2010 (10) TMI 1051 - AT - Income Tax

Computation of capital gain - Relevant sale consideration for sale of property for the purpose of computation of capital gain - physical possession of the property was handed over by assessee, on the date when the agreement for sale was executed, or not - what is the sale consideration for sale of property for the purpose of computation of capital gain? - HELD THAT - Transfer of Property Act provides for handing over of possession in pursuance to an agreement for sale as part performance of the contract. Under the Income-tax Act when the possession of the property was handed over in pursuance to an agreement for sale that would amount to a 'transfer' of property. Under the common law a mere handing over the possession of the property to the vendee towards part performance of the contract would not create any interest on the vendee in respect of such property. It may at best gives a right to the vendee for enforcement of the right to specific performance. Therefore, the contention of the learned DR that no one would hand over the possession of the property worth over ₹ 70 lakhs on receipt of ₹ 7 lakhs is misconstrued. When the law of the land provides for handing over the possession either on receipt of part consideration or otherwise in pursuance to an agreement for sale the learned DR is not right in saying that no one would hand over physical possession of the property. Section 50C empowers the Assessing Officer to take the guidelines value as full value of consideration in case the sale consideration is less than the value adopted by the concerned authorities for the purpose of valuation of stamp duty. However, when the assessee claims that the value adopted by the stamp duty valuation authority exceeds the fair market value the Assessing Officer may refer the matter to the valuation officer to estimate the value of the capital asset. After reference to valuation officer, if the value estimated by the valuation officer exceeds the value adopted by the stamp duty valuation authority then the Assessing Officer shall take the valuation of the stamp duty valuation authority as full value of consideration for the purpose of computing capital gain. When the difference between the value shown by the assessee and the estimated value is less than 10%, the value shown by the assessee shall be adopted for the purpose of computation of capital gain. In this case also the difference is less than 10% between the value shown by the assessee and the value estimated by the valuation officer. When the value of the property was estimated there will be a difference of 10% depending upon the individual valuation officers. No one is expected to value the property accurately since some of the items are to be valued on guesswork or notionally. The CIT(A) has rightly deleted the addition made by the Assessing Officer. Therefore, there are no infirmity in the order of the lower authority. Accordingly the same is confirmed. Appeal of Revenue dismissed.

Summary

Issues:
Computation of capital gain based on the date of sale and possession of property, application of section 50C of the Income-tax Act, 1961, valuation of property by the valuation officer, discrepancy in guidelines value and sale consideration, interpretation of transfer under the Income-tax Act.

Analysis:

Computation of Capital Gain:
The appeal pertained to the computation of capital gain for the assessment year 2006-07, focusing on the date of sale and possession of the property. The Revenue argued that the capital gain should be based on the guidelines value as on the date of the registered sale deed, i.e., 19.8.2005, which was revised to &8377; 12,000 per square yard (SY). Conversely, the assessee contended that the sale consideration should be computed based on the guidelines value as on the date of the agreement for sale, i.e., 12.4.2005, at &8377; 5,500 per SY, emphasizing the physical possession handed over to the vendee on the agreement date.

Application of Section 50C:
The Revenue invoked section 50C of the Income-tax Act, 1961, which allows the Assessing Officer to consider the guidelines value as the full value of consideration if it exceeds the sale consideration. However, the assessee argued that the difference between the value estimated by the valuation officer and the sale consideration was less than 10%, citing a precedent where such minor discrepancies were disregarded.

Valuation by the Valuation Officer:
A valuation officer valued the property at &8377; 75,76,712, while the sale consideration was &8377; 70 lakhs. The discrepancy was less than 10%, leading to a comparison with a similar case where such variations were deemed insignificant for capital gain computation.

Interpretation of Transfer under Income-tax Act:
The Tribunal analyzed the concept of transfer under the Income-tax Act, emphasizing section 2(47)(v) which includes the allowing of possession in part performance of a contract as a transfer. The possession handed over to the vendee on the agreement date was deemed crucial in determining the date of sale for capital gain computation, despite discrepancies in the recitals of the agreement for sale and the registered sale deed.

Conclusion:
After evaluating the submissions and evidence, the Tribunal dismissed the Revenue's appeal, confirming the lower authority's decision to compute the capital gain based on the sale consideration shown by the assessee, considering the minor valuation differences and the significance of possession transfer in part performance of the agreement for sale. The judgment highlighted the importance of adherence to legal definitions and precedents in determining capital gains in property transactions under the Income-tax Act.