2019 (9) TMI 339 - AT - Income Tax

Determination of capital gain assessable on account of sale of property - in the hands of confirming party exercise u/s.50C(2) has been carried out and the DVO has determined the value of the property - whether full consideration required to be deemed u/s.50C for the purposes of section 48 of the Act cannot exceed this amount? - HELD THAT - This agreement was executed in respect of the immovable property, a right in persona is created in favour of the transferee/vendee (confirming party). When such right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because vendee in whose favour right in persona is created has legitimate right to enforce such specific performance of the agreement, if the vendor for some reason is not executing the sale deed. By virtue of agreement to sell, some right is given to the vendee by the vendor. It is encumbrance on the property and on relinquishment of such right confirming parties were getting ₹ 23 lakhs which has also been made subject to tax in their hands. In this situation, we are of the view that the issue needs to be remitted back to the Assessing Officer for determining the fair market value of the property sold by the assessee on the date of sale. He will keep two factors in mind, (a) the fair market value determined by the DVO while considering the case of confirming parties, and (b) encumbrance created on the property by virtue of agreement dated 10/12/2008 in favour of three buyers S/Shri Bhavik B.Trivedi, Milind V. Varavadekar and Smt.Madhuben J. Trivedi. After assessing the effect of these factors, he will determine the fair market value of the property which can be considered as deemed full consideration u/s.50C for the purposes of computing capital gain u/s.48 of the Act. Issue is remitted back to the file of Assessing Officer for fresh adjudication - Appeal of the Assessee is allowed for statistical purposes.

Summary

Issues:
Determining capital gain on the sale of property - Application of section 50C of the Income Tax Act - Consideration received versus stamp duty valuation - Additional evidence submission - Fair market value determination by District Valuation Officer (DVO) - Validity of notarized agreement for sale - Encumbrance on property due to agreement with confirming parties.

Analysis:
The appellant contested the order of the Ld. Commissioner of Income Tax (Appeals) regarding the determination of capital gain on the sale of a property for Assessment Year 2009-10. The dispute centered around the computation of capital gain arising from the sale of a property in Darjipura, Dist. Baroda. The appellant initially calculated the capital gain based on a sale consideration of ?22 lakhs, but the Assessing Officer, after consulting the stamp duty valuation authority, determined the full value of consideration at ?76,45,700. This led to a revised capital gain assessment of ?59,79,441.

Upon appeal to the CIT(A), no relief was granted to the appellant. During the proceedings before the Tribunal, the appellant sought permission to introduce additional evidence. The appellant argued that the property's fair market value, as determined by the DVO for confirming parties, was ?52,56,245, which should influence the computation of capital gain. The appellant contended that the stamp duty valuation exceeded the fair market value, necessitating a reassessment under section 50C of the Act.

The Tribunal analyzed the provisions of Section 48 and Section 50C of the Income Tax Act. Section 50C mandates that if the consideration for a property transfer is lower than the value assessed for stamp duty payment, the latter shall be deemed as the full value of consideration for capital gain computation. Subsection (2) of Section 50C allows for valuation reference to the Valuation Officer if the stamp duty valuation exceeds the fair market value.

Considering the DVO's valuation for confirming parties and the encumbrance created by the notarized agreement with three buyers, the Tribunal remitted the issue to the Assessing Officer for a fresh determination of the property's fair market value. The Tribunal emphasized the legal significance of the notarized agreement, recognizing the rights it conferred upon the confirming parties and the encumbrance it placed on the property. The decision to remit the issue back to the Assessing Officer was made to ensure a comprehensive assessment of the property's value for capital gain computation.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing a fresh adjudication by the Assessing Officer based on the considerations outlined in the judgment.