2016 (8) TMI 762 - AT - Income Tax

Determination of valuation of the property to DVExchange of plots between the appellant and Vatsalabai Dattatray Charitable Trust without any monetary consideration as transfer of capital asset - tax on the capital gain as per stamp duty valuation - Held that - The plot of land was vacant and the assessee wanted to exchange the same to commercially exploit the same which is admitted by the assessee and is also borne out from the assessment order passed by the AO . The said plot of land was thereafter gifted by the assessee to son of the Karta of the assessee on 11/06/2008 which is stated by the AO in the assessment order para 3 which is not denied by the assessee and later developed by son of the Karta of the assessee. Further, the assessee has taken a plea that if it is held to be capital gain chargeable to tax u/s 45 of the Act and Section 50C is invoked, then the matter be referred to the Departmental Valuation Officer(DVO) for determining the correct valuation of the property as the valuation adopted by the stamp duty valuation authority for stamp duty valuation authority is excessive for the reasons stated above and also that the assessee had exchanged property of value of ₹ 1,30,89,000/- with the property valued at ₹ 94,51,000/- and hence it exceeds the fair market value of the property on the date of transfer. In our considered view, this plea of the assessee augers well on merits and deserves to be allowed and we are inclined to set aside and restore the issue to the file of the AO to refer the determination of valuation of the property to DVO in terms of provisions of Section 50C(2) of the Act. The assessee shall be allowed to submit relevant evidences and explanation in its defense which shall be admitted and adjudicated on merits. Needless to say proper and adequate opportunity of being heard shall be provided to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly. Finally, we may reiterate that the AO shall de-novo adjudicate the issue on merits after duly considering our decisions in the preceding para s as well report of DVO, valuation of the property as determined by stamp duty valuation authorities for stamp duty purposes, relevant evidences adduced by the assessee in its defense and all other material on record in accordance with law.

Issues Involved:
1. Whether the exchange of plots constitutes a transfer of capital asset under Section 2(47) of the Income Tax Act, 1961.
2. Whether the land was held as a capital asset or stock-in-trade.
3. Applicability of Section 50C of the Income Tax Act, 1961.
4. Determination of the correct valuation of the property for capital gains tax purposes.
5. Whether the exchange was a bona fide family settlement exempt from tax.

Issue-wise Detailed Analysis:

1. Exchange of Plots as Transfer of Capital Asset:
The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] concluded that the exchange of plots between the assessee and Vatsalabhai Dattatray Charitable Trust constituted a transfer of capital asset under Section 2(47) of the Income Tax Act, 1961. The AO observed that any exchange of an asset is a transfer within the meaning of Section 2(47) and the gains arising from such transfer are chargeable to tax under Section 45(1). The CIT(A) upheld this view, noting that the exchange was a transfer of land within the meaning of Section 2(47) and gains arising from it are chargeable to tax under Section 45.

2. Land Held as Capital Asset or Stock-in-Trade:
The assessee claimed that the land was held as stock-in-trade and not as a capital asset. However, the AO and CIT(A) rejected this claim, noting that the assessee did not submit balance sheets or documents to support the contention that the land was held as stock-in-trade. The CIT(A) observed that the land was acquired for the benefit of the school's development, and the assessee was not engaged in the business of construction or real estate. Thus, the land was held as a capital asset under Section 2(14) of the Act.

3. Applicability of Section 50C:
The AO applied Section 50C, which mandates that the value adopted by the stamp duty authorities for the purpose of stamp duty should be considered as the sale consideration for computing capital gains. The AO treated the sale value consideration at ?1,30,89,000/- as per Section 50C and brought it to tax as long-term capital gains. The CIT(A) upheld this application, rejecting the assessee's bifurcation of the market value into land and building components.

4. Valuation of Property:
The assessee argued that the market value of the land received in exchange was inflated due to issues like encroachments and lack of approach roads. The Tribunal noted that the assessee had not objected to the stamp duty valuation during the assessment. However, the Tribunal allowed the plea to refer the matter to the Departmental Valuation Officer (DVO) under Section 50C(2) to determine the correct valuation of the property, considering the assessee's contention that the valuation was excessive.

5. Bona Fide Family Settlement:
The assessee contended that the exchange was a bona fide family settlement and should not be taxed. The Tribunal rejected this contention, noting that Vatsalabhai Dattatray Charitable Trust is a public charitable trust and not a family enterprise. The trust exists for public welfare and not for the benefit of trustees or their relatives. Thus, the exchange of properties between the assessee and the trust could not be considered a family settlement exempt from tax.

Conclusion:
The Tribunal partly allowed the assessee's appeal, directing the AO to verify the ownership and construction costs of the school building and refer the valuation of the property to the DVO. The AO was instructed to de-novo adjudicate the issue on merits, considering the Tribunal's observations, the DVO's report, and relevant evidence provided by the assessee. The Tribunal upheld the view that the exchange of plots constituted a transfer of capital asset and was exigible to capital gains tax under Section 45 of the Act.

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