2017 (10) TMI 172 - AT - Income Tax

Invoking section 50C to make the additions - transfer of property by transferring shares in the company - determination of capital gain - eligible transfer u/s 2(47) (vi) - Held that - Section 50C could be invoked only if the sale consideration received is less than the value adopted by Stamp Valuation Authority of the State Government for the purpose of payment of stamp duty. However, there is no evidence that any stamp duty has been paid towards transfer of the plot of land as held by the AO and that the Stamp Valuation Authority adopted any particular value as sale consideration for payment of stamp duty in the present transaction. In fact, in this case there is a mere transfer of shares of a company and no stamp duty appears to be payable towards plot of land. The procedure adopted by the AO in determining the capital gain from the said transaction is not tenable under the law as it stood applicable for the current assessment year. We are of the view that section 2(47)(vi) is applicable in the cases where the asset in question is like a group of houses owned by a company and each shareholder is allotted a house for his personal enjoyment similar to what is prevalent in housing cooperative societies. However, there is no necessity to adjudicate on this issue as even if it is assumed that transfer of shares of the said company amounted to transfer of plot of land, in the absence of any evidence of extra amount having been exchanged, no addition can be made invoking section 50C as noted in the previous paragraph. Therefore, addition made by the AO was rightly deleted by the Ld. CIT(A) - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of provisions of section 50C of the Income Tax Act, 1961.
2. Application of section 2(47)(vi) of the Income Tax Act, 1961 in determining capital gains.
3. Validity of invoking section 50C for the transfer of shares of a company.
4. Assessment of capital gains based on fair market value of property.

Issue 1: Interpretation of provisions of section 50C of the Income Tax Act, 1961:
The case involved a dispute over the invocation of section 50C of the Income Tax Act, 1961. The AO attempted to tax capital gains based on the fair market value of a plot of land as per section 50C. However, the tribunal found that section 50C could not be invoked in this case as it is applicable for the transfer of land or building registered with the registering authority by paying stamp duty. Since there was no evidence of stamp duty paid for the transfer of shares of a company, section 50C could not be applied. Additionally, the tribunal noted that an amendment to section 50C was not applicable to the current assessment year, further supporting the decision to reject the AO's application of section 50C.

Issue 2: Application of section 2(47)(vi) of the Income Tax Act, 1961 in determining capital gains:
The tribunal also considered the application of section 2(47)(vi) of the Income Tax Act, 1961, which defines 'transfer' in relation to capital assets. The AO argued that the transfer of shares of a company was essentially for transferring the land owned by the company. However, the tribunal found that even if the transfer of shares amounted to the transfer of the land, without evidence of any extra amount exchanged, invoking section 50C was not justified. Therefore, the tribunal upheld the decision of the Ld. CIT(A) in deleting the addition made by the AO under section 2(47)(vi).

Issue 3: Validity of invoking section 50C for the transfer of shares of a company:
The tribunal emphasized that section 50C could only be invoked for the transfer of land or building where stamp duty is paid. Since the transaction in question involved the transfer of shares of a company without any evidence of stamp duty paid for the land, the tribunal concluded that the AO's application of section 50C was not valid. The absence of stamp duty payment towards the land in question rendered the application of section 50C inappropriate in this case.

Issue 4: Assessment of capital gains based on fair market value of property:
The AO had assessed capital gains based on the fair market value of a property, which was determined using circle rates. However, the tribunal found that the AO's method of determining capital gains was not tenable under the law applicable for the assessment year. The tribunal highlighted that the AO could not adopt circle rates for assessment as the transaction occurred before an amendment to section 50C. Therefore, the tribunal upheld the decision of the Ld. CIT(A) in rejecting the AO's assessment based on the fair market value of the property.

In conclusion, the tribunal dismissed the appeal filed by the Revenue, upholding the decision of the Ld. CIT(A) in deleting the addition of capital gains made by the AO. The tribunal's analysis focused on the interpretation of relevant provisions of the Income Tax Act, emphasizing the inapplicability of section 50C and the validity of assessing capital gains based on the fair market value of the property.