2022 (1) TMI 599 - HC - Income Tax

Capital gain computation - determination of full value of consideration - correct value of consideration - computation as prescribed u/s 48 - As per tribunal guidance value is the sale consideration for computing capital gain - HELD THAT - In the present case, Assessing Officer has adopted the rate of ₹ 1600/- per square feet merely based on the letter given by the developer which is not supported with any particulars. It cannot be ruled out the possibility of the developer giving an inflated figure to suit his requirements in order to gain minimum tax on his profits by inflating his costs. As such, the basis for determination of full value of consideration by the Assessing Officer based on the letter of the developer cannot be appropriate. No doubt at the relevant period, no provision was available in cases where the consideration received or accruing as a result of transfer of a capital asset by an assessee is not ascertainable. Section 50D inserted by Finance Act, 2012 with effect from 01.04.2013 would throw some light on the said issue. A machinery provision has been introduced by way of Section 50D of the Act. Though the said provision has come into effect from 1.4.2013, it certainly throws some light on the mode of computation under Section 48 of the Act. In the circumstances, we are of the considered opinion that the guidance value of the land or the guidance value of the building would be appropriate mode to determine the full value of consideration in the case of a transfer where consideration for the transfer of a capital asset is not attributable or determinable. Hence, guidance value adopted by the Tribunal cannot be faulted with. Having regard to the facts and circumstances of the case, the Tribunal having exercised its discretionary power adopted the guidance value of the land as the mode for determination of full value of consideration, the same being not perverse or arbitrary, we are not inclined to interfere with the impugned order - no substantial question of law arises for our consideration.

Issues Involved:
1. Determination of the "full value of consideration" for computing capital gains.
2. Applicability of Sections 48, 50C, and 50D of the Income Tax Act, 1961.
3. Revenue's argument on the use of cost of construction as the full value of consideration.
4. Tribunal's reliance on guidance value for determining the full value of consideration.
5. Revenue neutrality of the issue.

Detailed Analysis:

Issue 1: Determination of the "full value of consideration" for computing capital gains
The primary issue revolves around the determination of "full value of consideration" for computing capital gains. The Tribunal upheld the use of guidance value rather than the cost of construction for this purpose. The Revenue contended that the terms of the Joint Development Agreement (JDA) specified the value of consideration, which should be used for computation.

Issue 2: Applicability of Sections 48, 50C, and 50D of the Income Tax Act, 1961
Section 48 outlines the mode of computation for capital gains, requiring deductions from the full value of consideration received or accrued. Section 50C provides that if the consideration is less than the value assessed by the stamp valuation authority, the latter should be deemed as the full value of consideration. Section 50D, effective from 01.04.2013, states that if the consideration is not ascertainable, the fair market value shall be deemed as the full value of consideration. The court noted that Section 50D, although not applicable to the assessment year in question, provides insight into the appropriate method for determining full value of consideration when it is not ascertainable.

Issue 3: Revenue's argument on the use of cost of construction as the full value of consideration
The Revenue argued that the cost of construction should be used as the full value of consideration, referencing Section 48 and the terms of the JDA. However, the court found this argument unconvincing, noting that the developer's letter, which the Revenue used to determine the cost of construction, lacked supporting particulars and could be inflated for the developer's benefit.

Issue 4: Tribunal's reliance on guidance value for determining the full value of consideration
The Tribunal relied on the guidance value for determining the full value of consideration, which the court found appropriate. The court emphasized that the guidance value or fair market value is a more accurate reflection of the asset's worth, especially when the consideration is not determinable. The court cited previous judgments to support this view, including CIT v. George Henderson And Co. Ltd., which distinguished between full value of consideration and market value.

Issue 5: Revenue neutrality of the issue
The court noted that the issue is revenue neutral, meaning that any capital gains would eventually be taxed when the assessee disposes of the built-up area received from the developer. This point was supported by the Tribunal's observation that any future capital gains on the sale of the built-up area would be subject to tax, thus ensuring that the Revenue would not lose out on tax collection.

Conclusion:
The court dismissed the appeal, upholding the Tribunal's decision to use the guidance value for computing capital gains. The court found that the Revenue's arguments did not hold merit and that the guidance value provided a more accurate and fair method for determining the full value of consideration. The court also noted the revenue-neutral nature of the issue, further justifying the Tribunal's approach.

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