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TMI Blog2009 (10) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... wise, as stated earlier, there is no suppression of actual consideration. Consequently, since the final registration of the sale is only in fulfilment of the contractual obligation, the logical conclusion is that the provisions which do not apply at the time of entering into the transaction initially would not also at the time the transaction is completed. Application of income or division of sale consideration - Held that:- The undisputed fact is that the assessees had to make payment to the Masetty family as well as to Smt. A. Chittamma, since both of them also claimed themselves to be the legal heirs of Shri P. Venkateswara Rao. Thus by raising such a claim, they have created an encumbrance over the impugned property. There cannot be any dispute that once an encumbrance is created over a property, its sale cannot be completed unless the said encumbrance is cleared of, as there will always be a threat of litigation. - Payment made to Masetty family and Smt. A. Chittamma allowed. Expenses incurred on vacation of premises, court expenses and commission for arranging sale etc. - held that:- a reasonable estimate should be made towards the expenses and the same should be allowed in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company named M/s Banjara Hospital (P) Ltd. The executants of the sale deed and the amounts received by them are listed below: Sl. No. Name Amount 1. Smt. P. Padmavathi 51,50,313 2. Smt. K. Venkatalakshmi 37,50,313 3. Smt. C. Kasturibai 51,50,313 4. Smt. N. Sivaparvathi 51,50,313 5. Smt. M. Varalakshmi 14,66,667 6. Smt. M. Satyavathi 14,66,667 7. Smt. S. Seetaramalakshmi 14,66,667 8. Smt. K. Lakshmi Soujanya 14,00,000 Smt. P. Padmavathi is the wife of Shri P. Venkateswara Rao, Smt. Venkatalakshmi, Smt. Ch. Kasturibai and Smt. N. Sivaparvathi are his daughters. The last mentioned person Smt. K. Lakshmi Soujanya is the daughter of Smt. K. Venkatalakshmi and sin& she was a major at the time of executing the sale deed, she was also included as a vendor for safer course. According to the assessees herein. the remaining three persons viz., Smt. M. Varalakshmi, Smt. M. Satyavathi and Smt. S. Seetaramalakshmi also claimed themselves as daughters of Sri P. Venkateswara Rao, born through his concubine named Smt. Achanta Rajeswari (hereinafter called "Masetty family"). According to the assessees herein, these three persons were included as vendors in order to settle, clear and disch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the sale consideration received by each of these three assessees, i.e., the AO treated the Masetty family also as one of the co-owners of the property. 5. Aggrieved by the order of the AO, these assessees carried the matter in appeal before the learned CIT(A). The first appellate authority gave a finding that Smt. P. Padmavati, Smt. K. Venkata Lakshmi, Smt. Kasturi Bai and Smt. M. Siva Parvathi are the legal heirs and the co-owners and hence the capital gains has to be allocated between them equally. Since the Revenue has not objected to the said decision of the learned CIT(A), the issue whether the "Masetty family" are one of the co-owners or not does not require any consideration. 5.1 The learned CIT(A) confirmed the order of the AO on the following issues: (a) Applicability of s. 50C on the impugned transfer of assets. (b) Disallowance of expenses claimed by the assessee as described in para 4(b) supra. (c) Restriction of constructed area of the building to 2,000 sq. ft. in ground floor and 1,000 sq. ft. in 1st floor. (d) Adoption of FMV as on 1st April, 1981 at Rs. 150 per sq. yd. as against Rs. 600 per sq. yd. claimed by the assessee. 5.2 With regard to the indexation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initially entered into an agreement to sell the impugned property for a consideration of Rs 2.71 crores, way back in August, 2001. However, due to disputes created by the persons who also claimed themselves to be the heirs of Shri P. Venkateshwara Rao coupled with the non-availability of urban land clearance certificate, the sale could not be completed immediately at that time. After settling all disputes, the vendors could get the sale deed registered only in October, 2004. At the time of entering into an agreement of sale, s. 50C was not in the statute book. In any case, at the time of entering into the agreement, the stamp duty value stood at Rs. 3,800 per sq. yd., whereas the sale value determined by the parties to the sale agreement was more than Rs. 3,800 per sq. yd. This fact clearly proves that the value agreed to by the parties is fair consideration and there is no intention to suppress the same. The stamp duty value is increased periodically by the State Government and consequently, at the time of actual execution of sale deed in October, 2004, the stamp duty value stood at about Rs. 6,000 per sq. yd. According to learned Authorised Representative, since the sale agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of s. 50C. In those peculiar, circumstances the Hon'ble Tribunal held that only the provisions of Chapter XX-C would be applicable to the said transfer and the provisions of s. 50C introduced later are not applicable. The Hon'ble Tribunal also held that, in the interest of substantial justice also, the assessee should not be made to suffer simply because of delay on the part of the Appropriate Authority in granting sanction under the Chapter XX-C. By placing reliance on the ratio of the said decision, learned Authorised Representative contended that, in the instant case also, the delay in getting the transfer registered was for the reasons beyond the control of the assessee and hence in the interest of substantial justice, the assessee should not be subjected to the provisions of s. 50C of the Act. The learned Authorised Representative, by placing reliance on the following case law, submitted that if there is a change in law after a transaction is entered into, then the character of the transaction would be the deciding factor for the purpose of taxation and that character will not be affected by the law that was introduced subsequently. Accordingly the taxability of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration lies upon the Revenue, whereas under s. 50C of the act the burden of proof is placed upon the assessee. He further submitted that the Hon'ble Madras High Court in the case of Ambattur Clothing Co. Ltd. vs. Asstt. CIT (2009) 221 CTR (Mad) 196 : (2008) 16 DTR (Mad) 142 has held that s. 50C provides sufficient opportunity to the assessee to contest his case before IT authorities, in addition to that opportunity provided for under Stamp Act. Accordingly, the High Court in that case approved the adoption of the value determined for the purposes of payment of stamp duty for the purpose of computation of capital gains. However, in the instant case, these assessees have failed to avail the opportunities provided for in s. 50C as well as those provided under relevant Stamp Act and hence they should not object to the application of s. 50C at this stage. 8. We have heard the rival contentions on this issue and carefully perused the record. Before adjudicating the issue whether the provisions of s. 50C shall apply to the impugned transfer of property, we consider it appropriate to discuss various judicial pronouncements on legal points, which are applicable to the said issue. The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the capital asset and compute the capital gains on that basis. No more is necessary to be proved, contended the Revenue. To introduce any further condition such as understatement of consideration in respect of the transfer would be to read into the statutory provision something which is not there; indeed, it would amount to rewriting the section. This argument was based on a strictly literal reading of s. 52, sub-s. (2), but we do not think such a construction can be accepted. It ignores several vital considerations which must always be borne in mind when we are interpreting a statutory provision. The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be 'drafted with divine prescience and perfect clarity'. We can do no better than repeat the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold, by more than 15 per cent of such agreed price. This is not at all an uncommon case in an economy of rising prices and in fact we would find in a large number of cases where the sale is completed more than a year or two after the date of the agreement that the market price prevailing on the date of the sale is very much more than the price at which the property is sold under the agreement. Can it be contended with any degree of fairness and justice that in such cases, where there is clearly no understatement of consideration in respect of the transfer and the transaction is perfectly honest and bona fide and, in fact, in fulfilment of a contractual obligation, the assessee, who has sold the property, should be liable to pay tax on capital gains which have not accrued or arisen to him? It would indeed be most harsh and inequitable to tax the assessee on income, which has neither arisen to him nor is received by him, merely because he has carried out the contractual obligation undertaken by him. It is difficult to conceive of any rational reason why the legislature should have thought it fit to impose liability to tax on an assessee who is bound by law to carry out his contractu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer and it would have no application in the case of a bona fide transaction where the full value of the consideration for the transfer is correctly declared by the assessee. There are several important considerations which incline us to accept this construction of s. 52, sub-s. (2)." The Hon'ble Supreme Court also observed that while interpreting a section it would be legitimate to consider what was the mischief and defect, which was sought to be remedied by an enactment. In that connection the Speech made by the Finance Minister while moving the amendment is extremely relevant as it throws a considerable light on the objectives and purpose of enactment. However, as pointed out by learned Authorised Representative the purpose of introduction of s. 50C was not mentioned by the Finance Minister at the time of moving amendment. It was also not explained in the Notes on Clauses and Explanatory Memorandum attached to the relevant Finance Bill. However, the Hon'ble Madras High Court in the case of K.R. Palanisamy & Ors., while upholding the constitutional validity of s. 50C, had an occasion to spell out the objective of introducing s. 50C. The relevant observations are extracted bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee claimed the gain on sale of plots as long-term, the AO treated the same as short-term. The Hon'ble Gujarat High Court held that the question whether the said transfer is of long-term capital asset or short-term capital asset will have to be determined as on the date of taxable event i.e., the date of transfer as per the law existing on the date. (b) CIT vs. Laxman Singh. In this case the assessee sold certain jewellery between 29th March, 1972 to 31st March, 1972. On those dates, the definition of 'capital asset', for the purpose of assessing the capital gain, did not include jewellery. However, w.e.f. 1st April, 1973 jewellery articles were included in the definition of capital asset. The Hon'ble Rajasthan High Court held that no capital gain occurs as a result of sale of jewellery which was sold before 1st April, 1973, for the reason that whatever substantive rights that had occurred to the assessee prior to 1st April, 1973 could not be taken away. 8.2 The Kolkatta Bench of the Tribunal in the case of Neville De Noranha, has held that, in, the interest of substantial justice, the assessee should not be made to suffer simply because of the delay on the part of the Appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the causes for the delay in registering the sale deed. From the submission of the assessees, which is also supported by the caution notice issued by the buyer, the vendors were under an obligation to obtain urban land clearance permission and were also under an obligation to settle certain disputes. The assessees have filed a copy of the proceedings of the Special Officer and Competent Authority of Urban Land Ceiling Act at pp. 27 to 29 of the paper book compiled by them in support of their contentions in this regard. The assessees have submitted that certain persons claimed themselves to be the legal heirs of Shri P. Venkateshwara Rao (from whom the assessees have inherited the property) and those persons also claimed right over the property and the settling of their claims has also caused delay. The said explanation is supported by the fact that the persons belonging to Masetty family were also included as vendors and further another lady named Achanta Chittamma has given a deed of confirmation about the receipt of money way back in August, 2001 itself to relinquish her interest in the property. In addition to the above we also notice from the recital of the sale deed that M/s Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arisen to him nor is received by him, merely because he has carried out the contractual obligation undertaken by him. It is difficult to conceive of any rational reason why the legislature should have thought it fit to impose liability to tax on an assessee who is bound by law to carry out his contractual obligation to sell the property at the agreed price and honestly carried out such a contractual obligation. It would indeed be strange if obedience to the law should attract the levy of tax on income, which has neither arisen to the assessee nor has been received by him." 8.7 In the instant case also, the assessees herein have fulfilled a contractual obligation in October, 2004, which they are bound by law to carry out as per the sale agreement entered in August, 2001. We have already stated that the delay in carrying out the contractual obligations has occurred for genuine causes and for reasons beyond the control of the assessees. 8.8 Now the next question that requires to be addressed is whether there was any understatement of actual consideration at the time of entering into the sale agreement. The Hon'ble apex Court in the case of K.P. Varghese has held that the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was granted no objection certificate under Chapter XX-C only in April, 2002 and by the time the provisions of s. 50C had come into operation. The Hon'ble Kolkata Tribunal held that only the Chapter XX-C shall apply to that transaction. The Hon'ble Tribunal also held that in the interest of substantial justice the assessee should not be made to suffer simply because of delay on the part of Appropriate Authority in granting sanction under Chapter XX-C, who was also a part of Department. In the instant case, the delay has occurred not only due to the delay in getting urban land clearance permission, but also due to rival claims from other persons. Hence, from the angle of substantive justice also, the assessees should not be made to suffer for the delay. 8.10 The periods of the impugned transactions have fallen in the transition phase of law, i.e., the sale agreement was entered before the introduction of s. 50C and the registration was completed after the introduction of said section. As pointed out by Hon'ble apex Court in the case of K.P. Varghese, the assessees have only fulfilled the contractual obligation imposed upon them by virtue of the sale agreement. The ratio of the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income and accordingly held that the same is not deductible for the purpose of computation of capital gains. 9.1 We have heard the parties on this point and carefully perused the record. The property was originally purchased by Shri P. Venkateshwara Rao, Smt. P. Padmavathi, Smt. K. Venkata Lakshmi, Smt. CH. Kasturi Bai and Smt. M. Siva Parvathi are the legal heirs. Since the Masetty family also claimed themselves to be the daughters of Shri P. Venkateshwara Rao through his concubine Smt. Achanta Rajeshwari, they were also included as vendors in the sale deed. Through the sale deed. the members of Masetty family were given a sum of Rs. 44 lakhs. Similarly Smt. A. Chittamma also claimed as the concubine of Shri P. Venkateshwara Rao and in order to give up the said claim, a sum of Rs. 14 lakhs was paid way back in August, 2001 itself, by way of demand drafts drawn on IDBI Bank and G.T.B. Bank and further a sum of Rs. 3,40,000 was paid by way of cash on 18th Jan., 2005. Since the deed of confirmation is only a record of transaction already entered into by the parties, the difference in the date of confirmation and the date of stamp paper is not material for deciding the issue. 9.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Bom) 35 : (1996) 218 ITR 598 (Bom). "It is well established that where money is paid to perfect a title or as consideration for getting rid of a defect in the title or a threat of litigation the payment would be a capital payment and not a revenue payment." Hence, in our opinion, the decision of learned CIT(A) in treating the payment made to Masetty family as well as Smt. A. Chittamma as an application of income is not correct and is against the judicial pronouncements discussed above. Further in such kind of disputes, there may not be co-operation between the rival parties. Accordingly we reverse the order of learned CIT(A) and direct the AO to allow the deduction of payments made to the Masetty family and Smt. A. Chittamma. 10. The next issue relates to disallowance of following deductions claimed by the assessees: (a) Amount said to have been paid to M/s Sai Srinivas Enterprises 5 lakhs (b) Cost of improvement 2 lakhs Both these payments were disallowed for the reason that the assessees could not substantiate their claim with evidences. There cannot be any dispute that the onus f is placed upon the assessee to substantiate his claim. Before us also the assessees could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) has allowed the payment of Rs. 50,000 made to a lawyer on the basis of circumstantial evidence, even though no confirmation letter was obtained from that lawyer. Hence, in our view, a reasonable estimate should be made towards the expenses and the same should be allowed in computation of capital gains. On a conspectus of the matter, we are of the view that an estimate of Rs. 8 lakhs towards the payment made to the tenants and brokers would meet the ends of justice and we order accordingly. We direct the AO to allow the said amount of Rs. 8 lakhs in computation of capital gains. 12. The next common issue relates to the extent of constructed portion that was available on the property sold by the assessees. Though the assessees claimed that the constructed area was 18,000 sq. ft. in ground floor and 18,000 sq. ft. in the first floor, in the registered sale deed, the constructed area has been shown as 2,000 sq. ft. in the ground floor and 1.000 sq. ft. in the first floor. In the absence of any other evidence, the tax authorities have restricted the constructed area to the extent disclosed in the registered sale deed. Hence we do not find any reason to interfere with the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he capital gain for the reason that the asses sees have inherited the property only in that financial year. However learned CIT(A) has held that the cost inflation index relating to the financial year 1981-82 should be adopted as the impugned property was acquired by the previous owner prior to 1st April, 1981. 14.1 We have heard the parties and carefully perused the record. The learned Departmental Representative relied upon the decision of Tribunal, Mumbai in the case of Dy. CIT vs. Kishore Kanungo (2006) 104 TTJ (Mumbai) 560 : (2006) 102 ITD 437 (Mumbai) wherein it was held that the indexation is to be allowed only from the year in which the assessee became the owner of the property. On the other hand, learned Authorised Representative has placed his reliance on the following case law to contend that the indexation should be allowed from 1st April, 1981: (a) Smt. Mina Deogun vs. ITO (2008) 117 TTJ (Kol) 121 : (2008) 8 DTR (Kol)(Trib) 233 : (2008) 19 SOT 183 (Kol) (b) Mrs. Pushpa Sofat vs. ITO (2004) 89 TTJ (Chd) 499 : (2002) 81 ITD 1 (Chd). In the case of Smt. Mina Deogun, the Tribunal, Kolkata Bench, after considering the Memorandum Explaining the Finance Bill, 1992 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lature intended for investment in more than one asset, it could have easily used the words 'in any residential house' in s. 54 and s. 54F instead of the words 'a residential house'; superfluous words are not used by the legislature. Different words like 'a' and 'any' have been deliberately used by the legislature to convey different meanings. Therefore, the legislature used the words 'a', where it intended investment in one residential house only and used the word 'any', where it intended investment in one or more assets. Thus the intention of the legislature was to allow exemption under ss. 54 and 54F in respect of investment in one single residential house." 15.1 Learned Authorised Representative relied upon the decision of Hon'ble Karnataka High Court in the case of CIT vs. D. Ananda Basappa (2009) 223 CTR (Kar) 186 : (2009) 20 DTR (Kar) 266 : (2009) 309 ITR 329 (Kar), wherein the High Court observed that the expression "a residential house" should be understood in a sense that the building should be of a residential nature and "a" should not be understood to indicate a singular number. We have carefully perused the said order. In that case, the assessee therein purchased two a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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