2016 (9) TMI 1259 - AT - Income Tax

Reopning of assessment - Capital gain computation - addition to the sale consideration for the purpose of computing capital gains under section 50C - Section 50C retrospective effect - Held that - Provisos to Section 50C being effective from 1st April 2003. This is precisely what the learned counsel has prayed for. In his detailed written submissions, he has made out of a strong case for the amendment to Section 50C being treated as retrospective and with effect from 1st April 2003. The plea of the assessee is indeed well taken and deserves acceptance. What follows is this. The matter will now go back to the Assessing Officer. In case he finds that a registered agreement to sell, as claimed by the assessee, was actually executed on 29.6.2005 and the partial sale consideration was received through banking channels, the Assessing Officer, so far as computation of capital gains is concerned, will adopt stamp duty valuation, as on 29.6.2005, of the property sold as it existed at that point of time. In case the assessee is not content with this value being adopted under section 50C, he will be at liberty to seek the matter being referred to the DVO for valuation, again as on 29.6.2005, of the said property. As a corollary thereto, the subsequent developments in respect of the property sold (e.g. the conversion of use of land) are to be ignored. It is on this basis that the capital gains will be recomputed. With these directions, the matter stands restored to the file of the Assessing Officer for adjudication de novo, after giving an opportunity of hearing to the assessee and by way of a speaking order

Summary

Issues Involved:
1. Validity of the addition of ?15,60,900 to the sale consideration for computing capital gains under Section 50C of the Income Tax Act, 1961.
2. Applicability of amendments to Section 50C, introduced by the Finance Act 2016, with retrospective effect.

Detailed Analysis:

1. Validity of the Addition of ?15,60,900 to the Sale Consideration:

The assessee challenged the correctness of the order dated 21st January 2013, passed by the learned CIT(A), which upheld the addition of ?15,60,900 to the sale consideration for computing capital gains under Section 50C of the Income Tax Act, 1961, for the assessment year 2008-09. The case involved a reopened assessment where the Assessing Officer noted that the assessee, along with a co-owner, sold land at Village Behstan, Surat, for ?45,00,000 on 24.04.2007. However, the stamp duty valuation authority valued the land at ?76,21,800 on the same date. The Assessing Officer added ?15,60,900 to the sale consideration based on the stamp duty valuation to compute capital gains. The assessee argued that the sale deed was executed on 24.04.2007 due to the need to convert agricultural land to non-agricultural land, and the relevant valuation should be as of the date of the agreement to sell (29.06.2005). This explanation was rejected by the Assessing Officer, who adopted the stamp duty valuation as of the date of the sale deed. The CIT(A) upheld this decision, leading to the current appeal.

2. Applicability of Amendments to Section 50C with Retrospective Effect:

The fundamental purpose of Section 50C is to counter the suppression of sale consideration on the sale of immovable properties. The section presumes that the stamp duty valuation represents the market price of the property sold. However, there can be a significant gap between the agreement to sell and the execution of the sale deed, leading to discrepancies in valuation. The Income Tax Simplification Committee, headed by Justice R V Easwar, recognized this issue and proposed amendments to Section 50C, which were introduced by the Finance Act 2016, effective from 1st April 2017. These amendments allow the stamp duty valuation on the date of the agreement to sell to be considered for computing capital gains, provided the consideration was received through banking channels on or before the date of the agreement.

The Government recognized the hardship caused by the previous provisions and introduced the amendments to provide relief. However, the amendments were prospective, effective from 1st April 2017, and did not provide relief to the assessee for earlier periods. The Tribunal held that amendments to remove undue hardship or incongruity should be treated as retrospective. This view was supported by the Hon'ble Delhi High Court in CIT Vs Ansal Landmark Township Pvt Ltd and the Hon'ble Supreme Court in CIT Vs Alom Extrusion Ltd, which held that curative amendments should be retrospective.

The Tribunal concluded that the provisos to Section 50C should be treated as retrospective and effective from 1st April 2003, the date when Section 50C was introduced. The matter was remanded to the Assessing Officer to verify if a registered agreement to sell was executed on 29.06.2005 and if partial sale consideration was received through banking channels. If verified, the Assessing Officer should adopt the stamp duty valuation as of 29.06.2005 for computing capital gains. The subsequent developments in the property should be ignored, and the capital gains recomputed accordingly.

Conclusion:

The appeal was allowed, and the matter was remanded to the Assessing Officer for fresh adjudication, considering the retrospective applicability of the amendments to Section 50C. The Tribunal emphasized that the amendments were intended to provide relief and should not result in a higher tax burden on the taxpayers. The decision was pronounced in the open court on 30th September 2016.