2008 (2) TMI 447 - AT - Income Tax

Computation of Capital gain - Sale of the property - Value estimated by the DVO - fair market value of the property - Right to Pre-emptive purchase in lieu of the purchaser - Principle of Substantial Justice - delay on the part of the Appropriate Authority in granting the sanction under Chapter XX-C - HELD THAT - The sale was carried on at the price as mentioned in the agreement for sale in respect of which NOC had been granted by the Appropriate Authority. We also find that even the ultimate sale of the property also took place in May, 2002, when the provisions of Chapter XX-C were still operative. Hence, in our considered view, during the overlapping period, only the earlier restrictive provisions of Chapter XX-C would be applicable and not the provisions of s. 50C introduced later. Furthermore, this is the case of transfer of a capital asset which is not a continuous process like a business. Hence, the law actually existing on the date of transfer of the capital asset should be taken into consideration. From this angle also as well as from the angle of avoidance of double jeopardy, we hold that the assessee's case should be considered to be coming within the mischief of Chapter XX-C alone and not of s. 50C of the IT Act, 1961. Evaluating the structure as an existing one and having substantial value (as has been done by the stamp duty valuation authority) and including the same within the deemed consideration of the property transferred by the assessee does not seem to the correct thing to do. This has lead to a situation where the correlation between the property sold by the assessee and that considered by the stamp duty valuation authority gets missing. we are of the view that the adoption of the valuation as considered by the stamp duty valuation authority for the purpose of computation of the capital gains in the instant case, is improper and hence, requires to be rejected. We direct that the amount of consideration as mentioned in the agreement of sale, which was ultimately approved by the Appropriate Authority by granting NOC to the assessee and others and also acted upon in the final sale transaction, should alone be taken into consideration for computation of capital gains. In other words, the computation of capital gains as shown by the assessee is being directed to be taken into account. Valuation of the property - valuing cost of acquisition at the fair market value as on 1st April, 1981 - HELD THAT - A reference u/s 50C can be made only in respect of the valuation of the asset at the time of its transfer which has given rise to the occasion for levy of capital gains tax. Such reference cannot be made for the purpose of evaluating the asset as on 1st April, 1981. The stamp duty valuation authority is, in no way concerned with valuation of the property on such date. Hence, we are of the considered opinion that there is no provision in the IT Act, 1961, which can justify reference of the valuation as on 1st April, 1981 in the instant case, especially when a valuation report prepared by a registered valuer had already been filed by the assessee. Thus, ultimately, we hold the reference to the DVO as made by the AO on this matter to be illegal which cannot be taken into account in computing the capital gains on the transfer of the asset (land) under consideration. We, therefore, direct that as the assessee actually filed a valuation report duly prepared by a registered valuer, which could not be disputed by the AO in a proper manner, the valuation of the asset (land) as on 1st April, 1981, as done by the registered valuer, is alone required to be taken into consideration in computation of the capital gains on the transfer of the asset (land) under consideration. We order accordingly. In the result, the appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Applicability of Section 50C of the Income Tax Act, 1961.
2. Validity of the valuation report and reference to the District Valuation Officer (DVO) for the property as on 1st April, 1981.

Issue-wise Detailed Analysis:

1. Applicability of Section 50C of the Income Tax Act, 1961:
The primary issue in this case is whether Section 50C, introduced by the Finance Act, 2002, effective from 1st April 2003, should apply to the property transaction executed by the assessee. The assessee contended that the property was effectively transferred on 20th September 2001, when the agreement for sale was executed, and the delay in obtaining the No Objection Certificate (NOC) from the Appropriate Authority under Chapter XX-C of the IT Act, 1961, should not affect the applicability of Section 50C.

The assessee argued that the law as on the date of transfer of the capital asset should be applicable, supported by case laws such as CIT vs. Nirmal Textiles and CIT vs. Laxman Singh. The Department, however, relied on the law prevailing on the first day of the assessment year, citing cases like Tea Estates India Ltd. vs. CIT.

The tribunal found merit in the assessee's argument, noting that the delay in granting the NOC by the Appropriate Authority, a wing of the IT Department, should not penalize the assessee. It was held that the actual sale of the property, which took place in May 2002, fell within the period when Chapter XX-C was still operative, and therefore, the provisions of Section 50C should not apply. The tribunal emphasized the principle of substantial justice, noting that the valuation approved by the Appropriate Authority should be accepted without interference from Section 50C.

2. Validity of the Valuation Report and Reference to the DVO for the Property as on 1st April, 1981:
The second issue concerned the AO's reference to the DVO for valuing the property as on 1st April, 1981, despite the assessee having furnished a valuation report from a registered valuer. The assessee argued that the conditions under Section 55A for such a reference were not met, as the AO considered the registered valuer's report to be overvalued rather than undervalued.

The tribunal examined the legal provisions and found that the AO's reference to the DVO was not justified under Section 55A, which allows for a reference only if the AO believes the value claimed by the assessee is less than its fair market value. The tribunal also rejected the Department's argument that the reference was made under Section 50C, clarifying that Section 50C pertains to the valuation at the time of transfer, not as on 1st April, 1981.

The tribunal concluded that the reference to the DVO was illegal and directed that the valuation as on 1st April, 1981, as done by the registered valuer, should be considered for computing capital gains.

Conclusion:
The appeal filed by the assessee was allowed. The tribunal held that the provisions of Section 50C were not applicable to the transaction, and the valuation by the registered valuer as on 1st April, 1981, should be accepted for computing capital gains.