2017 (9) TMI 1161 - HC - Income Tax

Determination of agricultural land - capital asset u/s. 2(14) (iii)(b) - transfer of land - whether municipal limits existing on the date of issue of Notification No.9447 dated 06.01.1994 u/s 2(14)(iii)(b) should be considered for the purpose of determination of agricultural land instead of the municipal limits existing on the date of sale/transfer? - Held that - As decided in Commissioner of Income Tax vs. Shri Sher Singh Sunda 2017 (9) TMI 1045 - RAJASTHAN HIGH COURT Section 50C is a deeming provision which incorporates a legal fiction to adopt the stamp duty value as full consideration for transfer of capital asset being and building. The legal fiction cannot extend beyond the purpose for which it is enacted. Hence the legal fiction created in Section 50C cannot be applied in respect of transfer of capital asset other than land or building including the rights in land and building just like tenancy right. In the instant case, the assessee has not received consideration on account of transfer of land and building but has received consideration in respect of transfer of purchase agreements. The Jaipur Bench in the case of Vijay Luxmi Dhadia, 2008 (9) TMI 944 - ITAT JAIPUR held that Section 50C will not apply if the transfer document is not stamped. The plots are still to be registered with Stamp Valuation authorities. The Ld. CIT(A) has clearly observed that the word assessable has been inserted in Section 50C of the Income Tax Act by the Finance (No.2) Act, 2009 w.e.f. 01.10.2009. The consideration as adopted by the stamp valuation authority can be taken as full consideration if the value adopted by the stamp valuation authority is assessable w.e.f. 1.10.2009. The assessment year under reference is 2006-07 and therefore, the amended provisions of Section 50C is not applicable. AO was not justified in applying the provisions of Section 50C of the I.T. Act for increasing the short terms capital gain. The Ld. CIT(A) was justified in deleting the increase in the value of short term capital gain. It is not the case of the Revenue that the assessee has received more consideration as shown in the agreement. In case there was any evidence to show that the consideration received by the assessee was more than the consideration mentioned in the agreement then the Revenue could have increased the short term capital gain. On the basis of Section 50C of the Act, the AO was not justified in enhancing the short term capital gain. - Decided in favour of the assessee

Summary

Issues Involved:
1. Determination of agricultural land based on municipal limits.
2. Application of Section 50C of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Determination of Agricultural Land Based on Municipal Limits:

The court addressed whether the ITAT was justified in law in holding that the municipal limits existing on the date of issue of Notification No.9447 dated 06.01.1994 under Section 2(14)(iii)(b) should be considered for determining agricultural land instead of the municipal limits existing on the date of sale/transfer. The ITAT held that agricultural land sold by the assessee is not a capital asset under Section 2(14)(iii)(b) as it was situated beyond 8 Kms. from the municipal limits on the date of issue of Notification No.9447 dated 06.01.1994, despite the land being situated within 8 Kms from the municipal limit on the date of sale.

2. Application of Section 50C of the Income Tax Act, 1961:

The court examined whether the ITAT was right in law in deleting the addition of ?65.00 lacs made under Section 50C after holding that the transaction was a transfer under Section 2(47) of the Income Tax Act read with Section 50C, and where the value of the property was assessed for the purpose of Stamp Duty payment. The court referred to Section 50C and Section 2(47) of the Income Tax Act, 1961, and the amendments made by the Finance Act, 2009, which included the term "assessable" to cover transactions executed through agreements to sell or power of attorney.

The Tribunal found that the assessee had transferred rights in land and building, and the provisions of Section 50C were not applicable as the transaction was not registered with the Stamp Duty Authority. The Tribunal relied on previous decisions, including those of the Jaipur and Jodhpur Benches, which held that Section 50C is not applicable when the transaction is not registered with the Stamp Duty Authority. The Tribunal also considered the amendment to Section 50C by the Finance Act, 2009, which included the term "assessable" to cover unregistered transactions, applicable from 1st October 2009.

The court noted that the assessee had already paid short-term capital gains tax and that the transaction was not registered, making the application of Section 50C inappropriate. The court upheld the Tribunal's decision, stating that the valuation determined by the AO was unjustified and amounted to harassment of an honest taxpayer.

Conclusion:

The court dismissed the appeal, answering the issues in favor of the assessee and against the department. The court confirmed that the municipal limits at the time of the notification should be considered for determining agricultural land and that Section 50C was not applicable to the unregistered transaction in question.