2014 (3) TMI 1075 - HC - Income Tax

Reference of matter to the DVO u/s 55A - whether the Assessing Officer was justified in making a reference to the DVO under Section 55A of the Act for ascertaining the fair market value of the capital asset which was transferred? - Held that - The expression full value of consideration for sale used in Section 12B(2) of the Income Tax Act 1922 (in short the 1922 Act ) cannot be construed as the market value but as the price decided upon by the parties to the transaction. It needs to be mentioned that the provisions of Section 12B of the 1922 Act pertained to capital gains and sub section (1) was pari materia to Section 45(1) of the Act whereas sub section (2) of Section 12B of 1922 Act was corresponding to section 48 of the Act. The Hon ble Supreme Court reiterated the aforesaid view in CIT v. Gillanders Arbuthnot & Co. (1972 (9) TMI 13 - SUPREME Court ). Thus it emerges that the expression Full value of consideration appearing in section 48 of the Act does not have any reference to the fair market value but to the consideration referred to in the sale deeds as the sale price of the assets which have been transferred. In view of the above it is concluded that reference under Section 55A of the Act to the Valuation Officer for ascertaining the Fair market value of the capital asset was unjustified. Accordingly the substantial questions of law are answered against the revenue and in favour of the assessee

Summary

Issues Involved:
1. Whether the ITAT was correct in ignoring the provisions of Section 55A of the Income Tax Act, which empower the Assessing Officer to ascertain the fair market value of a capital asset for the purposes of computation of capital gains.
2. Whether the ITAT was correct in ignoring the findings of the Assessing Officer that, at the time of sale of the capital asset, there was no notification of circle rates by the Delhi Government, necessitating a reference to the Departmental Valuation Officer (DVO).

Issue-wise Detailed Analysis:

Issue 1: Section 55A Empowerment of Assessing Officer
The primary question is whether the Assessing Officer was justified in making a reference to the DVO under Section 55A of the Income Tax Act to ascertain the fair market value of the capital asset transferred. Section 55A, introduced by the Taxation Laws (Amendment) Act, 1972, allows the Assessing Officer to refer the valuation of a capital asset to a valuation officer if the value claimed by the assessee is less than its fair market value or if the fair market value exceeds the claimed value by a significant margin.

The court examined the scope of Section 55A, which is to ascertain the fair market value of the capital asset under transfer. The court highlighted that under Section 45(1) of the Act, capital gains are taxed based on the 'full value of consideration' received or accruing from the transfer, as per Section 48 of the Act. The term 'full value of consideration' refers to the actual sale price agreed upon by the parties, not the fair market value.

The court referenced the Supreme Court judgments in CIT v. George Henderson & Co. Limited (1967) 66 ITR 622 and CIT v. Gillanders Arbuthnot & Co. (1973) 87 ITR 407, which clarified that 'full value of consideration' should be interpreted as the actual price received by the transferor, not the market value. The Delhi High Court's interpretation in CIT vs. Smt. Nilofer I. Singh (2009) 309 ITR 233 further supported this view, stating that Section 55A is invoked to ascertain fair market value only when the Assessing Officer is required to determine it, such as in cases under Sections 45(1A), 45(2), and 45(4) of the Act.

Issue 2: Necessity of Reference to DVO in Absence of Circle Rates
The revenue argued that the absence of collector rates necessitated a reference to the DVO under Section 55A. However, the court found no merit in this argument. The court reiterated that the 'full value of consideration' should be based on the actual sale price, not the fair market value, unless specifically provided by the Act.

The court noted that the provisions of Section 45 and 48 of the Act refer to the full value of consideration received or accruing from the transfer, and unless there is a specific provision treating the fair market value as the full value of consideration, the fair market value cannot be substituted for the actual sale price. The court emphasized that the Assessing Officer's reference to the DVO was unjustified as the conditions for invoking Section 55A were not met.

Conclusion:
The court concluded that the reference to the DVO under Section 55A of the Act for ascertaining the fair market value of the capital asset was unjustified. The substantial questions of law were answered against the revenue and in favor of the assessee. Consequently, the appeal was dismissed.