Section 50C

[murali Krishnamurthy]

I am looking for a scenario to avoid the CG u/s 50C, where the land was agricultural and sold as non-agricultural land. That the land is agricultural is borne by certificate from the concerned authority and other accompanying evidence.

Kindly give your valued opinion as the case has been picked up for scrutiny and is time barring.

CA Murali Krishnamurthy

[taxationlaws]

Dear Mr. Murali,

In relation to your query in context of section 50C of the Income Tax Act (Act), reference may be made to the following:

1. Mumbai ITAT in Ravi Kant 110 TTJ 297 speaking through Mr. Pramod Kumar in context of section 50C:
"9. On a perusal of valuation report, however, we find that even the valuation by the DVO has placed too much of emphasis on the assessment or valuation by the stamp valuation authority. This is neither desirable nor permissible. The reason is this. The valuation by the stamp valuation authority is based on the circle rates. These circle rates adopt uniform rate of land for an entire locality, which inherently disregards peculiar features of a particular property. Even in a particular area, on account of location factors and possibilities of commercial use, there can be wide variations in the prices of land. However, circle rates disregard all these factors and adopt a uniform rate for all properties in that particular area. If the circle rate fixed by the stamp valuation authorities was to be adopted in all situations, there was no need of reference to the DVO under s. 50C(2). The sweeping generalizations inherent in the circle rates cannot hold good in all situations. It is, therefore, not uncommon that while fixing the circle rates, authorities do err on the side of excessive caution by adopting higher rates of the land in a particular area as the circle rate. In such circumstances, the DVO's blind reliance on circle rates is unjustified. The DVO has simply adopted the average circle rate of residential and commercial area, on the ground that interior area of the locality, where the assessee's property is situated, is mixed developed area i.e. shops and offices on the ground floor and residence on the upper floors. When DVO's valuation required to compare the same with the valuation by the stamp valuation authority, it is futile to base such a report on the circle report itself. Such an approach will render exercise under s. 50C(2) a meaningless ritual and an empty formality. In our considered view, in such a case, the DVO's report should be based on consideration stated in the registration documents for comparable transactions, as also factors such as inputs from other sources about the market rates. For the reasons set out above, and with these observations, we remit the matter to the file of the AO. The DVO will value the property de novo, in the light of our above observations, and in case the valuation so arrived at by the DVO is less than Rs. 11,42,100, the AO shall adopt the fresh valuation so done by the DVO for the purpose of computing capital gains under s. 48 of the Act. We direct so."

2. Further, reliance may be placed on Supreme Court ruling in the case of K.P.Varghese 131 ITR 597, which has in context of section 52(2) of the Act, since deleted (similar to section 50C of the Act) has interalia held that:

"Moreover, if sub-s. (2) is literally construed as applying even to cases where the full value of the consideration in respect of the transfer is correctly declared or disclosed by the assessee and there is no understatement of the consideration, it would result in an amount being taxed which has neither accrued to the assessee nor been received by him and which from no view-point can be rationally considered as capital gains or any other type of income. It is a well settled rule of interpretation that the court should as far as possible avoid that construction which attributes irrationality to the Legislature. Besides, under entry 82 in List I of the Seventh Schedule to the Constitution, which deals with "Taxes on income other than agricultural income" and under which the I. T. Act, 1961, has been enacted, Parliament cannot "choose to tax as income an item which in no rational sense can be regarded as a citizen's income or even receipt. Sub-section (2) would, therefore, on the construction of the revenue, go outside the legislative power of Parliament and it would not be possible to justify it even as an incidental or ancillary provision or a provision intended to prevent evasion of tax. Sub-section (2) would also be violative of the fundamental right of the assessee under art. 19(1)(f) which fundamental right was in existence at the time when sub-s. (2) came to be enacted-since on the construction canvassed on behalf of the revenue, the effect of sub-s. (2) would be to penalise the assessee for transferring his capital asset for a consideration lesser by 15% or more than the fair market value and that would constitute unreasonable restriction on the fundamental right of the assessee to dispose of his capital asset at the price of his choice. The court must obviously prefer a construction which renders the statutory provision constitutionally valid rather than that which makes it void.
We must, therefore, hold that sub-s. (2) of s. 52 can be invoked only where the consideration for the transfer has been understated by the assessee or, in other words, the consideration
actually received by the assessee is more than what is declared or disclosed by him and the burden of proving such an understatement or concealment is on the revenue."

3. Further, reference may be made to CBDT Circular No. 20D dated 7 July 1964 accompanying Finance Act 1964, containing the legislative spirit and object behind section 52(2) of the Act, to argue that in genuine and bonafide cases, section 50C cannot be triggered. However, it seems that Lucknow bench of ITAT in AKG Consultants 17 SOT 592 in context of section 50C of the Act, has taken a view that provisions of section 50C(1) are mandatory in nature.

4. Further, Jd ITAT in 110 TTJ 886 in context of penalty under section 271(1)(c) of the Act for underlying addition under section 50C, has taken a lenient view and accordingly deleted the same.

Hope the above is useful.

Warm regards

CA Kapil Goel
B.Com(H) ACA LLB
taxationlaws@rediffmail.com

[probal_shome]

Hi,

I am not clear on the query. Are you asking whether capital gains is chargeable as the land was agricultural earlier but was non-agricultural on the date of transfer? (The answer to this is that the position prevailing on the date of transfer has to be seen).

Or are you asking whether s. 50C is triggered off because of a difference in valuation from agricultural to non-agricultural? How does this difference arise? Was it agricultural on the date of the agricultural but became non-agricultural on the date of conveyance.

The decisions cited by Mr. Goel are quite relevant but a few more facts would help.

Please do provide more facts.

Regards,

Probal.