2017 (5) TMI 1807 - AT - Income Tax

Long term capital gain - addition interpreting the provision u/s 50C - transfer of capital asset in which year - difference between the market value as per Stamp Valuation Authority within the meaning of section 50C and the sale consideration for sale of properties - HELD THAT - Assessee has received 25% of sale consideration in the assessment year 2011-12, the year in which the agreement to sell was made and due to the reasons beyond the control of the assessee viz. permission to sell from the Collector could not be obtained in that year itself and the same could be obtained in the assessment year 2012-13. Taking respectful note of the decision of Sanjeev Lal 2014 (7) TMI 99 - SUPREME COURT wherein held that when the agreement to sell in respect of any capital asset is made then obviously some rights had been transferred in favour of the vendee/purchaser and the remaining rights which the appellant-seller had in respect of the capital asset, in question, had been extinguished as after execution of the sale agreement it is not validly permissible to sell the same property to someone else as per the provisions of Transfer of Property Act. Amendment inserted by way of Finance Act, 2016 w.e.f. 1.4.2017 to the said provision for full valuation of consideration in certain cases u/s 50C - The mandate of the legislature is that where the date of agreement fixing the amount of consideration and the date of registration for the transfer of capital asset are not the same, the value adopted or assessable by the stamp valuation authority on the date of agreement may be taken for the purpose of computing the full value of consideration for such transfer. This amendment is applicable w.e.f. 1.4.2017 as per the amendment itself. In our considered opinion, this amendment is not a substantial amendment but the same is clarificatory, therefore, if this amendment is taken into consideration in the light of the dicta laid down in the case of Sanjeev Lal 2014 (7) TMI 99 - SUPREME COURT then it has to be held that the date of agreement of sale is relevant for the purpose of computing full value of consideration of such transfer and hence the conclusion drawn by the CIT (Appeals) is quite reasonable and meaningful. CIT (Appeals) was quite correct in adopting the same and following the order of ITAT, Delhi Bench in the case of ITO vs. Modipan Limited 2015 (1) TMI 609 - ITAT DELHI We are inclined to accept the contention of assessee which was accepted by the CIT (Appeals) that the circle rate prevailing on the date of registration of agreement to sell and not circle rate as on the date of sale deed, should be adopted as sale consideration for computation of income of the assessee from LTGS u/s 50C of the Act. Decided against revenue.

Summary

Issues Involved:
1. Applicability of Section 50C of the Income Tax Act.
2. Determination of the date of transfer for the purpose of computing capital gains.
3. Validity of adopting the circle rate as on the date of agreement versus the date of sale deed.

Issue-wise Detailed Analysis:

1. Applicability of Section 50C of the Income Tax Act:
The core issue in this case was whether the provisions of Section 50C of the Income Tax Act were applicable. The Assessing Officer (AO) observed a difference of Rs. 68,98,200 between the sale consideration shown by the assessee and the valuation by the Stamp Valuation Authority. The AO contended that this difference should be added to the income of the assessee under Section 50C, which mandates that the value adopted by the Stamp Valuation Authority for the purpose of stamp duty shall be deemed to be the full value of consideration for the transfer of capital assets.

2. Determination of the Date of Transfer for the Purpose of Computing Capital Gains:
The assessee argued that the transfer of the property should be considered to have occurred in the financial year (FY) 2010-11 when the agreement to sell was executed, and part of the sale consideration was received. The AO, however, held that the transfer took place in FY 2011-12, as the sale deed was registered and possession handed over only after obtaining the necessary permissions from the Collector in March 2012. The AO emphasized that the majority of the sale consideration was received in FY 2011-12, and the transfer was subject to the Collector's permission, which was a condition precedent for the sale.

3. Validity of Adopting the Circle Rate as on the Date of Agreement versus the Date of Sale Deed:
The assessee contended that the circle rate as on the date of the agreement to sell (FY 2010-11) should be adopted for computing the capital gains under Section 50C, rather than the circle rate as on the date of the sale deed (FY 2011-12). The CIT(A) accepted this contention, relying on the decision of the Supreme Court in the case of Sanjeev Lal, which held that an agreement to sell creates a right in personam in favor of the vendee, and thus, some rights in the property are extinguished at the time of the agreement. The CIT(A) directed the AO to verify the circle rate as on the date of the agreement and adopt the same if it was more than the sale consideration.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, agreeing that the transfer of property should be considered to have occurred in FY 2010-11 when the agreement was executed and part of the sale consideration was received. The Tribunal noted that the delay in registering the sale deed was due to reasons beyond the control of the assessee, i.e., the delay in obtaining the Collector's permission. The Tribunal also agreed that the amendment to Section 50C, effective from 1.4.2017, which allows the adoption of the stamp duty value as on the date of the agreement, is clarificatory and should be applied retrospectively. Thus, the Tribunal concluded that the circle rate as on the date of the agreement should be adopted for computing the capital gains under Section 50C.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming that the CIT(A) was justified in adopting the circle rate as on the date of the agreement for the purpose of computing the capital gains under Section 50C. The Tribunal's decision was based on the interpretation of the term "transfer" under Section 2(47) of the Income Tax Act and the Supreme Court's ruling in the case of Sanjeev Lal. The Tribunal emphasized that the amendment to Section 50C is clarificatory and should be applied retrospectively to ensure a fair and reasonable computation of capital gains.