2015 (10) TMI 1092 - HC - Income Tax

Applicability of section 50C - profit or gains arising from a transfer of capital asset - Held that - Explanation 2 to Section 2(47) of the Act was added by Finance Act, 2012 with retrospective effect on 1.4.1962 and, consequently, the said provision would be applicable. The said explanation clearly provides that transfer of an asset includes disposing of or parting with an asset by way of an agreement. In the light of the aforesaid provision, it is apparently clear that the moment an agreement to sell is executed between the parties and part consideration is received, the transfer for the purpose of Section 50C of the Act takes places and computation under Section 48 of the Act will start accordingly, for the purpose of calculating the capital gains under Section 45 of the Act. From the aforesaid, it is apparently clear that the transfer of the property took place in the year 2001 when the provision of Section 50C of the Act was not in existence. Consequently, the Assessing Officer was not justified in making the reassessment and computing the capital gains by invoking the provision of Section 50C of the Act, which was clearly not applicable in the assessees case. - Decided in favour of assessee.

Summary

Issues:
Assessment of long term capital gains under Section 50C for the assessment years 2003-04 and 2004-05.

Analysis:
1. The appeals involved a common question of law regarding the assessment of long term capital gains for the assessment years 2003-04 and 2004-05. The appellants, co-owners of a land in Agra, entered into an agreement to sell the land in 2001 and received part consideration. The Assessing Officer reopened the proceedings under Section 148 of the Act and computed the long term capital gains based on Section 50C of the Act, taking the value assessed by the local authority.

2. The first appellate authority allowed the appeals, holding that capital gains were not taxable for the assessment years in question, and the amount assessed was deleted. The Department appealed to the Tribunal, which dismissed the appeal. Subsequently, the Department filed appeals under Section 260(A) of the Act, admitting them on the substantial question of law regarding the applicability of Section 50C.

3. The main issue was whether Section 50C of the Act was applicable in the case of the assessees. Section 50C, inserted in 2003, deems the value adopted or assessed by the stamp valuation authority as the full value of consideration received for the transfer of land. The Assessing Authority argued that since the sale deed was executed in April 2003, Section 50C should apply. However, the first appellate authority held that the transfer occurred in 2001 when the agreement was made, and hence, Section 50C was not applicable.

4. The Tribunal upheld the first appellate authority's decision, emphasizing that the transfer took place when the agreement of sale was executed. The definition of "transfer" under Section 2(47) of the Act includes the extinguishment of any rights in the asset. The Supreme Court's ruling in a similar case established that the execution of an agreement to sell creates a right in personam for the vendee, constituting a transfer of the asset. Explanation 2 to Section 2(47) clarifies that transfer includes disposing of an asset through an agreement.

5. Therefore, the Court concluded that the transfer of the property occurred in 2001 when the agreement was made, predating the existence of Section 50C. Consequently, the Assessing Officer was not justified in applying Section 50C to compute capital gains. The appeals were dismissed in favor of the assessees, answering the question of law against the Department.