2019 (3) TMI 1455 - AT - Income Tax

Computation of LTCG - Addition U/s 50C - determination of price at which capital asset sold - Transfer of clear and marketable title - assessee is a Private Family Discretionary Trust settled by Sir Mohammed Yusuf in 1929 - assessee-trust was in possession of certain right in the land which was in the name of assessee, however, the assessee was not in possession - assessee trust issued a public notice for inviting bids for sale of their rights in the said properties on the basis of as is where is vide public notice published - bid of M/s Essa Associates was accepted being highest bidder - Fair Market Value of the right was ascertained by the assessee on the basis of highest bidder of the participants received by assessee, which was duly approved by Hon ble Bombay High Court accepted and granted the approval - HELD THAT - There is no doubt from the Public notice issued by the assessee for sale of the piece of the land and from MOI that other documentary evidence produced by the assessee that the was sufficient to indicate that the property was under various encumbrances and the assessee could not be said to be the absolute marketable title of the said property. At the same time, it is also true that the said documentary evidence read with the MOI entered into by the assessee with M/s. Essa Associate that the assessee was still holding certain rights in the property and the same constituting capital asset. Moreover, the MOI was duly approved by Hon ble Bombay High Court in its order dated 01.10.2004. The value adopted for the purpose of payment of stamp duty is not disputed by the assessee. The assessing officer has not brought on record that the property under sale was not was under various encumbrances and the assessee was having the absolute marketable title of the said property. No material is brought on record by assessing officer that the assessee has received much more consideration than shown in the MOI. AO treated the stamp valuation rate as the value of consideration, dispite the facts that the assessee throughout the proceedings contended that the assessee was neither having possessing of the impugned piece of land nor having marketable title. The assessee offered the said piece of land on the basis as is where is . These vital facts were ignored by the lower authorities. As relying on KP VARGHESE 1981 (9) TMI 1 - SUPREME COURT and KHOOBSURAT RESORTS PVT. LTD. 2012 (11) TMI 590 - DELHI HIGH COURT when the land under sale was having encumbrances the adoption of stamp valuation as a sale consideration by applying the provisions of section 50C was not justified by assessing officer, in absence of any evidence that the sale consideration was more than the value shown in the MOI. Therefore, we direct the assessing officer to work out the capital gain on the basis of consideration shown by the assessee. Addition under the head income from other sources - amounts distributed in the hands of beneficiary have been taxed at the hand of assessee, though it has been offered to tax in their individual return - HELD THAT - CIT(A) has recorded that the assessee failed to established the shares of the various beneficiary on the basis of trust deed and their return of income to substantiate that the sums received from the assessee have been offered to tax by those individual. Considering the contention of both the parties this issue is restored to the file of assessing officer to verify the fact and grant relief to the assessee in accordance with law. Needless to direct that the assessing officer shall grant opportunity to the assessee for filing relevant documentary evidences to substantiate its contention - thus ground of appeal is allowed for statistical purpose.

Issues Involved:
1. Invocation of Section 50C of the Income Tax Act.
2. Addition of Long Term Capital Gain (LTCG) based on stamp duty valuation.
3. Timing of income recognition for capital gains.
4. Double taxation of income distributed to beneficiaries.
5. Verification of individual returns for income offered by beneficiaries.

Detailed Analysis:

1. Invocation of Section 50C of the Income Tax Act:
The assessee challenged the invocation of Section 50C, arguing that the sale price of the capital asset was the fair market value as per the highest bid received in response to a public advertisement in July 2003, approved by the Bombay High Court on 1-10-2004. The assessee contended that the provisions of Section 50C should not apply as the transaction price was finalized in 2003 and the Memorandum of Intent (MOI) was entered into on 18-12-2003. The Tribunal noted that the property was encumbered and the assessee did not have a clear marketable title. The Tribunal referred to various case laws, including K.P. Varghese vs. ITO, which held that Section 50C should not be applied in cases of bona fide transactions where the full value of consideration is correctly declared. The Tribunal concluded that the adoption of stamp valuation as the sale consideration by applying Section 50C was not justified in the absence of evidence that the sale consideration was more than the value shown in the MOI.

2. Addition of Long Term Capital Gain (LTCG) Based on Stamp Duty Valuation:
The Assessing Officer (AO) made an addition of LTCG based on the stamp duty valuation, which was significantly higher than the sale consideration declared by the assessee. The AO treated the stamp valuation as the value of consideration, despite the assessee's contention that the property was encumbered and sold on an "as is where is" basis. The Tribunal observed that the property was under various encumbrances and the assessee did not have an absolute marketable title. The Tribunal directed the AO to compute the capital gain based on the consideration shown by the assessee, allowing grounds No. 1 to 3 of the appeal.

3. Timing of Income Recognition for Capital Gains:
The assessee argued that the capital asset was transferred during the Assessment Year (AY) 2010-11 in accordance with the Bombay High Court order, and only the registration was done in AY 2011-12. Since the Tribunal granted relief to the assessee on grounds No. 1 to 3, this ground did not require specific adjudication.

4. Double Taxation of Income Distributed to Beneficiaries:
The assessee contended that the income distributed to the beneficiaries of the trust had already been offered to tax in their individual returns, leading to double taxation. The Tribunal noted that the assessee failed to furnish the required copies of returns of the beneficiaries to substantiate this claim. The issue was restored to the AO for verification, directing the assessee to provide relevant documentary evidence.

5. Verification of Individual Returns for Income Offered by Beneficiaries:
The Tribunal directed the AO to verify the fact that the amounts distributed to the beneficiaries had been offered to tax in their individual returns. The AO was instructed to grant relief to the assessee in accordance with the law, after providing an opportunity for the assessee to file relevant documentary evidence.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal directed the AO to compute the LTCG based on the consideration shown by the assessee and to verify the claim of double taxation of income distributed to beneficiaries. The Tribunal emphasized the need for the AO to provide the assessee an opportunity to substantiate its claims with relevant documentary evidence.

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