2014 (9) TMI 497 - AT - Income Tax

Nature of receipts - Dharmarth Receipts OR not Whether the provisions of Section 50C of the Act are applicable to the case of a purchaser also - Held that - The income under the head capital gains is applicable to the sale of immovable property and not to purchase - the provisions of Section 50C(1) of the Act are not applicable to the case of a purchaser - the legislature chooses its words with utmost care - When the words of a particular provision are explicit clear and unambiguous there is no room for interpretation and the legislative intent qua such a provision is not required to be gone into as has been wrongly done by the CIT(A) in the present case - The section talks of consideration received or accruing . Period. Consideration paid cannot be imported when the legislature has itself not deemed it fit to incorporate anything to such effect in the section - the addition made u/s 50C of the Act and order of the CIT(A) is cancelled Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 15,99,471/- on account of Dharmarth Receipts.
2. Addition of Rs. 2,09,00,000/- by increasing the purchase cost of the assessee in respect of leasehold godown.

Detailed Analysis:

1. Addition of Rs. 15,99,471/- on account of Dharmarth Receipts:
- Assessing Officer's Observation: The Assessing Officer added Rs. 15,99,471/- to the assessee's income, arguing that the Dharmarth Receipts were business-related and not charitable, as they were collected by a business entity and not a charitable trust. The assessee failed to provide evidence that these receipts were spent on charity.

- CIT(A)'s Decision: The CIT(A) upheld the addition, noting that the assessee could not establish that charity was an objective of the company as per its memorandum and articles of association. Therefore, the receipts were treated as trade receipts.

- Assessee's Argument: The assessee argued that similar receipts had been allowed in previous years (2001-02 to 2008-09) under scrutiny assessments. They provided a summarized copy of the Dharmarth Receipts account and referred to CBDT Circular No.77-F, which states that Dharmarth Receipts are not taxable. The assessee also pointed to Clause 30 of its memorandum, which includes charity as an objective.

- Tribunal's Decision: The Tribunal noted that Dharmarth receipts are not taxable as per the CBDT Circular and various judicial decisions. It found that the assessee's practice of collecting and passing on Dharmarth Receipts to a charitable trust had been consistently accepted in previous years. The Tribunal concluded that the receipts were indeed Dharmarth and not taxable. The addition of Rs. 15,99,471/- was deleted.

2. Addition of Rs. 2,09,00,000/- by increasing the purchase cost of the assessee in respect of leasehold godown:
- Assessing Officer's Observation: The Assessing Officer added Rs. 2,09,00,000/- to the assessee's income, arguing that the property was undervalued. The property was purchased for Rs. 18,00,000/-, but the circle rate valuation was Rs. 2,27,00,000/-. The Assessing Officer applied Section 50C of the Income-tax Act, which prescribes deemed addition for undervalued property transactions.

- CIT(A)'s Decision: The CIT(A) upheld the addition, reasoning that the property could not have been purchased for such a low amount and that the intention of Section 50C should also apply to purchasers to avoid anomalous results.

- Assessee's Argument: The assessee contended that it had been a tenant of the property since 1976, paying rent, and had agreed to purchase it for Rs. 18,00,000/- as per a Memorandum of Understanding. They argued that Section 50C applies only to sellers, not purchasers, and that no evidence was provided to prove any payment over Rs. 18,00,000/-.

- Tribunal's Decision: The Tribunal clarified that Section 50C applies only to the sale of immovable property, not to its purchase. The legislative intent of Section 50C is explicit and does not include purchasers. Therefore, the addition made under Section 50C was unsustainable. The Tribunal cancelled the addition of Rs. 2,09,00,000/-.

Conclusion:
The appeal of the assessee was allowed. The additions of Rs. 15,99,471/- on account of Dharmarth Receipts and Rs. 2,09,00,000/- by increasing the purchase cost of the leasehold godown were both deleted.