2013 (10) TMI 1024 - HC - Income Tax

Application of section 50C to determine sale consideration for computation of Capital Gains Held that - Section 50C(1) is a deeming provision wherein the registration value fixed by the State Government under the Stamp Act is deemed to be considered as the full value consideration. Section 50C(2), however, permits the assessee to contend before the assessing authority that the registration value fixed by the State under the Stamp Act is excessive and does not correspond with the fair market value of the property as on the date of the transfer and that the assessee should not have challenged the levy of stamp duty under the Stamp Act as being excessive and disproportionate to the fair market value of the property before the authorities under the Stamp Act or file any appeal, revision or reference to any court or High Court against such order - In which event the assessing authority would refer the matter to the Valuation Officer to assess the fair market value of the property, keeping in view all the relevant consideration including the registration value fixed by the State. Sub-section (3) provides that if the fair market value fixed by the Valuation Officer is in excess of the registration value, then the registration value should be considered for levy of the capital gains tax. In the instant case, it is to be noticed that the assessee has not availed of the opportunity to question the correctness of the registration value fixed by the State Government. If he had done so, then the assessing authority would have invoked the power of appointing a Valuation Officer for assessing the fair market value. When the registration value is not the disputed question, now, at this stage, it is not permissible for the assessee to contend that the registration value is excessive and disproportionate to the market value of the property, in the absence of contra material, the deemed full value of consideration as stated in section 50C of the Income-tax Act would come into effect. When the capital gain is assessed on notional basis, whatever amount invested in new residential house within the prescribed period, under section 54F of Income-tax Act the entire amount invested, should get the benefit of deduction irrespective of the fact that the funds from other sources are utilized for new residential house. In that context, whatever the total amount actually invested by the assessee for construction of house at Gangavathi should be deducted irrespective of the fact that part of the funds invested are from different sources and not from the capital gains. In that view of the matter, the amount assessable towards net capital gain should be Rs. 10,06,494. Interest to be levied u/s 234A & 234B of the Income tax act Held that - The provisions of section 50C of the Income-tax Act was the latest introduced provision. The assessee was not aware of the said provision it is further submitted that the assessee is a resident of Gangavathi the plot at Bangalore was allotted to him as he was a freedom fighter and he was not aware of the actual market value of the property at Bangalore, he was guided by the real estate agent the plot at Bangalore was unproductive not yielding any income ; he was urgently need of money for construction of the house at Gangavathi and therefore the appellant-assessee sold the plot at Bangalore, bona fidely for a sum of Rs. 24,00,000 and there is no attempt on his part to conceal the income to evade tax. The submissions made at the Bar may be good for avoiding penalty but, however, sections 234A and 234B mandates levy of interest at 12 per cent. per annum which the assessee cannot avoid and the court has no jurisdiction to interfere with the same Decided against the Assessee.

Issues:
1. Capital gains tax exemption under section 54F of the Income-tax Act.
2. Application of section 50C of the Income-tax Act.
3. Interpretation of legal provisions related to capital gains tax calculation.
4. Disallowance of benefit of exemption for construction investment.
5. Levy of interest under sections 234A and 234B.

Capital gains tax exemption under section 54F of the Income-tax Act:
The appellant-assessee sold a house plot in Bangalore and reinvested in construction of a residential house at Gangavathi seeking exemption from capital gains tax under section 54F. The assessing authority calculated the capital gains based on the registration value of the property under the Karnataka Stamp Act and allowed deduction for the amount reinvested. The appellate authorities upheld the assessment, leading to the appeal before the High Court. The appellant raised substantial questions of law challenging the orders of the lower authorities.

Application of section 50C of the Income-tax Act:
The High Court examined the provisions of section 50C, which deems the registration value fixed by the State Government as the full value of consideration for levy of capital gains tax. The section also allows the assessee to contest the registration value if it exceeds the fair market value, leading to a valuation by a Valuation Officer. In this case, since the appellant did not dispute the registration value, the deemed full value of consideration as per section 50C applied. The Court emphasized the objective of section 50C to prevent tax evasion and discourage undervaluation of properties.

Interpretation of legal provisions related to capital gains tax calculation:
The Court analyzed the contentions raised by the appellant regarding the computation of capital gains under section 54F and its interplay with sections 45, 48, and 50C of the Income-tax Act. It clarified that the ultimate aim is to tax undisclosed capital gains and prevent manipulation of property values to evade tax. The Court emphasized that the entire amount invested in a new residential house should be eligible for deduction under section 54F, irrespective of the source of funds used for the investment.

Disallowance of benefit of exemption for construction investment:
The assessing authority disallowed a portion of the investment made by the appellant for construction, which the Court found unsound. It reiterated that the total amount invested for construction should be deducted from the capital gains, regardless of the source of funds. The Court emphasized the need to prevent tax evasion and promote transparency in capital gains taxation.

Levy of interest under sections 234A and 234B:
The appellant argued against the levy of interest, citing lack of awareness of section 50C and genuine reasons for the property sale. However, the Court held that interest under sections 234A and 234B is mandatory and cannot be interfered with. The Court partly allowed the appeal, assessing the net capital gain at a specific amount with proportionate interest as determined by the assessing authority.

This detailed analysis of the judgment from the Karnataka High Court addresses the issues related to capital gains tax exemption, application of section 50C, interpretation of legal provisions, disallowance of exemption benefits, and the levy of interest under sections 234A and 234B of the Income-tax Act.

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