2009 (2) TMI 235 - AT - Income Tax

Business Income - Applicability of provisions of section 50C on a business asset - difference between stamp duty valuation and actual sale consideration - HELD THAT - It is well settled principle that, when the language of the statute is plain and explicit and does not admit of any doubtful interpretation, the Court cannot expand the meaning of the words used by the legislature. So far as s. 50C is concerned the language of the said section is so clear in respect of its intention that it is brought on statute book by way of deeming provision in the nature of Explanation to s. 48. Moreover, after the Finance Act. 2002, in which s. 50C was brought on the statute book, the CBDT issued a Circular No. 8 of 2002, clarifying the provisions of Finance Act, 2002, relating to the direct taxes. In respect of the newly inserted s. 50C in the Explanatory Notes the CBDT has explained the purpose of introducing s. 50C Therefore, It is abundantly clear from the explanation given in the CBDT circular that the basic intention to insert s. 50C is for the purpose of determining full value of sale consideration for the purpose of computation of capital gains u/s. 48. It is well-settled rule of interpretation that meaning ascribed by the authority (sic). The issuing of notification or circular is good guide of contemporaneous exposition of the position of the law and this rule is popularly known as 'contemporanea expositio'. This rule of interpretation has been given recognition by the Hon'ble Supreme Court in the case of K.P. Varghese vs. ITO 1981 (9) TMI 1 - SUPREME COURT . In our opinion, there should not be any cloud of doubt that s. 50C has application only to the extent of determining sale consideration for computation of capital gain under Chapter IV-E of the Act and it cannot be applied for determining the income under other heads. We are therefore, of the opinion that, when admittedly in the present case the sale of the flats is treated as the business income and not as a capital gain, hence, the provision of s. 50C is not applicable. We, therefore, delete the addition made by the AO and set aside the order of the CIT(A) on this issue. The ground is therefore, allowed. Sale of two car parking spaces - AO has noted that the two car parking spaces were also sold along with the two flats and assessee has not shown any amount on the sale of the car parking expenses (sic-space) - he also noted that though the assessee has received the amount on the sale of car parking space, the same is not shown in the books of account - he made the additions to the income of the assessee. HELD THAT - On perusal of the copies of the sale deeds, it is seen that the car parking space is also composite part of sale of flat and prices of the flats are inclusive of the car parking spaces allotted to the buyer. In our opinion as per evidence before us no separate price is received in respect of car parking space. We, therefore, hold that there is no justification for making addition towards car parking space in respect of two flats and hence we delete the same. The appeal is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Applicability of Section 50C of the IT Act for determining the sale consideration of two flats sold by the assessee.
2. Addition on account of sale of two car parking spaces.
3. Non-reduction of profit already included in the P&L account.
4. Disallowance of depreciation on a new car purchased by the appellant.
5. Disallowance of mobile phone expenses.
6. Disallowance of 1/4th traveling expenditure.

Detailed Analysis:

1. Applicability of Section 50C of the IT Act
The primary issue was whether the Assessing Officer (AO) was justified in invoking the provisions of Section 50C of the IT Act to determine the sale consideration of two flats sold by the assessee company. The AO added Rs. 51,22,956 to the income of the assessee, representing the difference between the sale consideration shown in the sale deeds and the valuation made for stamp duty purposes. The assessee argued that Section 50C, which pertains to capital gains, should not apply as the income was assessed as business income. The tribunal agreed with the assessee, stating that Section 50C applies only for the computation of capital gains and not for business income. Therefore, the addition made by the AO was deleted, and the order of the CIT(A) was set aside.

2. Addition on Account of Sale of Two Car Parking Spaces
The AO noted that the assessee sold two car parking spaces along with the flats but did not show any amount for the sale of these spaces in the books of account, estimating an addition of Rs. 10 lacs. The assessee contended that the sale of car parking spaces was part of a composite agreement for the sale of flats, with no separate sale price received. The tribunal found merit in the assessee's argument, noting that the sale deeds indicated that the car parking spaces were included in the sale price of the flats. Consequently, the addition for car parking spaces was deleted.

3. Non-reduction of Profit Already Included in the P&L Account
The assessee argued that the AO erred in not reducing the profit of Rs. 8 lacs already included in the P&L account while adding the full difference between the stamp duty and agreement value. The CIT(A) did not address this ground. However, since the addition under Section 50C was deleted, this ground became redundant and was dismissed.

4. Disallowance of Depreciation on a New Car Purchased by the Appellant
The AO disallowed depreciation on a new car purchased by the appellant, as it was registered in the name of the director's wife, although financed by the company. The CIT(A) did not address this issue. The tribunal restored this ground to the file of the CIT(A) for adjudication.

5. Disallowance of Mobile Phone Expenses
The AO disallowed mobile phone expenses, a decision upheld by the CIT(A). The tribunal concurred with the lower authorities, finding no reason to overturn the disallowance. Thus, this ground was dismissed.

6. Disallowance of 1/4th Traveling Expenditure
The AO disallowed 1/4th of the traveling expenses, suspecting a personal element. The tribunal, considering the facts and the possibility of personal use, found it reasonable to restrict the disallowance to Rs. 50,000, thereby partially allowing this ground.

Conclusion:
The appeal was partly allowed for statistical purposes, with significant relief granted on the primary issue of the applicability of Section 50C and the addition related to car parking spaces. Other grounds were either dismissed or remanded for further consideration.