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2019 (10) TMI 1453 - AT - Income TaxCapital gain computation - LTCG - addition invoking section 50C - as per AO assessee had transferred certain ancestral plot of land by way of his capital contribution as a partner in two partnership firms - HELD THAT - As can be gathered from a perusal of Sec. 45(3), the charging of the transaction therein envisaged to levy of capital gain tax and quantification of such tax, both go hand in hand for facilitating quantification of the capital gains tax. Now, in case the quantification of the capital gain tax as envisaged in Sec. 45(3) is substituted by Sec. 50C, then, in our considered view, the charging to tax of the transaction under consideration would in itself stand jeopardised and the section would be rendered as inoperative. In sum and substance, the provisions of Sec. 45(3) cannot be substituted. - the deeming of the amount recorded in the books of accounts of the firm or other association of persons or body of individuals, as the full value of consideration received or accruing as a result of the transfer of the capital asset in Sec. 45(3), cannot be dissected and the charging provision therein provided be allowed to subsist in isolation. As such, we are of a strong conviction, that the deeming of the amount recorded in the books of accounts of the firm or other association of persons or body of individuals, as the full value of consideration received or accruing as a result of the transfer of the capital asset in Sec. 45(3), cannot be substituted by the deemed sale consideration contemplated in Sec. 50C of the Act. Apart there from, we find that as per the Latin maxim generallia speciali bus non derogant , which is a rule of construction, the special provisions prevail over the general provisions. In the backdrop of our aforesaid observations, we are of a strong conviction that in case the legislature in all its wisdom would had intended to apply the deeming provisions of Sec. 50C to the transactions contemplated in Sec. 45(3) of the Act, then it would have removed Sec. 45(3) from the Act. Having not so done, we are of the considered view, that the deeming provisions of Sec. 50C cannot be transposed and therein be read into Sec. 45(3) of the Act, as the same would frustrate the very chargeability to tax of the transactions therein provided. CIT(A) had rightly vacated the addition of ₹ 4,21,02,957 that was made by the A.O by substituting the market value of the property as per the ready reckoner rates u/s 50C, as against the amount recorded in the books of accounts of the respective firms, which was adopted by the assessee as the full value of consideration received or accruing as a result of the transfer. Accordingly, finding no infirmity in the order of the CIT(A) to the said extent, we uphold the same. Grounds of appeal Nos. 1 2 are dismissed. Deemed dividend addition u/s 2(22)(e) - HELD THAT - We find no infirmity in the order of the CIT(A), who rightly observing that as none of the shareholders of M/s Gayatri Films Music Pvt. Ltd. was having not less than 20% of equity capital and was simultaneously having not less than 10% shareholding in the lending company i.e M/s Sagar Entertainment Ltd., therefore, the addition made by the A.O u/s 2(22)(e) was principally not sustainable. At this stage, we may herein observe, that the revenue had not been able to point out before us that as to how the aforesaid observations of the CIT(A) suffered from any perversity. In the backdrop of our aforesaid deliberations, we are persuaded to subscribe to the view taken by the CIT(A) that in the absence of the shareholding pattern required for applying deeming provisions of Sec. 2(22)(e), the addition made by the A.O was not sustainable. Order of the CIT(A) in context of the aforesaid issue is upheld. Grounds of appeal Nos. 2 to 5 are dismissed.
Issues Involved:
1. Applicability of Section 50C over Section 45(3) of the Income Tax Act, 1961. 2. Interpretation of the term "assessable" in Section 50C. 3. Addition of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. 4. Determination of beneficial shareholding exceeding 20% in GFMPL. 5. Conditions for treating an advance as deemed dividend under Section 2(22)(e). Issue-wise Detailed Analysis: 1. Applicability of Section 50C over Section 45(3) of the Income Tax Act, 1961: The primary issue was whether the provisions of Section 50C, which deals with the adoption of stamp duty value as full value of consideration, would override Section 45(3), which deems the amount recorded in the books of accounts of the firm as the full value of consideration for capital gains computation. The Tribunal observed that Section 45(3) was introduced to address the problem of indeterminable consideration in the case of capital contribution by a partner to a firm, as highlighted in the Supreme Court’s decision in Kartikeya V. Sarabhai Vs. CIT. It was concluded that the deeming provisions of Section 50C cannot be transposed into Section 45(3) as it would render the latter otiose. The Tribunal upheld the CIT(A)'s decision that the amount recorded in the books of accounts should be considered the full value of consideration, dismissing the revenue's appeal on this ground. 2. Interpretation of the term "assessable" in Section 50C: The revenue argued that the insertion of the word "assessable" in Section 50C made it clear that even in the absence of registration of the deed, the stamp duty value should be adopted as the deemed full value of consideration. However, the Tribunal did not find merit in this argument, as it was already concluded that Section 50C does not apply to transactions covered under Section 45(3). Thus, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground as well. 3. Addition of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961: The Assessing Officer (A.O) had added an amount of ?5,37,46,284 as deemed dividend under Section 2(22)(e) in the hands of the assessee, based on the advances received by M/s Gayatri Films & Music Pvt. Ltd. (GFMPL) from M/s Sagar Entertainment Pvt. Ltd. (SEPL). The CIT(A) observed that none of the shareholders of GFMPL held more than 20% equity capital while simultaneously holding more than 10% shareholding in the lending company (SEPL). The CIT(A) also noted that the shareholding of the assessee in his individual capacity could not be clubbed with his HUF shareholding, nor could Jyoti Sagar's individual shareholding be combined with his shareholding as Executor of the Estate of Late Subhash Sagar. The Tribunal upheld the CIT(A)'s decision, noting that the requisite conditions for invoking Section 2(22)(e) were not satisfied. 4. Determination of beneficial shareholding exceeding 20% in GFMPL: The revenue contended that the assessee held more than 20% beneficial shareholding in GFMPL. However, the CIT(A) found that the A.O had misconceived the shareholding facts. The Tribunal concurred, observing that the shareholding of Jyoti Sagar as Executor of the Estate of Late Subhash Sagar could not be clubbed with his individual shareholding. Similarly, the shareholding of the assessee could not be combined with his HUF shareholding. The Tribunal upheld the CIT(A)'s finding that none of the shareholders of GFMPL held not less than 20% equity capital while simultaneously holding not less than 10% shareholding in SEPL. 5. Conditions for treating an advance as deemed dividend under Section 2(22)(e): The Tribunal examined whether the conditions stipulated for treating an advance as deemed dividend under Section 2(22)(e) were fulfilled. It was concluded that the shareholding pattern required for applying the deeming provisions was not met. The revenue failed to demonstrate any perversity in the CIT(A)'s observations. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the addition of ?5,37,46,284 made by the A.O under Section 2(22)(e). Conclusion: The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order on all contested grounds. The decision reaffirmed the applicability of Section 45(3) over Section 50C for capital contribution transactions and clarified the conditions under which advances could be treated as deemed dividends under Section 2(22)(e).
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