2020 (10) TMI 517 - HC - Income Tax

Capital Gain computation - Whether agreement for Sale cannot be regarded as a transfer for the purpose of Section 2(47)(V) ? - Invoking provision of section 50C - assessee while computing Capital Gain had taken the sale consideration for the property at ₹ 19 crores which according to AO was not a full value of consideration because on the date when the property was sold, i.e., date on which the Deed of conveyance was executed and registered, the guideline value was much higher than the agreed sale price - whether proviso inserted in Section 50C has to be read retrospective or prospective? - HELD THAT - AO could not have based his finding solely relying upon the guideline value especially when the Assessing Officer is not a person who is computing stamp duty under the provisions of Indian Stamp Act on the Deed of conveyance. Having observed so we need to take note of the next issue would be as to whether the proviso to Section 50C could be read to be prospective or retrospective. Case on hand is very straight forward case, where there is an Agreement for Sale, agreeing to sell the property at ₹ 19 Crores and a sum of ₹ 6 Crores has been received as advance sale consideration. The proviso to Section 50C(1) deals with cases where the date of the agreement, fixing the amount of consideration and the date of registration for the transfer of the capital assets are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer. Thus an amendment by insertion of proviso seeks to relieve the assessee from undue hardship. No hesitation to hold that the proviso to Section 50C(1) of the Act should be taken to be retrospective from the date when the proviso exists. The assessee's consistent case was that the sale consideration agreed to be paid to him by the purchaser was ₹ 19 crores and ₹ 6 crores was received as advance on the date of entering into the Agreement for Sale. AO disbelieved the same and applied the guideline value at ₹ 27 crores on the date when the Sale Deed was executed and registered. - Decided against revenue.

Summary

Issues Involved:

1. Retrospective application of the amendment to Section 50C of the Income Tax Act, 1961.
2. Validity of the Assessing Officer's reliance on the guideline value for computing capital gains.

Detailed Analysis:

Issue 1: Retrospective Application of the Amendment to Section 50C

The primary contention revolves around whether the amendment to Section 50C, introduced with effect from 2017-18, should be applied retrospectively to the assessment year 2014-15. The Revenue argued that the amendment is prospective, citing the legal maxim "lex prospicit non respicit" and the CBDT Circular No.3/2017, which clarified that the amendment would apply from assessment year 2017-18 onward. The Revenue supported this position by referencing the Supreme Court's decision in Commissioner of Income Tax, (Central)-1, New Delhi Vs. Vatika Township Private Limited, which emphasized that statutes are presumed to be prospective unless explicitly stated otherwise.

Conversely, the Tribunal and the CIT(A) concluded that the amendment should be applied retrospectively to mitigate undue hardship faced by the assessee. The Tribunal's decision was influenced by the rationale that the proviso to Section 50C(1) was intended to correct an anomaly and provide relief, thus meriting retrospective application. This stance was supported by the Supreme Court's decisions in Commissioner of Income Tax, Kolkata Vs. Calcutta Export Company and Allied Motors Private Limited Vs. CIT, which held that amendments intended to rectify unintended consequences should be applied retrospectively.

The Court agreed with the Tribunal, noting that the amendment aimed to relieve undue hardship. The Court highlighted that the Assessing Officer did not question the bona fides of the transaction, where the assessee received an advance of ?6 crores via banking channels, indicating a genuine transaction. Therefore, the Court held that the proviso to Section 50C(1) should be considered retrospective from the date of its insertion.

Issue 2: Validity of the Assessing Officer's Reliance on the Guideline Value

The Assessing Officer adopted the guideline value of ?27 crores, fixed by the State Government, to compute the capital gains, instead of the sale consideration of ?19 crores agreed upon in the sale agreement. The Assessing Officer's rationale was that the guideline value should be considered the full value of consideration for capital gains computation, as the sale deed was registered at a higher value.

The Court found this approach flawed, emphasizing that the guideline value is not the definitive market value but a prima facie rate to ascertain the true or correct market value. The Court referenced the Supreme Court's decision in R. Saibharathi Vs. J. Jayalalitha, which clarified that guideline values are not the final word on market value but merely a factor to be considered. The Court further noted that the Assessing Officer is not responsible for computing stamp duty under the Indian Stamp Act and should not rely solely on guideline values.

The Court also distinguished the present case from previous decisions cited by the Revenue, such as Bagri Impex (P.) Ltd. and Ambattur Clothing Company Limited, highlighting factual differences. The Court concluded that the Assessing Officer's reliance on the guideline value was inappropriate, given the genuine nature of the transaction and the advance payment made through banking channels.

Conclusion:

The Court dismissed the Revenue's appeal, affirming the Tribunal's decision. The substantial questions of law were answered against the Revenue and in favor of the assessee. The Court held that the amendment to Section 50C should be applied retrospectively to mitigate undue hardship and that the Assessing Officer's reliance on the guideline value was incorrect. The appeal was dismissed with no costs.