2017 (9) TMI 1045 - HC - Income Tax

Sale of right in the land through power of attorney - addition u/s 50C after having held that the transaction was transfer u/s 2(47) read with Section 50(c) - Held that - AO was not justified in applying the provisions of Section 50C of the I.T. Act for increasing the short terms capital gain. The Ld. CIT(A) was justified in deleting the increase in the value of short term capital gain. It is not the case of the Revenue that the assessee has received more consideration as shown in the agreement. In case there was any evidence to show that the consideration received by the assessee was more than the consideration mentioned in the agreement then the Revenue could have increased the short term capital gain. On the basis of Section 50C of the Act, the AO was not justified in enhancing the short term capital gain. It will not be out of place to mention here that those transactions which are shown as transaction under Section 50(C) Explanation-2 , even if taken into consideration, the transaction which take place as short term capital gain in total consideration of the payment after sale agreement was determined as ₹ 1.35 crores and it cannot be assessed. Therefore, both the authorities have committed no error in reaching the conclusion. Neither the stamp authority has assessed the complete charges because transaction has not taken place, and in our considered opinion, the valuation which was determined by the AO is nothing but harassment to the honest tax payers of a transaction which has been rightly reversed by the CIT(A) and confirmed by the Tribunal. In this view of the matter, both the CIT(A) and Tribunal have not committed any error. The issue is answered in favour of the assessee and against the department.

Summary

Issues Involved:

1. Applicability of Section 50C of the Income Tax Act, 1961.
2. Interpretation of the term "assessable" as per the amendment to Section 50C.
3. Validity of the transaction under Section 2(47) of the Income Tax Act.
4. Tribunal's dismissal of the department's appeal and partial allowance of the assessee's cross-objection.

Detailed Analysis:

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

The primary issue revolves around whether Section 50C applies to the transaction in question. Section 50C deals with the valuation of the property for the purpose of capital gains tax. It states that if the consideration received on the transfer of a capital asset (land or building) is less than the value assessed by the stamp valuation authority, the value assessed by the authority shall be deemed the full value of the consideration.

The assessee argued that Section 50C was not applicable as the transaction was not registered with the stamp duty authority, and no value was adopted or assessed by such authority. The Tribunal supported this view, citing that Section 50C applies only when the transfer is registered with the stamp duty authority. This interpretation was backed by the Tribunal's previous decisions in similar cases, such as ITO vs. Shri Shailendra Soni and ITO vs. Shri Dinesh Kumar Khatoria, where it was held that Section 50C does not apply to unregistered transactions.

2. Interpretation of the term "assessable" as per the amendment to Section 50C:

The Finance Act, 2009, amended Section 50C to include the term "assessable," effective from 1st October 2009. This amendment aimed to cover transactions executed through agreements to sell or power of attorney, even if not registered with the stamp duty authority. The Tribunal noted that this amendment was prospective and not applicable to transactions before 1st October 2009. The Tribunal referred to the explanatory memorandum of the Finance (No.2) Bill, 2009, and a circular issued by the Board (Circular No.5/2010) to support its conclusion that the amendment could not be applied retrospectively.

3. Validity of the transaction under Section 2(47) of the Income Tax Act:

Section 2(47) defines "transfer" in relation to a capital asset, including various forms of transactions such as sale, exchange, relinquishment, or any arrangement that enables the enjoyment of the property. The Tribunal examined whether the transaction in question constituted a transfer under Section 2(47). The assessee contended that only the right to purchase the property was transferred, not the property itself. However, the Tribunal found that the assessee had indeed transferred rights in the property, which amounted to a transfer under Section 2(47).

The Tribunal observed that the assessee had executed an agreement to sell the property and transferred possession, which qualifies as a transfer under Section 2(47). This interpretation was consistent with the Tribunal's previous decisions and the explanatory memorandum of the Finance (No.2) Bill, 2009.

4. Tribunal's dismissal of the department's appeal and partial allowance of the assessee's cross-objection:

The Tribunal dismissed the department's appeal, which argued that the CIT(A) erred in holding that Section 50C was not applicable and in deleting the addition of ?65.00 lacs made by the AO under Section 50C. The Tribunal upheld the CIT(A)'s decision, agreeing that Section 50C was not applicable as the transaction was not registered with the stamp duty authority and the amendment to Section 50C was not retrospective.

The Tribunal also partially allowed the assessee's cross-objection, which contested the CIT(A)'s finding that the transaction was a transfer attracting Section 50C. The Tribunal reiterated that the provisions of Section 50C, as amended, were not applicable to the transaction in question, as it occurred before the amendment's effective date.

Conclusion:

The High Court upheld the Tribunal's decision, agreeing that Section 50C was not applicable to the transaction as it was not registered with the stamp duty authority and the amendment to include "assessable" was prospective. The Court found no error in the Tribunal's interpretation of the law and dismissed the department's appeal, ruling in favor of the assessee.