9911796707
TMI Blog2017 (1) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the case? ii) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in holding that reference made under section 55A of the Income Tax Act was bad in law whereas the Assessing Officer in the surrounding circumstances, had rightly invoked the provisions of this section to determine the fair market value of the capital asset sold? iii) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in holding that the Hon'ble Supreme Court's decision rendered in the case of McDowell & Co. Ltd. v. CTO 154 ITR 148 is not applicable on the facts of the case? iv) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is perverse in not deciding the specific ground of appeal taken by the appellant at Ground No.2 which is regarding passing of appellate order by the learned CIT(A) without affording an opportunity of being heard to the Assessing Officer which was specifically requested for in the ITNS-51 submitted to the CIT(A)? However, only questions-2 and 3 were argued before us. The appeal is accordingly admitted in respect of questions No.2 and 3. 3. The respondent-assessee filed its return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer also dealt with the issue of the two entities being closely related in detail. For the purpose of this appeal it is sufficient to note that the assessee is a fully owned subsidiary of M/s Quark Media House SARL, Switzerland and M/s Quark City India Pvt. Ltd. i.e. the vendee is a 100% subsidiary of another foreign company, namely, F.E. Holdings Mauritius Ltd. The two foreign companies are part of Quark group, the holding company of which is Quark Inc. USA. 5. The question that falls for consideration is whether for the purpose of calculating the capital gains arising on account of the said transaction, the sale price ought to be taken as Rs. 25 crores as mentioned in the sale deed or Rs. 70 crores which is the value of the property arrived at by the Assessing Officer. The answer to this question also requires a consideration as to whether the Assessing Officer rightly made a reference to the D.V.O. under section 55A to ascertain the fair market value of the property. 6. The Assessing Officer after noting the contentions on behalf of the assessee observed that a good case had been made out on behalf of the assessee that the full consideration received by the assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated in the sale deed. In the absence thereof the conclusion that the assessee had structured the transaction to avoid income tax or to minimize it is without basis and justification. It is not necessary for us to consider the findings of the CIT(A) regarding the mode of computation for that issue as already mentioned was not raised before us. Section 55A does not entitle the Assessing Officer to disturb the sale consideration as stated in the sale deed. It was not necessary to compute the fair market value and therefore, the Assessing Officer could not have referred the matter to the D.V.O. 8. The Tribunal agreeing with the CIT(A) observed as follows: The full value of consideration is the full sale price actually paid and cannot be construed as having a reference to the market value of the asset/property transferred. What is to be determined is the consideration bargained for and not the market value in the case of sale while computing the capital gains. The Assessing Officer has no authority to substitute the fair market value of consideration actually paid unless it is demonstrated that the assessee had received more than what was declared by him. In the present case it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Sections 48, 50C and 55A of the Act in so far as they are relevant and applicable to the assessment years 2006-07 read as under:- Mode of computation. 48. 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 transfer of the capital asset the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto: Special provision for full value of consideration in certain cases. 50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of the payment of stamp duty. (3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub section (2) exceeds the value adopted or assessed or assessable by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed or assessable by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer. Note: The words "value" and "assessable" used throughout Section 50C and explanation-2 were inserted by Finance (No.2) Act, 2009 with effect from 01.10.2009. Reference to Valuation Officer. 55A. With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer- (a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so claimed is less than its fair market value; (b) in any other case, if the Assessing Officer is of opinion- (i) that the fair market value of the asset exceeds the value of the asset as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale, exchange or transfer took place: * * * (2) The amount of a capital gain shall be computed after making the following deductions from the full value of the consideration for which the sale exchange or transfer of the capital asset is made, namely: (i) expenditure incurred solely in connection with such sale, exchange or transfer; (ii) the actual cost to the assessee of the capital asset, including any expenditure of a capital nature incurred and borne by him in making any additions or alterations thereto, but excluding any expenditure in respect of which any allowance is admissible under any provisions of Section 8, 9, 10 and 12. Provided that where a person who acquires a capital asset from the assessee, whether by sale, exchange or transfer, is a person with whom the assessee is directly or indirectly connected, and the Income Tax Officer has reason to believe that the sale exchange or transfer was effected with the object of avoidance or reduction of the liability of the assessee under this section, the full value of the consideration for which the sale, exchange or transfer is made shall with the prior approval of the Inspecting Assistant Commissioner of Income Tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Assistant Commissioner affirmed the order but varied the quantum of capital gain holding that on the date of acquisition of the shares by the respondent i.e. 1.1.1939 the market value of the share was Rs. 153/- per share and that this figure should be taken as the actual cost in view of the third proviso to Section 12B(2). The Appellate Assistant Commissioner also held that the sale was effected with the object of avoidance of tax. The Tribunal dismissed the appeal but on the ground adopted by the Appellate Assistant Commissioner, a reference was made to the High Court. A majority of the Judges of the High Court answered in favour of the assessee-respondent. The Supreme Court held as under:- "5. The question therefore arises in the present case as to what is precisely the finding of fact arrived at by the Tribunal as regards the full value of the consideration. It is necessary to state at the outset that the Income Tax Officer and the Appellate Assistant Commissioner assessed the tax on the footing that the first proviso to Section 12-B(2) applied and therefore the market value of the shares must be taken to be the full value of the consideration for the transfer. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows: "But the right of the Income Tax Officer to determine the full value of the assets is always there specially in a case where the assessee refuses to give all the information to the Income Tax Officer and the value of the assets given by him is so suspiciously low. We therefore think there is no substance, in the points raised by Mr Issac". It was contended by Mr Asoke Sen on behalf of the respondent that there was no express finding of the Appellate Tribunal that the respondent actually sold the shares at the market price of Rs. 620 per share and that the respondent received that market price of the shares as consideration for the transfer. Reference was made to para 7 of the order of the Appellate Tribunal wherein there is an express finding that the shares were transferred by the respondent to Giridharilal Mehta on April 1, 1946 at the book value of Rs. 136 per share, though the market value on that date was Rs. 620 per share. Mr Asoke Sen further submitted that it could not be argued from paras 8 to 11 of the order of the Appellate Tribunal that there was an inferential finding that the shares were actually sold at Rs. 620 per share by the respondent. On behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on it to produce documentary or other evidence in support of the explanation. The Tribunal will also be entitled to call for elucidation of the explanation or the evidence. The appellant will be entitled to give evidence in rebuttal." 14. Considering the language of sub section (2) of Section 12B of the 1922 Act, we are of the opinion that the judgment applies to Section 48 of the 1961 Act. The language of sub section (2) in this regard is similar to the language of the opening part of Section 48 of the Act. 15. The judgment undoubtedly holds that the expression "full value of the consideration" cannot be construed as the market value but as the price bargained for by the parties to the sale. It is necessary for the Assessing Officer to ascertain as to what was the price bargained for by the parties to the sale. 16. The judgment, however, does not support Mrs. Suri's further submission that the price stated in the sale-deed must irrespective of anything also be considered to be the sale price for the purpose of computing the capital gain. In our view this absolute proposition is not well founded. The Assessing Officer must determine whether the price stated in the agreement for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax, Calcutta v. Gillanders Arbuthnot & Co. (1973)87 ITR 407 where the Supreme Court held:- "Now let us see what is the impact of Section 12-B (2) on that transaction? Under that provision, the amount of capital gains has to be computed after making certain deductions from the full value of the consideration for which the sale is made. What exactly is the meaning of the expression "full value of the consideration for which sale is made?" Is it the consideration agreed to be paid or is it the market value of the consideration? In the case of sale for a price, there is no question of any market value unlike in the case of an exchange. Therefore in cases of sales to which the first proviso to sub-section (2) of Section 12-B is not attracted, all that we have to see is what is the consideration bargained for. As mentioned earlier to the facts of the present case, the first proviso is not attracted. As seen earlier, the price bargained for the sale of the shares and securities was only rupees seventyfive lakhs. The facts of this case squarely fall within the Rule laid down by this Court in C.I.T. v. George Henderson & Co. Ltd. ............. It may be noted that in that case the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to the market value of the capital asset which is the subjectmatter of the transfer. 7. In CIT v. Gillanders Arbuthnot and Co., [1973] 87 ITR 407, the Supreme Court while considering the provisions of section 12B of the 1922 Act again observed that in the case of a sale price of an asset, there would be no question of any market value, unlike in the case of an exchange and the Supreme Court also observed that, in the case of a sale, all that one had to see was-What was the consideration bargained for? 8. These decisions make it more than clear that the expression "full value of consideration" that is used in section 48 of the present Act does not have any reference to the market value but only to the consideration referred to in the sale deeds as the sale price of the assets which have been transferred.. 9. With regard to the arguments of the learned counsel for the appellant based on the provision of section 55A of the said Act, it is immediately to be noticed that the said provision begins with the expression "with a view to ascertaining the fair market value of a capital asset". In other words, the reference to a Valuation Officer under section 55A is for the object of asc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to the Valuation Officer under section 55A of the said Act would be necessary. 11. But, the facts of the present case are entirely different. The present case involves sales simpliciter where the full value of the considerations are the sale prices of the two properties indicated above. For the purposes of computing capital gains in such a case as the one before us, there is no necessity for computing the fair market value and, therefore, the Assessing Officer could not have referred the matter to the Valuation Officers." We are entirely in agreement with the observations of the Division Bench in so far as they pertain to the issue under consideration. The reliance upon the judgment of the Supreme Court in George Henderson & Co. Ltd. case (supra) is also well founded. The language of Section 12B(2) of the 1922 Act is similar to that of Section 48 of the 1961 Act. The issue is, therefore, covered by the judgment of the Supreme Court. 20. We do not read the observations in paragraph-7 to mean that the consideration referred to in the sale deed cannot be questioned at all. The judgment if read as a whole does not indicate such an absolute or blanket rule. There is nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O under section 55A of the Act. The question of law as framed is answered in favour of the assessee and against the Revenue." The judgment, therefore, proceeded on the basis that there was nothing on record to show that the assessee received a consideration for the sale of the property in excess of that which was shown in the sale-deed. The Division Bench did not take into consideration the effect of the District Valuation Officer having valued the market price at ten times the amount stated in the document. Inferences on that basis were not even suggested. We do not read the judgment as having held that the amount mentioned in the sale document is sacrosanct and is the only basis on which the capital gain is to be computed. 22. A Division Bench of this Court by a judgment dated 05.03.2014 in Commissioner of Income Tax-III, Ludhiana v. Shri Dharam Pal Aggarwal ITA NO. 462 of 2010 framed the following questions of law:- i) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in ignoring the provisions contained in Section 55A of the IT Act which specifically empower the Assessing Officer to ascertain the fair market value of capital asset for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only to the consideration referred to in the sale deeds as the sale price of the assets which have been transferred". The price to be considered is the consideration received or accruing as a result of the transfer and not necessarily the price that the assessee states that it received or which has accrued to it. At the cost of repetition a view to the contrary would lead to the absurdity of enabling an assessee to avoid capital gains merely by stating that an incorrect price as having been received by it or accruing to it. 23. The matter, however, does not end there. In view of the facts of this case the assessee must succeed. Mrs. Suri submitted that there was no finding that the assessee received any consideration other than that shown in the sale agreement. This is correct. The assessment order does not proceed on the basis that the assessee received any amount in addition to what is stated in the sale deed. It proceeds only on the basis that the assessee and the purchaser being related parties, the property was sold at a very low price. The CIT(A) also noted that the Assessing Officer had not shown that the assessee had received any consideration other than the consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Delhi High Court in Smt. Nilofer I.Singh case (see paragraph-8 quoted above). This is made expressly clear from the judgment of the Supreme Court in Smt. Amiya Bala Paul v. Commissioner of Income Tax (2003) 262 ITR 407, where the Supreme Court held:- "17. Besides, Section 55-A having expressly set out the circumstances under and the purposes for which a reference could be made to a Valuation Officer, there is no question of the Assessing Officer invoking the general powers of enquiry to make a reference in different circumstances and for other purposes. (See Padam Sen v. State of U.P. [AIR 1961 SC 218 : (1961) 1 Cri LJ 322], AIR para 8, Arjun Singh v. Mohindra Kumar [AIR 1964 SC 993] , AIR para 19.) It is noteworthy that Section 55-A was introduced in the Act by the Taxation Laws (Amendment) Act, 1972 when Sections 131(1), 133(6) and 142(2) were already on the statute-book. Learned counsel for the appellant has correctly submitted that if the power to refer any dispute to a Valuation Officer was already available in Sections 131(1), 133(6) and 142(2), there was no need to specifically empower the Assessing Officer to do so in certain circumstances under Section 55-A. 18. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffirmative. The Tribunal had not erred in holding that the Assessing Officer cannot refer the matter to the Valuation Officer for estimating the cost of construction of the house property. The appeal is accordingly allowed and the decision of the High Court set aside. There will be no order as to costs." 28. In Commissioner of Income Tax, Madras v. Shivakami Co. P. Ltd. (1986) 159 ITR 71, the Supreme Court held that the assessee's sold the shares to two persons who were directly or indirectly connected with them at prices considerably less than their break-up value. The Supreme Court then held as follows:- "13. It may be mentioned that Section 52 of Income Tax Act, 1961 (hereinafter referred to as "1961 Act") corresponds to the first proviso of Section 12-B(2) of 1922 Act. The first proviso to Section 12-B(2) read as follows: "Provided that where a person who acquires a capital asset from the assessee, whether by sale, exchange, relinquishment or transfer, is a person with whom the assessee is directly or indirectly connected, and the Income Tax Officer has reason to believe that the sale, exchange, relinquishment or transfer was effected with the object of avoidance or reducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the evil design of the assessee was clear and he said that it was difficult to know the mind of man. Therefore, an inference could be drawn in the facts of this case as noted by the Tribunal that there was understatement of value in the document. Though the legislation in question is to remedy the social evil and should be read broadly and should be so read that the object is fulfilled, yet the onus of establishing a condition of taxability must be fulfilled by the revenue. There is no evidence direct or inferential that the consideration actually received by the assessee was more than what was disclosed or declared by him. The relationship between the parties has been established. The desire to defeat the claims of the revenue has also been established but the fact that for this the assessee had stated a false fact in the document is not established. What appears from the Tribunal's order was that the real and main object was to safeguard these shares from being taken over by the Government in settlement of tax dues, and also that the buyer and seller were indirectly connected with each other. 17. The first proviso to Section 12-B(2) of 1922 Act provides "full value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inferential, in these cases that the full consideration had not been stated in the document." Thus the Assessing Officer proceeded on the erroneous basis that as the assessee and the purchaser are interconnected and the property was sold at an undervalue he had the jurisdiction to invoke the provisions of section 55A or even otherwise to determine the fair market value. As held by the Supreme Court it then is a distinction between undervaluation and understatement of the value. The Assessing Officer did not find the consideration to have been understated. He, therefore, was not entitled to determine the fair market value. 29. The judgment relied upon in Commissioner of Income Tax, Bangalore v. B.C.Srinivasa Setty AIR 1981 Supreme Court 972, is of no assistance in the determination of the issues that fall for our consideration as they were neither raised before us nor decided by the Supreme Court. The question, therefore, essentially was whether the goodwill falls within Section 48 of the Act. The Supreme Court held that the character of the computation provisions in each case bears a relationship to the nature of the charge. Thus the charging section and the computation provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and, therefore, whenever such contingency does arise, the Income-tax Officer who is, as stated earlier, invested with the power, can as well ascertain through the agency of a Valuation Officer. Learned counsel for the petitioners, Sri Ranganathachari, argued with great vehemence that this power could be exercised vis-a-vis the ascertainment of the value of a capital asset in relation to capital gains only and nothing else. We apprehend, we are not persuaded to accede to this submission as it would be causing violence to the very explicit language used in the very section apart from the contextual interpretation. The mere residence of the section within the sub-chapter "capital gains" cannot be a guidance to hold that it pertains to that sub-chapter alone inasmuch as, as pointed out earlier, the word "Chapter" occurring in the section, is crucial in coming to this conclusion. The word employed is "Chapter" and not "Capital gains", which amply and unambiguously demonstrates the intention of the Legislature. 12. Hence, we have no hesitation in holding that section 55A of the Act empowers the Income-tax Officer to have the fair market value of a capital asset determined by referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 50C is of no assistance to the Revenue either. Mrs. Dugga's submission that the Assessing Officer's can be supported under section 50C is not well founded. Even assuming that the Assessing Officer was entitled to invoke Section 50C to have the fair market value determined, it would make no difference. In view of sub section (3) the rate adopted, assessed or assessable by the Stamp authority would prevail. It is common ground that in this case the consideration stated in the sale document is even higher than the valuation by the Stamp authority. 33. In the circumstances, question (ii) is answered in the affirmative in favour of the assessee. Re: Question (iii) 34. The judgment of the Supreme Court in Ms. McDowell & Co. Ltd. v. Commercial Tax Officer, (1985) 154 ITR 148 does not warrant a different view of the matter. The view that we have taken in respect of question (ii) cannot be altered in view of the judgment in McDowell's case (supra). The ratio of the judgment of the Supreme Court referred to earlier is that for the purpose of Section 48, the full value of the consideration received by or accruing to the assessee must be taken into consideration for the purpose of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after 1-4-2002, the loss to be ignored would be only to the extent of the dividend received and not the entire loss. In other words, losses over and above the amount of the dividend received would still be allowed from which it follows that Parliament has not treated the dividend stripping transaction as sham or bogus. It has not treated the entire loss as fictitious or only a fiscal loss. After 1-4-2002, losses over and above the dividend received will not be ignored under Section 94(7). If the argument of the Department is to be accepted, it would mean that before 1-4-2002 the entire loss would be disallowed as not genuine but, after 1-4-2002, a part of it would be allowable under Section 94(7) which cannot be the object of Section 94(7) which is inserted to curb tax avoidance by certain types of transactions in securities. There is one more way of answering this point. Sections 14-A and 94(7) were simultaneously inserted by the same Finance Act, 2001. As stated above, Section 14-A was inserted w.e.f. 1-4-1962 whereas Section 94(7) was inserted w.e.f. 1-4-2002. The reason is obvious. Parliament realised that several public sector undertakings and public sector enterprises had in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
