2016 (3) TMI 27 - HC - Income Tax

Capital gains - applicability of provisions of Section 50C - transfer u/s 2(47) - Determine the nature of the capital gains/loss on renunciation of right to subscribe for additional shares/debentures - Held that - The provisions of section 50C are attracted to the sale of land in question made by the assessee Arrears of dividend received by dealer of shares after the purchase of shares alongwith such arrears is of capital nature and the same cannot be assessed to tax under section 10 or section 12 of the Income Tax Act, 1922. It was further held that a receipt which in law cannot be regarded as income cannot become so merely because the assessee erroneously credited it to the profit and loss account. In Navin Jindal s case (2010 (1) TMI 291 - SUPREME COURT), it was held that right to subscribe for additional offer of shares/debentures on rights basis comes into existence when the company decides to come out with the rights offer and therefore, in order to determine the nature of the capital gains/loss on renunciation of right to subscribe for additional shares/debentures, the crucial date is the date on which such right to subscribe for additional shares/debentures comes into existence and the date of transfer i.e. renunciation of such right. - Decided against the assessee

Issues Involved:
1. Applicability of Section 50C of the Income Tax Act, 1961 to the sale deed dated 10.05.2005.
2. Taxability of capital gains for the assessment year 2006-07 based on the agreement to sell dated 03.11.2004.
3. Interpretation and retrospective effect of Explanation 2 to Section 2(47) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of Section 50C of the Income Tax Act, 1961:
The appellant-assessee contended that Section 50C of the Act should not apply to the sale deed dated 10.05.2005. Section 50C, inserted by the Finance Act, 2002 effective from 01.04.2003, provides that if the consideration received or accruing from the transfer of a capital asset (land or building) is less than the value adopted by the Stamp Valuation Authority for stamp duty purposes, the value adopted for stamp duty will be deemed the full value of consideration for capital gains computation under Section 48. The Tribunal and CIT(A) upheld the Assessing Officer's application of Section 50C, noting that the fair market value determined by the Assistant Valuation Officer (AVO) was Rs. 18,16,250/-, which was less than the stamp valuation authority's rate of Rs. 22,00,000/-. The Tribunal concluded that the provisions of Section 50C are applicable, and the deemed sale consideration should be based on the stamp valuation authority's rate.

2. Taxability of Capital Gains for the Assessment Year 2006-07:
The appellant argued that the agreement to sell dated 03.11.2004 should determine the taxability, making it applicable for the assessment year 2005-06. However, the Tribunal found that the possession of the land was handed over to the vendee on 10.05.2005, the date of the registered sale deed. The Tribunal concluded that the transfer became effective on 10.05.2005, making the capital gains taxable in the assessment year 2006-07. The Tribunal dismissed the appellant's reliance on CIT vs. Podar Cement Pvt. Limited, noting that the possession was not handed over before 10.05.2005, and the case was distinguishable.

3. Interpretation and Retrospective Effect of Explanation 2 to Section 2(47):
Explanation 2 to Section 2(47), inserted by the Finance Act, 2012 with retrospective effect from 01.04.1962, defines "transfer" to include parting with an asset or interest therein by an agreement. The appellant claimed that this explanation should apply, making the capital gains taxable in the assessment year 2005-06. However, the Tribunal noted that the appellant had already claimed capital gains for the assessment year 2006-07 based on the sale deed dated 10.05.2005. The Tribunal held that the appellant could not now challenge the assessability for the assessment year 2006-07 based on the retrospective amendment. The Tribunal found no merit in the appellant's arguments and upheld the findings of the lower authorities.

Conclusion:
The Tribunal upheld the applicability of Section 50C to the sale deed dated 10.05.2005, making the capital gains taxable in the assessment year 2006-07. The appellant's reliance on Explanation 2 to Section 2(47) was dismissed, as the appellant had already claimed capital gains for the assessment year 2006-07. The appeal was dismissed, and the substantial question of law was answered against the assessee.

← Previous Next →