2019 (3) TMI 1204 - HC - Income Tax

Deduction u/s 54EC - computation of capital gain tax after claiming exemption under section 54EC - applicability of deeming fiction application u/s 50C - Tribunal reversing the order of CIT in confirming the action of the assessing officer in taxing capital gain, to the extent of the enhanced and notional sale consideration under section 50C - whether Appellant had invested the entire sale consideration accruing on transfer of the immovable property in the prescribed bonds in terms of section 54 EC? - assessee was a joint owner of a plot of land situated at Borivali, Mumbai, having 25% undivided share in the plot - HELD THAT - Clauses (a) and (b) of subsection (1) of section 54EC would always have limit of ₹ 50 lakhs specified in the further proviso for investment in the specified asset. No conflict or any incongruent consequences of applying the provisions of section 50C for the purpose of computation of capital gain tax after claiming exemption under section 54EC of the Act. The deeming fiction under section 50C of the Act, must be given its full effect and the Court should not allow to boggle the mind while giving full effect to such fiction. We are not opposing the proposition canvassed by the Counsel of the Assessee that deeming fiction must be applied in relation to the situation for which it is created. However, while giving full effect to the deeming fiction contained under section 50C of the Act for the purpose of computation of the capital gain under section 48, for which section 50C is specifically enacted, the automatic fallout thereof would be that the computation of the assessee s capital gain and consequently the computation of exemption under section 54EC, shall have to be worked out on the basis of substituted deemed sale consideration of transfer of capital asset in terms of section 50C. Any other interpretation, particularly one canvassed by the learned Counsel for the Assessee, would render the provisions of section 50C redundant. In a situation like the one on hand, even if for the purpose of section 48, in terms of section 50C of the Act, the sale consideration deemed to have been received by the Assessee may be much higher than one declared in the sale deed, the Assessee would claim no further capital gain tax liability by simply claiming to have made investment in specified asset the full declared sale consideration. Tribunal has not committed error in interpreting the relevant statutory provision. Income Tax Appeals are therefore dismissed.

Issues Involved:
1. Applicability of Section 50C in computing capital gains for exemption under Section 54EC.
2. Interpretation of deeming fiction under Section 50C.
3. Harmonious construction of Section 50C and Section 54EC.
4. Legislative intent and practical implications of Section 50C and Section 54EC.

Detailed Analysis:

1. Applicability of Section 50C in computing capital gains for exemption under Section 54EC:
The primary issue revolves around whether the deeming fiction under Section 50C applies when computing capital gains for the purpose of claiming exemption under Section 54EC. The Tribunal reversed the CIT's order, holding that the deeming fiction in Section 50C cannot be ignored for exemption purposes under Section 54EC. The assessee argued that since the entire sale consideration was invested in specified bonds, full exemption should be granted, irrespective of the deemed sale consideration under Section 50C.

2. Interpretation of deeming fiction under Section 50C:
The deeming fiction under Section 50C states that if the sale consideration declared is less than the value assessed by the stamp valuation authority, the latter shall be deemed the full value of consideration for computing capital gains under Section 48. The Tribunal and the High Court emphasized that this fiction must be given full effect. The assessee’s argument that the fiction should be limited to computation under Section 48, and not extend to exemption under Section 54EC, was rejected.

3. Harmonious construction of Section 50C and Section 54EC:
The assessee contended that the provisions of Section 50C and Section 54EC should be harmoniously construed to avoid absurd results. The High Court, however, found no conflict or incongruent consequences in applying Section 50C for computing capital gains and subsequently for exemption under Section 54EC. The Court held that the computation of capital gains and the corresponding exemption must be based on the deemed sale consideration under Section 50C.

4. Legislative intent and practical implications of Section 50C and Section 54EC:
The High Court examined the legislative intent, noting that Section 50C was introduced to curb undervaluation of sale consideration in property transactions. The Court rejected the assessee's argument that requiring investment based on deemed consideration imposes an impossible task. The Court maintained that the legislature did not intend to render Section 50C redundant, and any interpretation contrary to this would defeat its purpose.

Conclusion:
The High Court upheld the Tribunal's interpretation, confirming that the deeming fiction under Section 50C applies for computing capital gains and the corresponding exemption under Section 54EC. The appeals were dismissed, affirming that the assessee must compute capital gains and claim exemptions based on the deemed sale consideration as per Section 50C.

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