2013 (11) TMI 669 - AT - Income Tax

Valuation u/s 50C - whether deeming provision of section 50C are applicable where the entire capital gain is exempt u/s 54EC on investment - Held that - Where a transaction calls for a computation specified under clause(b) of section 54EC(1) then it is necessary to find out the quantum of capital gains that could be claimed as exempt. For working out such capital gains section 50C of the Act which is mandatory in nature cannot be ignored. Said Sec.50C requires substitution of the consideration mentioned in the deed with the value fixed by Stamp Valuation Authority for the purpose of stamp duty. In the given case assessee had disputed the valuation and the matter was referred by Assessing Officer to DVO as provided under section 50C(2) of the Act. Once the DVO had given the report Assessing Officer was bound to apply sub-clause (3) of Sec.50C for working out the capital gains. The said section stipulates that full value of consideration should be taken as the value adopted by Stamp Valuation Authority or the value fixed by the District Valuation Officer (DVO) whichever was lower. When the value fixed by the DVO exceeded the value fixed by the Stamp Valuation Authority then value fixed by the Stamp Valuation Authority alone had to be considered. Here the value fixed by the Stamp Valuation Authority was Rs.3, 61, 84, 512/- whereas the value fixed by DVO was Rs.1, 95, 33, 000/-. Assessing Officer in our opinion therefore had proceeded in accordance with law in considering the fair market value at Rs.1, 95, 33, 000/-. Nevertheless for working out the exemption under section 54EC available to the assessee Assessing Officer was required to apply the proportion mentioned in sub clause (b) of Sec.54EC(1) of the Act which has not been done - matter remanded back - Decided partly in favour of Assessee.

Summary

Issues Involved:
1. Validity of the reopening of assessment.
2. Applicability of Section 50C of the Income Tax Act, 1961.
3. Eligibility for exemption under Section 54EC of the Income Tax Act, 1961.
4. Computation of long-term capital gains.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment:
The Assessee challenged the reopening of the assessment for the impugned Assessment Year. The reopening was initiated because the Assessing Officer did not apply Section 50C(1) during the original assessment, which is mandatory when the value adopted by the Stamp Valuation Authority is higher than the consideration received in the document. The Assessee admitted a capital gain of Rs. 15,796/- in the original return, but the correct amount should have been Rs. 18,837/-. The Assessee's representative did not advance any serious argument against the reopening. Therefore, the Tribunal held that the reopening for the impugned Assessment Year was justified.

2. Applicability of Section 50C of the Income Tax Act, 1961:
The Assessee sold land for Rs. 79 lakhs, but the Stamp Valuation Authority valued it at Rs. 3,61,84,512/-. The Assessing Officer invoked Section 50C, which mandates substituting the sale consideration with the value adopted by the Stamp Valuation Authority for computing capital gains. The Assessee objected, and the matter was referred to the District Valuation Officer (DVO), who valued the property at Rs. 1,95,33,000/-. The Assessing Officer adopted this value for computing capital gains, as per Section 50C(3).

3. Eligibility for Exemption under Section 54EC of the Income Tax Act, 1961:
The Assessee argued that the entire consideration received from the sale was invested in specified assets under Section 54EC, making the deeming provision of Section 50C inapplicable. The Tribunal referred to the Jaipur Bench decision in Gyan Chand Batra Vs. ITO, which held that once the entire consideration is invested as per Section 54EC, Section 50C does not apply. However, in this case, the Assessee invested only Rs. 75 lakhs out of the capital gains of Rs. 75,15,796/-. The Tribunal noted that an artificial split of the transaction to claim better benefits is not permissible. Therefore, Section 50C must be applied, and the proportionate exemption under Section 54EC should be computed.

4. Computation of Long-Term Capital Gains:
The Assessing Officer computed the capital gains by taking the consideration as Rs. 1,95,33,000/- (value fixed by DVO) and allowed a deduction of Rs. 75,00,000/- for investments under Section 54EC. The Tribunal emphasized that the computation should follow Section 54EC(1)(b), which requires proportionate exemption if the entire capital gains are not invested. The Tribunal set aside the orders of the lower authorities and remitted the issue back to the Assessing Officer for recomputation of long-term capital gains in accordance with Section 54EC(1)(b).

Conclusion:
The Tribunal partly allowed the Assessee's appeal for statistical purposes and directed the Assessing Officer to recompute the long-term capital gains considering the proportionate exemption under Section 54EC(1)(b). The reopening of the assessment was upheld, and the application of Section 50C was deemed appropriate, but the computation of exemption under Section 54EC required reassessment.