2015 (9) TMI 66 - AT - Income Tax

Addition on account of long term capital gain u/s.50C - whether the correct thing is to adopt the stamp duty valuation as on the date of sale of agreement? - Held that - As evident from a copy of the income tax return and computation of income filed by the assessee for the assessment year 2003-04 the assessee had duly disclosed the fact of this sale transaction and resultant capital gains for the relevant assessment year. We have also noted that the buyer i.e. Vinod Bansal, has paid society maintenance charges for the period 31.08.2002 to 31.12.2004 vide cheque numbers 032425 and 032426 dated 12.01.2005 for ₹ 39,188/- and ₹ 19,028/- respectively. On these facts, in our considered view, the assessment year in which the capital gains on transfer of this asset can be brought to tax is indeed assessment year 2003-04. The Assessing Officer was clearly in error in addressing himself to the taxability of this capital gain in the assessment year before us i.e. 2007-08. Thus the erudite discussions about applicability of Section 50C in the present assessment year are wholly irrelevant and do not call for any adjudication. That aspect of the matter is academic. Once we hold, as we have held in this case, that an item of income is not taxable in the present assessment year, it is wholly academic to examine modalities of quantifying that income. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition on account of long-term capital gain under Section 50C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition on Account of Long Term Capital Gain U/S. 50C - Rs. 16,64,836/-:

The assessee challenged the correctness of the order passed by the CIT(A), which confirmed the addition of Rs. 16,64,836/- as long-term capital gain under Section 50C of the Income Tax Act, 1961. The primary contention was that the transfer of the property occurred on 23rd May 2002, when the entire sale consideration was received and possession was given, rather than on 9th February 2007, the date of the formal sale deed registration.

During the assessment proceedings, the Assessing Officer (AO) noted the discrepancy between the sale value for stamp duty purposes (Rs. 32,65,440/-) and the absence of this transaction in the assessee's income tax return. The AO rejected the assessee's argument that the transfer took place in 2002, emphasizing that the property valuation for stamp duty purposes was accepted by the assessee, and thus, the value adopted by the stamp duty authority was to be considered for capital gains calculation.

The CIT(A) upheld the AO's decision, stating that there was no evidence of possession being given on 23rd May 2002 and that the valuation by the stamp duty authorities on the date of the sale agreement should be adopted. The CIT(A) also noted that accepting the assessee's claim would defeat the purpose of Section 50C, which was introduced to counteract the undervaluation of properties in sale agreements.

Upon further appeal, the Tribunal examined the statutory scheme of taxability of capital gains under Section 45(1) and the definition of "transfer" under Section 2(47) of the Act. The Tribunal referred to the Bombay High Court's decision in Chaturbhuj Dwarkadas Kapadia vs. CIT(A), which clarified that the date of the contract, rather than the date of substantial performance, should be considered for determining the year of chargeability for capital gains tax.

The Tribunal noted that the assessee had disclosed the sale transaction and resultant capital gains in the income tax return for the assessment year 2003-04. Additionally, the buyer had paid society maintenance charges for the period 31.08.2002 to 31.12.2004, further supporting the assessee's claim that the transfer occurred in 2002.

Based on these findings, the Tribunal concluded that the capital gains on the transfer of the asset should be taxed in the assessment year 2003-04, not 2007-08. Consequently, the discussions about the applicability of Section 50C for the assessment year 2007-08 were deemed irrelevant.

Conclusion:

The Tribunal held that the long-term capital gain of Rs. 16,64,836/- was not taxable in the assessment year 2007-08 and deleted the impugned addition. The appeal was allowed, providing relief to the assessee.