2021 (9) TMI 227 - AT - Income Tax

Long term capital gain - FMV determination - joint co-owners of property - deemed sale consideration for the purpose of computing the long term capital gain as per the 1st Proviso to section 50C - proportionate share of the assessee in fair market value of the property - fair market value as on registration of the conveyance deed i.e. 12.10.2010 as adopted by the AO - HELD THAT - As the assessee has relied on the decision in the case of CIT vs. Vummudi Amarendran 2020 (10) TMI 517 - MADRAS HIGH COURT wherein it was held that the amendment made in section 50C by inserting 1st Proviso with effect from 01.04.2017 is applicable retrospectively with effect from the date on which section 50C was introduced. Keeping in view that this decision we hold that the benefit of the 1st Proviso to section 50C is available to the assessee. We accordingly direct the AO to re-compute the capital gain chargeable to tax in the hands of the assessee by taking the proportionate share of the assessee in fair market value of the property as on 05.10.2010 as determined by the DVO as deemed sale consideration. AO is also directed to allow deduction on account of the indexed cost of acquisition of the property while computing the capital gain in accordance with law.

Summary

Issues:
Addition of Long Term Capital Gain based on deemed sales value under section 50C.

Analysis:
The appeal involved a dispute regarding the addition of Long Term Capital Gain amounting to ?10,84,330/- by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)). The assessee, an individual co-owner of inherited property, contested the valuation of the property for computing capital gain. The AO initiated assessment proceedings under section 147 as the assessee did not declare the capital gain from the property sale. The AO considered stamp duty valuation as deemed sales value, leading to the addition in the assessment completed under section 144/147.

Upon appeal, the assessee argued that the fair market value of the property as of the agreement date should be considered for computing capital gain under the 1st Proviso to section 50C. The CIT(A) rejected this claim citing the non-applicability of the Proviso for the assessment year 2013-14. However, the Tribunal, referring to a decision of the Hon'ble Madras High Court, held that the Proviso to section 50C should be applied retrospectively from the introduction of section 50C. Consequently, the Tribunal directed the AO to re-calculate the capital gain by considering the fair market value of the property as on the agreement date, allowing deduction for indexed cost of acquisition.

In conclusion, the Tribunal partly allowed the appeal, overturning the decision of the CIT(A) and directing the AO to re-calculate the capital gain based on the fair market value of the property as on the agreement date, in accordance with the 1st Proviso to section 50C and allowing indexed cost of acquisition deduction.

This judgment highlights the significance of applying legal provisions retrospectively, ensuring fair treatment to taxpayers and accurate computation of capital gains based on property valuations.