2016 (10) TMI 1032 - AT - Income Tax

Applicability of provisions of section 50C when the property has been transferred by un-possessory sale-cum-GPA - Held that - We find that the sale-cum-GPA is registered in the office of the SRO. The stamp duty authority has determined the market value of the property at ₹ 82,04,000/- and has collected adhoc stamp duty of ₹ 50,000/-. It is also an admitted fact that the assessee himself has admitted long term capital gain. This clearly shows that the transfer took place within the meaning of section 2(47)(v) of the Act. The moment transfer took place, the deeming provisions provided in section 50C of the Act are applicable when the sale consideration shown in the sale deed is less than the value determined by the stamp duty authority for the purpose of payment of stamp duty. Since, there is a difference between consideration shown in the sale deed and the value determined by the SRO, the deeming provisions of section 50C of the Act are clearly applicable. The CIT (A) without appreciating the facts simply observed that there is no application of the provisions of section 50C of the Act. Therefore, we reverse the order of the CIT (A) and uphold the action of the A.O. in adopting value as per section 50C of the Act for the purpose of computation of capital gains. Eligibility for claiming exemption u/s. 54 - Held that - The assessee is eligible to claim exemption u/s. 54 of the Act, even though the construction of the new residential house was commenced prior to the date of transfer of original asset. In the present case on hand, on perusal of the facts available on record, we find that the assessee has commenced construction of new house property in the month of November, 2004 and completed construction in the month of March, 2007. The transfer of asset has been taken place in the month of January, 2007. The construction of new house property has been completed within 3 years from the date of transfer of asset. Therefore, the assessee is eligible for exemption u/s. 54 of the Act. Whether the assessee needs to invest the net sale consideration as a result of transfer or the full value of consideration as defined u/s. 50C? - Held that - The assessee is eligible for exemption u/s. 54 of the Act, if the net sale consideration is invested in construction or purchase of new residential house. In the present case on hand, the assessee has invested net sale consideration for construction of new residential house property. Though, the full value of consideration as defined u/s. 50C of the Act is more than the net sale consideration as referred in section 54F(1) of the Act, once the net sale consideration has been fully applied under the provisions of section 54 of the Act, then the deeming consideration as defined u/s. 50C of the Act cannot be brought into the provisions of section 54F of the Act. Therefore, we are of the view that the assessee is eligible for exemption u/s. 54 of the Act, therefore, the whole of the capital gain is not chargeable to tax even if the capital gain is computed by taking the value as per the provision of section 50C of the Act. Therefore, we direct the A.O. to allow the exemption u/s. 54 of the Act.

Summary

Issues Involved:
1. Applicability of Section 50C of the Income Tax Act, 1961.
2. Eligibility for exemption under Section 54 of the Income Tax Act, 1961.

Detailed Analysis:

1. Applicability of Section 50C of the Income Tax Act, 1961:

The primary issue was whether the provisions of Section 50C of the Act are applicable when the property has been transferred by un-possessory sale-cum-General Power of Attorney (GPA). The Assessing Officer (A.O.) determined that the transfer took place within the meaning of Section 2(47)(v) of the Act, as the property was transferred by way of a registered un-possessory sale-cum-GPA. The market value determined by the stamp duty authority was ?82,04,000, whereas the sale consideration shown was ?60,00,000. The A.O. applied the provisions of Section 50C, which states that if the sale consideration is less than the market value determined for stamp duty purposes, the latter should be considered for capital gains computation.

The assessee contended that Section 50C should not apply since the property was not transferred by a registered sale deed and the market value determined by the stamp duty authority was not final. However, the tribunal found no merit in this argument, stating that once the transfer took place within the meaning of Section 2(47)(v), the deeming fiction under Section 50C applied. The tribunal upheld the A.O.'s action in adopting the value determined by the stamp duty authority for capital gains computation, reversing the Commissioner of Income Tax (Appeals) [CIT (A)]'s order.

2. Eligibility for Exemption under Section 54 of the Income Tax Act, 1961:

The second issue was whether the assessee was eligible for exemption under Section 54, despite commencing the construction of the new residential house before the transfer of the original asset. The A.O. denied the exemption, arguing that the construction began before the transfer and was funded by borrowed money, thus disqualifying the assessee from exemption under Section 54F.

The tribunal found force in the assessee's argument that the date of commencement of construction is immaterial, provided the construction is completed within three years from the date of transfer. This interpretation aligns with judicial precedents from various High Courts, including Delhi, Karnataka, and Allahabad. The tribunal concluded that the assessee was eligible for exemption under Section 54, as the construction was completed within the stipulated three-year period from the date of transfer.

3. Full Value of Consideration for Exemption under Section 54:

The tribunal also examined whether the full value of consideration as defined under Section 50C should be considered for exemption under Section 54. It concluded that the net sale consideration, rather than the deemed consideration under Section 50C, should be used for exemption purposes. This interpretation is supported by case law, including decisions from the ITAT Jaipur and other High Courts, which differentiate between the net sale consideration for exemption and the full value of consideration for capital gains computation.

Conclusion:

The appeal by the revenue was partly allowed. The tribunal upheld the A.O.'s application of Section 50C for capital gains computation but directed the A.O. to allow the exemption under Section 54, as the assessee had invested the net sale consideration in constructing a new residential house within the stipulated period.