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TMI Blog2010 (3) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... s required under the provisions of the Bombay Stamp Act, 1958 (hereinafter referred to as "the Stamp Act"). In terms of the First Schedule entry 5(ga) of the Stamp Act, the agreement if relating to giving authority or power to a promoter or a developer, by whatever name called, for construction on, development of or, sale or transfer (in any manner whatsoever) of, any immovable property, the duty chargeable is the same as is leviable on a conveyance under clause (b), (c) or (d), as the case may be, of article 25, on the market value of the property. Respondent No. 4 by demand notice dated October 23, 2008 called on the developer to pay an amount of Rs. 15,50,030 as stamp duty as also a penalty in the sum of Rs.1,55,010. The developer paid the said amount along with the penalty. 3. It is the case of the petitioner that though the demand was issued in the name of the developer, the order adversely affects their right and interest as the valuation worked out has a direct nexus to section 50C of the Income-tax Act which adversely affects the liability of the petitioner-society to the extent of Rs. 1,91,90,568 as the consideration was raised from Rs.4,85,00,000 to Rs. 15,50,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... measure. Section 50C is a draconian provision which is in absolute contrast to the objects and purposes of the Income-tax Act, 1961. (D) That the Income-tax Act, 1961 is a law made under entry 82, Schedule VII, List I of the Constitution of India. As such considering sections 4 and 5 of the Act, which contemplate levy or tax upon all income and by no stretch of imagination the meaning and scope of "total income" be substituted by "the valuation assessed by the stamp valuation authority for the purpose of stamp duty". The meaning of "income", therefore, under section 50C is beyond what is stipulated under entry 82, List I of the Seventh Schedule to the Constitution. (E) Section 50C as introduced by the Finance Act does not provide the rate of tax or manner of liability but in effect substitutes the "valuation of the stamp valuation authority" with the "total income" of the assessee while assessing the liability of the income-tax which amounts to alteration of the subject-matter of the Income-tax Act itself. That the subject-matter of the Act is income other than agricultural income and the relevant Finance Act by introducing section 50C seeks to change/alter/substitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined upon any instrument of transfer does not connote the consideration received upon such transfer and therefore adopting the stamp duty valuation as the income or consideration received by the assessee as declared under section 50C of the Act is wholly misconceived and the same is not in consonance with the scheme of the Income-tax Act. The Central enactment in terms of section 50C is superior to the State Act and provisions of the Central enactment depending upon the outcome under the State Act, must be held as unconstitutional and ultra vires the provisions of the Constitution of India. 5. Notice was issued to the Attorney General. The learned Additional Solicitor General points out that the issue is covered by the Division Bench judgment of the Madras High Court in the case of K. R. Palanisamy v. Union of India reported in [2008] 306 ITR 61 (Mad) ; [2009] 180 Taxman 253 (Mad). The Madras High Court, it is submitted, has held that section 50C is constitutionally valid and the various arguments raised have been rejected. Placing reliance on Union of India v. A. Sanyasi Rao reported in [1996] 219 ITR 330 (SC) ; AIR 1996 SC 1219, it is pointed out that the valuation taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fetched if sold in the open market or consideration stated in the instrument, whichever is higher. After considering various aspects, it was held that the sum total of all the development agreement comes to Rs. 15 crores, on which the stamp duty of 1 per cent. has been calculated and has been levied and accordingly demanded. Thus the consideration to be received by the society under the agreement in terms of money has been taken to be the market value of the property. 10. For the purpose of discussion, we may gainfully reproduce sections 45, 48 and 50C of the Income-tax Act, which read as under : "45. Capital gains.-(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54 and 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income-tax under the head `Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. 48. Mode of computation.-The income chargeable under the head `Capital gains' shall be computed by deducting from the full value of the consideration received or accruing as a result of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reveals that under section 50C the value adopted by stamp valuation authority or assessed for the purpose of section 48, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. Apart from that under sub-section (2) where the assessee claims before any Assessing Officer that the value adopted or assessed, exceeds the fair market value of the property as on the date of transfer and the value so adopted by the stamp valuation authority has not been disputed by any appeal or revision or no reference has been made before any authority, court or High Court, the Assessing Officer may refer the valuation of the capital assets to the Valuation Officer. Thus, even though, if an appeal has not been preferred and in the instant case reference was sought by the developer and not the petitioner, the petitioner has a remedy of calling on the Assessing Officer to appoint the valuer for the purpose of determining the fair market value. We may also note that under section 50C, the value so adopted or assessed by any authority of the State Government, referred to as the stamp valuation authority is only a measure of tax and not the subject-matter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substituted by the amendment is concerned, we are clearly of the opinion that as the developer had sought a reference on which the competent authority under the Stamp Act had given the valuation and pursuant thereto paid the duty as also the penalty imposed, that challenge will not be available to the petitioner in this petition as there is no longer a demand notice to be complied with. 15. We shall therefore confine ourselves to consider prayer clause (aa) by which it is prayed that section 50C of the Income-tax Act be declared as ultra vires the Constitution of India. Learned counsel on behalf of the petitioner had sought to draw our attention to the judgment of the Supreme Court in CIT v. Khatau Makanji Spg. and Wvg. Co. Ltd. [1960] 40 ITR 189 (SC), to the following observations, namely, that under section 3 of the Income-tax Act, income-tax is a tax on the income of the previous year and it would not cover something which is not the income of the previous year, or made fictionally so. Section 45 provides for the mode of computation of income chargeable under the head "Capital gains". Section 50C is a measure provided to bridge the gap as it was found that assessees were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able group of assessees. Both classes have to pay capital gains tax. In so far as section 50C is concerned, it pertains to a class of capital assets being land or building. We therefore do not find that the classification as being unreasonable and consequently discriminatory considering the object being, to tax the income arising from capital gains. Those grounds enumerated earlier, therefore, have no merit and are consequently rejected. 18. We may next deal with the argument that the Income-tax Act is a law made under entry 82, Schedule VII, List I of the Constitution of India and consequently the valuation assessed by the stamp valuation authority is illegal as such a provision would be beyond the field of legislation under Entry 82, List I of the Seventh Schedule and as such beyond the competency of Parliament. In our opinion, this argument has to be rejected. Similar contention was raised in the case of A. Sanyasi Rao [1996] 219 ITR 330 (SC) by contending that the tax levied there was on the purchase price and not the tax on income. In that case, as we have noted earlier, what was under consideration was section 44AC of the Income-tax Act which was a special provision f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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