IN THE HIGH COURT OF JUDICATURE AT BOMBAY
\nORDINARY ORIGINAL CIVIL JURISDICTION
\nINCOME TAX APPEAL NO.981 OF 2016<\/p>\n
Jagdish C. Dhabalia
\nAn Individual residing at
\nGround Floor, Bhavsar Compound
\nM.G. Road, Borivali (W),
\nMumbai \u2013 400 066. …. Appellant
\nversus
\nThe Income Tax Officer, 25(2)(1)
\nHaving his office at
\nPratyakshakar Bhavan,
\nBandra Kurla Complex, Bandra (E),
\nMumbai \u2013 400 051. … Respondent
\nWITH
\nINCOME TAX APPEAL NO.983 OF 2016
\nMehul Jagdish Dhabalia
\nAn Individual residing at
\n501\/502 Alaknanda, BWing
\nTPS, III 51st Road Borivali (W)
\nMumbai \u2013 400 092. …. Appellant
\nversus
\nThe Income Tax Officer, 25(2)(2)
\nHaving his office at
\nPratyakshakar Bhavan,
\nBandra Kurla Complex, Bandra (E),
\nMumbai \u2013 400 051. … Respondent
\n\u2026….
\n\u2022 Mr.V.Joshi a\/w Mr.Nishith Gandhi, Ms.Namrata Kasa,e
\nMr.Mayur Patel & Ms.Urvi Patel i\/b. M.M. Patel & Co.,
\nAdvocate for Appellants.
\n\u2022 Mr.Arvind Pinto, Advocate for Respondent.<\/p>\n
CORAM : AKIL KURESHI &
\nSARANG V. KOTWAL, JJ.
\nDATE : 12th MARCH, 2019.
\nORAL JUDGMENT :
\n(PER : AKIL KURESHI, J.)
\n1. These Appeals arise out of common background. They
\nhave been heard together and would be dispose of by this
\ncommon order. We may record facts from Income Tax Appeal
\nNo.983\/16. The Appeal is filed by individual assessee to
\nchallenge the Judgment of Income Tax Appellate Tribunal (‘Tribunal’
\nfor short). Following question is presented for our consideration;
\n\u201cWhether, in the facts and circumstances of the
\ncase, and in law, the Tribunal was right, while
\nreversing the order of CIT in confirming the action
\nof the assessing officer in taxing capital gain, to the
\nextent of the enhanced and notional sale
\nconsideration under section 50 C of the Act, inspite
\nof the fact that the Appellant had invested the
\nentire sale consideration accruing on transfer of the
\nimmovable property in the prescribed bonds in
\nterms of section 54 EC of the Act?\u201d<\/p>\n
2. The assessee was a joint owner of a plot of land
\nsituated at Borivali, Mumbai, having 25% undivided share in the
\nplot. The assessee and other coowners
\ntransferred the plot in
\nfavour of purchaser under a sale deed dated 29\/09\/2007
\npursuant to which the assessee received a sum of Rs.25 lakhs by
\nway of sale consideration. The assessee invested entire amount
\nof Rs.25 lakhs in the bond of ‘Rural Electrification Corporation
\nLtd.’ as specified under section 54 EC of the Income Tax Act,
\n1961 (‘the Act’ for short). In the return of income filed for the
\nyear 20082009
\nthe assessee had declared the long term capital
\ngain on transfer of land at Rs.21,19,344\/and
\nclaimed full
\nexemption of such capital gain, under section 54 EC of the Act.
\n3. The Stamp Duty Authorities however had valued the
\nland for the purpose of levying stamp duty at Rs.3,04,70,810\/.
\nThe Assesse’s share of such stamp valuation of the property at
\n25% comes to Rs.76,17,702\/.
\n4. During the course of scrutiny of assessee’s return, the
\nAssessing Officer determined the long term capital gain of<\/p>\n
Rs.49,47,344\/and
\naccordingly passed the order of assessment
\non 29\/12\/2010.
\n5. The assessee filed Appeal against the order of
\nAssessment, before CIT (Appeals). The Assessee contended that
\nsince the entire sale consideration of Rs.25 lakhs was invested in
\nthe specified bond, the assessee must get full exemption from
\ncapital gain, irrespective of the computation of the deemed sale
\nconsideration under section 50C of the Act. CIT Appeals allowed
\nthe assessee’s Appeal, upon which the revenue filed Appeal
\nbefore the Tribunal. The Tribunal by the impugned judgment
\nallowed the revenue’s Appeal. The tribunal was of the opinion
\nthat for the purpose of exemption under section 54EC of the Act,
\ndeeming fiction contained in section 50C of the Act cannot be
\nignored. The assessee could claim exemption only in relation to
\nthe investment made in the specified bond and not qua the
\nentire capital gain.
\n6. Learned Counsel for the Appellant raised following
\ncontentions;<\/p>\n
(i) Taking through the provisions contained in
\nChapter IV of the Act it was contended that the
\ndeeming fiction contained in section 50C of the
\nAct, would have no applicability while computing
\nthe exemption as provided in section 54EC of the
\nAct. He contended that section 45 which is a
\ncharging provision, is made subject to various
\nexemption provisions, including (though not so
\nstated in the section) section 54EC of the Act.
\n(ii) It was contended that section 50C of the Act
\ncreates a deeming fiction for the purpose of
\ncomputation of capital gain under section 48 of the
\nAct. Such fiction would have no applicability for
\nthe purpose of charging capital gain as per section
\n45 or for computing exemption under section 54EC
\nof the Act. It was contended that the effect of
\ndeeming provision would be limited to the purpose
\nfor which the same has been enacted. In this
\ncontext, learned Counsel relied on the decision of<\/p>\n
6 \/ 17 01ITXA98116.<\/p>\n
Supreme Court in the case of CIT Vs. Amarchand
\nN. Shroff, reported in (1963) 48 ITR 59 (SC) and
\nCIT Vs. Vadilal Lallubhai, reported in (1972) 86
\nITR 2 (SC).
\n(iii) Learned Counsel submitted that in the present
\ncase, the relevant provisions would require
\nharmonious construction. The interpretation
\nadopted by the revenue as accepted by the tribunal
\nwould lead to anomalous situation which should
\nbe avoided.
\n(iv) It was further contended that the legislature would
\nnot expect a person to perform an impossible task.
\nIf the assessee had received total sale consideration
\nof Rs.25 lakhs from transfer of the land, he could
\nnot be expected to invest any amount in access
\nthereto, for claiming full exemption under section
\n54 EC of the Act.
\n(v) Our attention was drawn to the decision of
\nSupreme Court in case of K.P. Verghese Vs.<\/p>\n
7 \/ 17 01ITXA98116.<\/p>\n
Income Tax Officer, as reported in 131 ITR 597
\n(SC) in support of the proposition that to avoid
\nabsurdity and incongruent consequences, the Court
\nwould adopt an interpretation not emerging from
\nthe plain language of a statute.
\n7. On the other had, the learned Counsel Mr.Arvind Pinto
\nfor the revenue contended that tribunal has correctly interpreted
\nthe relevant statutory provisions. The interpretation advanced
\nby the Assessee would effectively render the provisions of
\nsection 50C of the Act redundant. The exemption provision
\nshould be strictly construed. Assessee can claim exemption only
\nin relation to investment made in the specified bond and not
\nbeyond.
\n8. Having heard learned Counsel for the parties, to test
\nthe correctness of the interpretation of the tribunal, we may
\nrefer to the relevant statutory provisions. Part E of the Chapter
\nIV of the Act pertains to capital gains. Section 45 contained the<\/p>\n
8 \/ 17 01ITXA98116.<\/p>\n
said part is the charging provision for the capital gain arising
\nfrom transfer of a capital asset. Subsection
\n(1) of section 45
\nprovides that any profits or gains arising from the transfer of a
\ncapital asset effected in the previous year shall, save as
\notherwise provided in section 54, 54B, 54D, 54E, 54EA, 54EB,
\n54F, 54G and 54H be chargeable to income tax under the head
\n\u201cCapital gains\u201d and shall be deemed to be the income of the
\nprevious year in which the transfer took place. Section 48 of the
\nAct provides the mode of computation of capital gain. In terms
\nof this provision, the income chargeable under the head \u201cCapital
\ngains\u201d would be computed by deducting from the full value of
\nconsideration received or accruing as a result of the transfer of
\nthe capital any amounts towards expenditure incurred wholly
\nand exclusively with such transfer and the cost of acquisition of
\nthe asset and the cost of any improvement thereto.
\n9. Section 54EC of the Act pertains to capital gain not to
\nbe charged on investment in certain bonds. Relevant portion of
\nthis section reads as thus ;<\/p>\n
9 \/ 17 01ITXA98116.<\/p>\n
54 EC. (
\n1) Where the capital gain arises from the transfer
\nof a longterm
\ncapital asset (the capital asset so
\ntransferred being hereafter in this section referred to
\nas the original asset) and the assessee has, at any time
\nwithin a period of six months after the date of such
\ntransfer, invested the whole or any part of capital
\ngains in the longterm
\nspecified asset, the capital gain
\nshall be dealt with in accordance with the following
\nprovisions of this section, that is to say, (
\na) if the cost of the longterm
\nspecified asset is not
\nless than the capital gain arising from the
\ntransfer of the original asset, the whole of such
\ncapital gain shall not be charged under section
\n45;
\n(b) if the cost of the longterm
\nspecified asset is less
\nthan the capital gain arising from the transfer of
\nthe original asset, so much of the capital gain as
\nbears to the whole of the capital gain the same
\nproportion as the cost of acquisition of the longterm
\nspecified asset bears to the whole of the
\ncapital gain, shall not be charged under section
\n45.\u201d<\/p>\n
10 \/ 17 01ITXA98116.<\/p>\n
10. Section 50C of the Act introduced by the legislature
\nunder Finance Act 2002 with effect from 01\/04\/2003, reads as
\nunder ;
\n50 C. (
\n1) Where the consideration received or accruing as
\na result of the transfer by an assessee of a capital
\nasset, being land or building or both, is less than the
\nvalue adopted or assessed by any authority of a State
\nGovernment (hereafter in this section referred to as
\nthe \u201cstamp valuation authority\u201d) for the purpose of
\npayment of stamp duty in respect of such transfer the
\nvalue so adopted or assessed shall, for the purposes of
\nsection 48, be deemed to be the full value of the
\nconsideration received or accruing as a result of such
\ntransfer.
\n“Provided that where the date of the agreement fixing the
\namount of consideration and the date of registration
\nfor the transfer of the capital asset are not the same,
\nthe value adopted or assessed or assessable by the
\nstamp valuation authority on the date of agreement
\nmay be taken for the purposes of computing full value
\nof consideration for such transfer:<\/p>\n
11 \/ 17 01ITXA98116.<\/p>\n
Provided further that the first proviso shall apply only in
\na case where the amount of consideration, or a part
\nthereof, has been received by way of an account payee
\ncheque or account payee bank draft or by use of
\nelectronic clearing system through a bank account, on
\nor before the date of the agreement for transfer.”.
\n(2) Without prejudice to the provisions of subsection
\n(1),
\nwhere\u2014
\n(a) the assessee claims before any Assessing Officer
\nthat the value adopted or assessed [or assessable]
\nby the stamp valuation authority under subsection
\n(1) exceeds the fair market value of the
\nproperty as on the date of transfer;
\n(b) the value so adopted or assessed [or assessable] by
\nthe stamp valuation authority under subsection
\n(1) has not been disputed in any appeal or
\nrevision or no reference has been made before any
\nother authority, court or the High Court,
\nthe Assessing Officer may refer the valuation of the capital
\nasset to a Valuation Officer and where any such reference is
\nmade, the provisions of subsections
\n(2), (3), (4), (5) and
\n(6) of section 16A, clause (i) of subsection
\n(1) and sub:::
\nUploaded on – 20\/03\/2019 ::: Downloaded on – 11\/04\/2019 14:59:54 :::
\n12 \/ 17 01ITXA98116.<\/p>\n
sections (6) and (7) of section 23A, subsection
\n(5) of
\nsection 24, section 34AA, section 35 and section 37 of the
\nWealthtax
\nAct, 1957 (27 of 1957), shall, with necessary
\nmodifications, apply in relation to such reference as they
\napply in relation to a reference made by the Assessing
\nOfficer under subsection
\n(1) of section 16A of that Act.
\n[Explanation 1] \u2014
\nFor the purposes of this section, “Valuation Officer” shall
\nhave the same meaning as in clause (r) of section 2 of the
\nWealthtax
\nAct, 1957 (27 of 1957).
\n[Explanation 2 ]\u2014
\nFor the purposes of this section, the expression “assessable”
\nmeans the price which the stamp valuation authority would
\nhave, notwithstanding anything to the contrary contained
\nin any other law for the time being in force, adopted or
\nassessed, if it were referred to such authority for the
\npurposes of the payment of stamp duty.]
\n(3) Subject to the provisions contained in subsection
\n(2),
\nwhere the value ascertained under subsection
\n(2)
\nexceeds the value adopted or assessed [or assessable]
\nby the stamp valuation authority referred to in subsection
\n(1), the value so adopted or assessed [or<\/p>\n
13 \/ 17 01ITXA98116.<\/p>\n
assessable] by such authority shall be taken as the full
\nvalue of the consideration received or accruing as a
\nresult of the transfer.]
\n11. Combined reading of these provisions would show that
\ncapital gain upon transfer of a capital asset is to be charged as
\nper section 45 of the Act and which shall be deemed to be the
\nincome of the assessee for the previous year in which the
\ntransfer took place. In terms of the provisions contained in
\nsection 48 the capital gain would be computed by deducting
\nfrom the full value of consideration received or accruing as a
\nresult of transfer, expenditure incurred wholly and exclusively in
\nconnection with the transfer and the cost of acquisition of the
\nasset and cost of improvement thereof. It is at the stage of
\ncomputation that section 50C of the Act kicks in. This provision,
\nas can be seen, provides for a deeming fiction. Subsection
\n(1) of
\nsection 50C provides that where the consideration received or
\naccruing as a result of the transfer by an assessee of a capital
\nasset, being land or building or plot or both is less than the
\nvalue adopted or assessed or assessable by stamp valuation<\/p>\n
14 \/ 17 01ITXA98116.<\/p>\n
authority for the purpose of stamp duty collection in respect of
\nsuch transfer, the value so adopted, assessed or assessable shall
\nfor the purpose of section 48 be deemed to be the full value of
\nconsideration for transfer received or accruing as a result of such
\ntransfer. In plain terms, the stamp valuation assessment by the
\nstamp duty officer of the State Government would be deemed to
\nbe the sale consideration of capital asset, replacing the declared
\nsale consideration, if it happens to be less than stamp duty
\nvaluation. For the purpose of charging capital gain in view of
\nsection 45, to be computed as provided in section 48, this
\ndeemed consideration would be applied.
\n12. We may refer to section 54EC which is an exemption of
\nprovision. SubSection
\n(1) of section 54EC provides that where
\nthe capital gain arising from the transfer of a longterm
\ncapital
\nasset being land or plot or both and the assessee has, at any time
\nwithin a period of six months after the date of such transfer,
\ninvested the whole or part of the capital gains in specified asset,
\nthe capital gain shall be dealt with in accordance with clause (a)<\/p>\n
15 \/ 17 01ITXA98116.<\/p>\n
and (b) of subsection
\n(1). As per clause (a) if the cost of the
\nlongterm
\nspecified asset is not less than the capital gain arising
\nfrom the transfer of the original asset, the whole of such capital
\ngain shall not be charged under section 45. As per clause (b) if
\nthe cost of the longterm
\nspecified asset is less than the capital
\ngain arising from the transfer of the original asset, the Assessee
\nwould receive proportionate exemption from payment of capital
\ngain. Further proviso of subsection
\n(1) of section 54EC limits
\nthe investment that an assessee can make in any specified asset
\nto Rs.50 lakhs. In other words, therefore clauses (a) and (b) of
\nsubsection
\n(1) of section 54EC would always have limit of
\nRs.50 lakhs specified in the further proviso for investment in the
\nspecified asset.
\n13. We do not find any conflict or any incongruent
\nconsequences of applying the provisions of section 50C for the
\npurpose of computation of capital gain tax after claiming
\nexemption under section 54EC of the Act. The deeming fiction
\nunder section 50C of the Act, must be given its full effect and the Court should not allow to boggle the mind while giving full
\neffect to such fiction. We are not opposing the proposition
\ncanvassed by the Counsel of the Assessee that deeming fiction
\nmust be applied in relation to the situation for which it is
\ncreated. However, while giving full effect to the deeming fiction
\ncontained under section 50C of the Act for the purpose of
\ncomputation of the capital gain under section 48, for which
\nsection 50C is specifically enacted, the automatic fallout thereof
\nwould be that the computation of the assessee\u2019s capital gain and
\nconsequently the computation of exemption under section 54EC,
\nshall have to be worked out on the basis of substituted deemed
\nsale consideration of transfer of capital asset in terms of section
\n50C of the Act.
\n14. Any other interpretation, particularly one canvassed by
\nthe learned Counsel for the Assessee, would render the
\nprovisions of section 50C redundant. In a situation like the one
\non hand, even if for the purpose of section 48, in terms of
\nsection 50C of the Act, the sale consideration deemed to have<\/p>\n
been received by the Assessee may be much higher than one
\ndeclared in the sale deed, the Assessee would claim no further
\ncapital gain tax liability by simply claiming to have made
\ninvestment in specified asset the full declared sale consideration.
\n15. Under such circumstances we do not find that the
\nTribunal has committed error in interpreting the relevant
\nstatutory provision. Income Tax Appeals are therefore dismissed.
\n(SARANG V. KOTWAL, J.) (AKIL KURESHI, J.)<\/p>\n","protected":false},"excerpt":{"rendered":"
The deeming fiction under section 50C of the Act, must be given its full effect and the Court should not allow to boggle the mind while giving full effect to such fiction. We are not opposing the proposition canvassed by the Counsel of the Assessee that deeming fiction must be applied in relation to the situation for which it is created. However, while giving full effect to the deeming fiction contained under section 50C of the Act for the purpose of computation of the capital gain under section 48, for which section 50C is specifically enacted, the automatic fallout thereof would be that the computation of the assessee\u2019s capital gain and consequently the computation of exemption under section 54EC, shall have to be worked out on the basis of substituted deemed sale consideration of transfer of capital asset in terms of section 50C of the Act<\/p>\n