2015 (12) TMI 45 - AT - Income Tax

Addition under the head long term capital gain - valuation of land - confirming the addition by applying provisions of Section 50C(1) - Held that - Section 50C is applicable to transfer of capital asset only in respect of land or building or both and is not applicable to right in land. In the present case, the assessee has only transferred the right in land for a valuable consideration, therefore, in the opinion of the Bench, the long term capital gain cannot be calculated by invoking the deeming provisions provided under section 50C. Therefore we hold that section 50 C is not applicable to present case The amended provision of section 50C is not applicable to the transfer which had already taken place prior to the amendment. In the present case the assessee has transferred the capital asset for a consideration of ₹ 74,91,000/- and the document was neither registered nor evaluated for the purpose of stamp duty purposes by the Stamp Valuation Authority at the time of execution of said document . Therefore, there was no evaluation of stamp duty payable on the document. Thus in our view the deeming provision of section 50C do not come in to play thereby replacing the full valuation of consideration of the document with the value calculated by the Stamp Valuation Authority / registering Authority. In the absence of any adoption or assessment by the authority of state government for the purposes of the Stamp duty in respect of subject transfer ( as the document was not registered ), there was no occasion for the AO to either refer the matter to the Registering Authority or to the Stamp Valuation Authority for the purpose of arriving at the valuation of the property. Therefore, in the interest of justice we set aside this issue to the Assessing Officer and directed to apply the provisions of Income Tax including Section 55A to determine the correct capital gain in this transaction and decided the case after considering the above observations of this Bench and also give reasonable opportunity of being heard to the assessee after bringing of required evidences on record. The assessee challenged in the second ground of appeal that the ld CIT(A) is allowed the appeal partly by applying DVO s valuation in coowners case U/s 50C but Section 50C is not applicable in the case of assessee. Therefore, the order of the ld CIT(A) is reversed to that extent as observed in preceding paras. Accordingly, the revenue s appeal as well as assessee s appeal are set aside to the Assessing Officer. - Decided in favour of assessee and revenue for statistical purposes.

Issues Involved:

1. Applicability of Section 50C(1) of the Income Tax Act, 1961.
2. Validity of valuation by the Sub-Registrar.
3. Consideration of the land's geographical and legal restrictions.
4. Reference to the Departmental Valuation Officer (DVO) under Section 50C(2).
5. Retrospective application of the term "assessable" in Section 50C.
6. Rights in land versus ownership of land.

Detailed Analysis:

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

The core issue revolves around whether the provisions of Section 50C(1) are applicable to the assessee's case. The assessee argued that Section 50C(1) should not apply as there was no notified rate (DLC rate) for the land for stamp duty purposes and no registered sale deed for the transaction of sale. Additionally, the land in question was situated in a demarcated area with significant restrictions, making it unsuitable for residential or commercial use. The Tribunal noted that Section 50C(1) applies to the transfer of a capital asset being land or building or both, and the valuation by the stamp valuation authority should be considered.

2. Validity of Valuation by the Sub-Registrar:

The Sub-Registrar valued the property at Rs. 6,97,66,620/- based on DLC rates, which was contested by the assessee. The Tribunal observed that the valuation adopted by the Sub-Registrar lacked legal sanctity as the land was not registered, and the Sub-Registrar applied residential area rates to agricultural land. The Tribunal emphasized that the Sub-Registrar's valuation should not be the sole basis for determining the capital gains, especially when the land had geographical and legal restrictions.

3. Consideration of the Land's Geographical and Legal Restrictions:

The land in question was situated in the bed of Amani Shah Ka Nallah and within the catchment area of Goolar Dam, making it unsuitable for residential or commercial use. The Tribunal acknowledged these restrictions and noted that the land was classified as "Khatli" in government records, indicating it was not saleable property. This classification and the geographical limitations were crucial in determining the fair market value of the land.

4. Reference to the Departmental Valuation Officer (DVO) under Section 50C(2):

The Tribunal highlighted that the Assessing Officer (AO) should have referred the matter to the DVO under Section 50C(2) when the assessee objected to the valuation by the Sub-Registrar. The Tribunal cited previous judgments emphasizing that the reference to the DVO is not discretionary but mandatory. The DVO's valuation in the case of another co-owner, Smt. Shanta Devi Jain, was Rs. 1,27,07,500/-, considering the land's restrictions and geographical limitations. The Tribunal directed the AO to adopt the lower of the values assessed by the DVO or the Sub-Registrar.

5. Retrospective Application of the Term "Assessable" in Section 50C:

The Tribunal examined whether the term "assessable" inserted in Section 50C w.e.f. 01/10/2009 should be applied retrospectively. The Tribunal referred to various judgments, including the Hon'ble Madras High Court's decision in CIT vs. R. Sugantha Ravindram, which concluded that the term "assessable" is prospective and not applicable to transactions prior to its insertion. Consequently, the Tribunal held that the AO's reference to the registering authority was out of jurisdiction as the sale occurred before the amendment.

6. Rights in Land versus Ownership of Land:

The Tribunal distinguished between ownership of land and rights in land. The assessee argued that he only had rights to agricultural operations on the land, which was owned by the State Government. The Tribunal agreed that rights in land are distinct from ownership and that Section 50C applies only to land or building or both, not to rights in land. Thus, the Tribunal concluded that Section 50C was not applicable in this case.

Conclusion:

The Tribunal set aside the AO's order and directed the AO to re-evaluate the capital gains considering the Tribunal's observations. The AO was instructed to apply the provisions of the Income Tax Act, including Section 55A, to determine the correct capital gains and provide the assessee with a reasonable opportunity to present evidence. The Tribunal allowed both the revenue's and the assessee's appeals for statistical purposes.

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