaon, New Delhi, and even in Dehradun (Uttarakhand) and some other places. It is therefore possible that, at first sight, first proviso to Section 50C may seem to work to the disadvantage of the assessee in certain situation in the event of the word ‘may’ being construed as mandatory in application, but then one cannot be oblivious to the fact that this proviso states that “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 (emphasis supplied)” making it clearly optional to the assessee, and that, in any event, what has been brought by the lawmakers as a measure of relief to the taxpayers cannot be construed as resulting in a higher tax burden on the taxpayers. Of course, assuming that my understanding of this statutory provision is in harmony with the legislative intention, insertion of words “at the option of the assessee” between “stamp valuation authority on the date of agreement may” and “be taken for the purposes of computing full value of consideration for such transfer”, in first proviso to Section 50C(1), could have made the legal provision even more unambiguous.