2013 (10) TMI 147 - HC - Income Tax

Applicability of section 50C of the Income tax act on trading transaction of sale and purchase of land - Held that - Section 50C of the Act gives rise to a deeming fiction and such deeming fiction is to be applied in case of computation of capital gain under Section 48 of the Act. It is well known that a deeming fiction provided by the statute has to be applied for the purpose of which it is provided and no other. In the present case, if the Assessing Officer had utilized juntry rate as a starting point, to enquire further and ascertain the true market value of the land so sold and having brought some evidence in this direction, surely, the case of the Revenue would have been justified - Except for making reference to the juntry rates and pointing out that the juntry rate is 2.2 times higher than the sale consideration disclosed by the assessee, the Assessing Officer has brought no evidence on the record to establish that the sale deed did not reflect the full sale consideration - All that the assessee did was to apply a deeming fiction provided under Section 50C without admitting so, it was not in dispute that the plot was held as stock in trade and therefore sale thereof gives rise to the business income and not to capital gain Decided against the Revenue.

Summary

Issues:
1. Whether the Appellate Tribunal was right in deleting the addition of Rs. 5900262 made by the Assessing Officer on account of suppression of sale consideration of plots of land?
2. Whether the Appellate Tribunal was correct in holding that Section 50C is not applicable in the case of the assessee despite the land being a capital asset chargeable to capital gains tax?
3. Whether the Appellate Tribunal was correct in holding that Section 50C is not applicable to determine the fair market value of the land treated as stock in trade by the assessee?
4. Whether the Appellate Tribunal should have set aside the matter to the Assessing Officer for further inquiry instead of dismissing the appeal of the revenue?

Analysis:

1. The respondent-assessee sold land at a lower rate than the juntry rate, leading the Assessing Officer to add Rs. 59,00,262 to the income. The assessee argued the land was "stock in trade," not subject to capital gains tax. The CIT [A] agreed, citing a Delhi High Court decision. The Tribunal upheld this decision, noting the lands were in stock-in-trade, thus Section 50C did not apply. The High Court concurred, emphasizing that Section 50C's deeming fiction applies only for computing capital gains. The Assessing Officer failed to provide evidence beyond juntry rates to dispute the sale consideration, confirming the land was stock-in-trade, exempt from capital gains.

2. Section 50C deems the value assessed for stamp duty as the full consideration for capital gains computation. The High Court clarified that this fiction applies solely to computing capital gains. The Assessing Officer's reliance on juntry rates lacked further evidence to challenge the sale consideration. As the land was stock-in-trade, not subject to capital gains, Section 50C was inapplicable. The Tribunal rightly upheld the CIT [A]'s decision based on the nature of the land as stock-in-trade.

3. The Tribunal correctly considered the lands as stock-in-trade, exempting them from capital gains tax. The High Court emphasized that Section 50C's deeming provision applies specifically for capital gains computation. The Assessing Officer's failure to provide substantial evidence beyond juntry rates to contest the sale consideration led to the dismissal of the revenue's appeal. The Tribunal's decision aligns with the nature of the land as stock-in-trade, justifying the deletion of the addition by the Assessing Officer.

4. The High Court upheld the Tribunal's decision based on the land being stock-in-trade, exempt from capital gains tax. Section 50C's deeming fiction applies only for capital gains computation, which the Assessing Officer failed to substantiate beyond juntry rates. The Tribunal's reasoning, supported by the CIT [A]'s decision and the nature of the land as stock-in-trade, justified dismissing the revenue's appeal. The High Court's affirmation of the Tribunal's decision concludes the matter, emphasizing the inapplicability of Section 50C to lands held as stock-in-trade.