2019 (11) TMI 930 - AT - Income Tax

Computation of capital gain - relevant date for stamp value - agreement to sell entered during the FY 2009-10 and got registered - Actual transfer took place during FY 2011-12 - determination of full sale consideration for a sale of capital asset on the basis of which capital gain required to be computed - HELD THAT - In the present case, stamp duty valuation authority has not adopted the value. It is the party who agreed to pay stamp duty at an enhanced value of ₹ 6,47,14,285/-. The payments of higher stamp duty at the end of the vendee was not effecting any rights of the assessee. They were not under any financial obligation. The stamp duty valuation authority would not object payment of higher stamp duty at the end of the vendees. Had they disclosed a lower value, probably they would have adopted a higher value according to the rates notified by them. The stamp duty payment at the end of the vendee is roughly 6% to 8% of the value so mutually agreed by them. But that mutual agreement would not authorise the AO to deem it full sale consideration. The full sale consideration is to be deemed at the value which is assessable by the stamp duty valuation authorities, and if the rates notified by the stamp duty valuation authority are taken into consideration, then such value would come far less than the value disclosed by all the appellants, while computing the capital gain. The area sold by the appellant was 24,888 sq.yards. If it is multiplied by ₹ 250/- then it comes out to roughly ₹ 62.22 lakhs. If it is multiplied by ₹ 300/-, then it comes to ₹ 74,66,400/-. The sale consideration disclosed jointly by all the appellants is ₹ 1,10,00,000/-, which is far more than the value ought to be adopted for the purpose of stamp duty. Therefore, we are of the view that no addition deserves to be made in the hands of the appellants on account of long term capital gain. - Decided in favour of assessee.

Summary

Issues Involved:
1. Determination of full sale consideration for the sale of a capital asset for computing capital gain.
2. Applicability of section 50C of the Income Tax Act.
3. Date of transfer for the purpose of valuation.
4. Impact of conversion of agricultural land to non-agricultural land on valuation.
5. Validity of stamp duty value as full consideration.

Issue-wise Detailed Analysis:

1. Determination of Full Sale Consideration for the Sale of a Capital Asset for Computing Capital Gain:
The primary issue in all appeals is the determination of the full sale consideration for the sale of a capital asset, which is essential for computing the capital gain for each assessee. The assessees declared the sale consideration based on the sale deed at ?1,10,00,000/- and divided it among the co-owners. However, the Assessing Officer (AO) received information that the stamp duty value of the property was determined at ?6,47,14,285/-. Consequently, the AO issued a notice under section 148 and reopened the assessment, proposing to adopt the higher stamp duty value as the full sale consideration.

2. Applicability of Section 50C of the Income Tax Act:
Section 50C of the Income Tax Act stipulates that if the consideration received or accruing as a result of the transfer of a capital asset is less than the value adopted or assessed by the stamp valuation authority for the purpose of stamp duty, the value so adopted or assessed shall be deemed as the full value of the consideration. The AO applied this section, adopting the stamp duty value of ?6,47,14,285/- as the full consideration, resulting in a significant addition to the income of the assessees.

3. Date of Transfer for the Purpose of Valuation:
The assessees argued that the date of the agreement (1.2.2010) should be construed as the date of transfer since the agreement was registered and part consideration was paid. According to the proviso to section 50C, if the date of the agreement and the date of registration are not the same, the value on the date of the agreement should be considered, provided the consideration was received through an account payee cheque or bank draft. The Tribunal acknowledged this proviso but noted that the nature of the land had changed from agricultural to non-agricultural, enhancing its potential value. Therefore, the Tribunal concluded that the date of conversion to non-agricultural land (8.4.2011) should be considered the actual date of transfer.

4. Impact of Conversion of Agricultural Land to Non-Agricultural Land on Valuation:
The Tribunal observed that the conversion of the land from agricultural to non-agricultural significantly altered its nature and potential value. The valuation should be based on the date when the land was converted to non-agricultural land, as this change constituted a different product. The Tribunal referred to the revised stamp duty rates applicable from 1.4.2011, which were ?250/- per square meter for residential land and ?300/- per square meter for land within the residential boundary of the village.

5. Validity of Stamp Duty Value as Full Consideration:
The Tribunal examined whether the stamp duty value of ?6,47,14,285/- paid by the vendees could be adopted for computing long-term capital gain. It noted that the value was not adopted by the stamp duty valuation authority but was mutually agreed upon by the parties. The Tribunal emphasized that the full sale consideration should be deemed based on the value assessable by the stamp duty valuation authorities. The value of the non-agricultural land, based on the revised rates, was far less than the value declared by the assessees. Therefore, the Tribunal concluded that no addition should be made to the income of the assessees on account of long-term capital gain.

Conclusion:
The Tribunal allowed the appeals of the assessees, deleting the additions made by the AO. It held that the sale consideration declared by the assessees was more than the value required to be adopted for stamp duty purposes, and thus, no additional capital gain should be computed. The decision emphasized the importance of considering the nature and date of transfer of the capital asset and the applicability of section 50C in determining the full sale consideration.