2018 (12) TMI 1395 - HC - Income Tax

Capital gain computation on the basis of stamp duty valuation of the property in question - invoking section 50C - stamp duty authority had assessed the value of the property on the date of the execution of development agreement - Held that - It can be seen that there were two significant factors why the CIT(A) and the Tribunal did not adopt the valuation of the stamp authority for the purpose of collecting capital gain tax in the hands of the assessee. Firstly, there was a gap of nearly 3 years between the date of execution of the MOU and the execution of a formal development agreement. Obviously, the valuation made by the stamp authority was as on the date of the execution of the development agreement. Secondly and more importantly, the stamp valuation of ₹ 4.63 crores was for a larger area of 7644 sq. meters where the assessee had assigned the development rights only with respect to 3872 sq. meters. No evidence has been produced by the Revenue at any stage that the assessee actually received the value which was adopted by the stamp valuation authority. Even the development agreement clearly mention the area and the assessee is not the owner of the TDR, thus, cannot be saddled with the value adopted by the stamp duty purposes as the assessee is only the owner of 3872 sq.mts. for which he received the consideration of ₹ 2,51,00,000/, thus, the capital gain has to be computed on the amount which the assessee actually received, consequently, we are in agreement with the finding of the CIT (Appeals) that on the basis of deeming provision of section 50C, no addition can be made. - Decided against revenue

Summary

Issues involved:
1. Valuation of property for capital gain tax assessment based on stamp duty valuation versus actual consideration received by the assessee.
2. Interpretation of Section 50C of the Income Tax Act, 1961 in relation to the computation of capital gains.
3. Discrepancy between the area valued by stamp duty authorities and the area actually sold by the assessee.

Detailed Analysis:

1. The main issue in this case was the variance in the valuation of property for capital gain tax assessment. The assessee entered into a Memorandum of Understanding (MOU) with a builder for a consideration of ?2.51 crores, but the stamp duty authority assessed the value at ?4.63 crores based on a larger area. The Assessing Officer computed the capital gain based on the stamp duty valuation, leading to a dispute. The CIT(A) and the Tribunal did not accept the stamp duty valuation due to the time gap between the MOU and the formal agreement, and the difference in the area considered for valuation.

2. The interpretation of Section 50C of the Income Tax Act was crucial in this case. Section 50C deals with the computation of capital gains in case of transfer of immovable property based on stamp duty valuation. The Tribunal analyzed the provisions of Section 50C along with the facts of the case to determine that the assessee should only be taxed on the actual consideration received, not the stamp duty valuation. The Tribunal emphasized that no adverse inference could be drawn without evidence that the assessee received the value adopted by the stamp valuation authority.

3. Another significant issue was the discrepancy between the area valued by the stamp duty authorities and the area actually sold by the assessee. The stamp duty valuation was for a larger area than the portion of the property for which the development rights were assigned. The Tribunal considered this factor along with the time gap between the MOU and the formal agreement to conclude that the stamp duty valuation was not appropriate for computing capital gains.

In conclusion, the High Court upheld the Tribunal's decision, stating that no error was committed, and no question of law arose. The tax appeal was dismissed, affirming that the capital gain tax should be computed based on the actual consideration received by the assessee, considering the specific circumstances of the case.