FMV u/s 50C can be used only after hearing objections of the Assessee : HC

A bare reading of Scheme of Section 50C of the Act would show that Assessee can object to presumptive value as per Section 50C (1) and, therefore, it is only after hearing the objections of the Assessee, the Fair Market Value of the Capital Asset as per ‘Guidance Value’ can be determined by the authorities. The Assessee cannot be denied an opportunity to raise his objections even against the presumptive Fair Market Value under Section 50C (1) of the Act or Report of DVO under Section 50C (2) of the Act and the Assessing Authority or the Appellate Authorities, whose powers are co-extensive with those of the Assessing Authority, cannot refuse to meet those objections point by point.

HIGH COURT OF MADRAS

Jagannathan Sailaja Chitta

v.

Income-tax Officer, International Taxation 2(2), Chennai

T.C.A. NO. 142 OF 2019

FEBRUARY  15, 2019 

JUDGMENT

Dr. Vineet Kothari, J. – The Assessee, namely, M/s.Jagannathan Sailaja Chitta, Chennai, has filed this Appeal under Section 260-A of the Income Tax Act,1961, in short, ‘Act’, assailing the order passed by the Income Tax Appellate Tribunal, in short, ‘Tribunal’ on 27.09.2017 in I.T.A.No.1207/Mds.2017, against the Assessee for the Assessment Year 2012-2013, whereby the learned Tribunal upheld the order of the Commissioner of Income Tax (Appeals), in short, ‘CIT (A)’, holding that the ‘Guidance Value’ as per Section 50C of the Act, as determined by the State Government, could be adopted as the ‘Fair Market Value’ for sale consideration for imposition of Capital Gains Tax on the Assessee on the sale of property by her during the relevant Assessment Year.

2. The Appellant/Assessee has raised the following Substantial Questions of Law :

3. The Assessee also claimed exemption under Section 54F of the Act on account of reinvestment of the sale consideration in acquisition of the new property.

4. The issue raised before this Court in the present appeal by the learned counsel for the Assessee is that the sale consideration of the property in question, as disclosed by the Assessee, was Rs.17,09,80,000/- in the three ‘Documents of Sale’ executed in the year 2011, the details of which are given in Paragraph 5 of the order of the Tribunal, showing that for the sale consideration of Rs.17,09,80,000/-, the value adopted by the Stamp Value Authority was Rs.19,70,85,992/- as per Section 50C of the Act and thus a difference amount of Rs.2,61,05,992/- was added to levy Capital Gains Tax by CIT (A) for the first time and without considering the question of Section 54F , the said valuation under Section 50C was adopted by CIT (A), which was upheld by the Tribunal in the impugned order. The Tribunal, however, gave relief under Section 54F of the Act in the said valuation under Section 50C of the Act.

5. Learned counsel for the Assessee, relying upon a decision of the Delhi High Court in the case of CIT v.Khoobsurat Resorts (P) Ltd., [2012] 211 Taxman 570, has submitted that the Assessee had raised objections against the higher valuation and sought for fresh valuation of the said property by his letter, dated 10.03.2015, under Section 142A of the Act from Departmental Valuation Officer (DVO), but, since the assessment was getting time barred, the assessment was completed by the Assessing Authority on 30.03.2015, adopting the aforesaid stamp duty valuation on ‘Guidance Value’ and on which the difference of stamp duty was even paid by the Buyer and when the matter was taken before CIT (A), thereafter, for the first time, before CIT (A) only, the Assessing Authority produced the said Departmental Valuation Officer (DVO)’s Report, valuing the said property at even still higher amount of Rs.27,36,04,000/-. The Assessee raised objections before CIT (A) against such higher valuation and the same, as quoted in the order, dated 27.03.2017, of the learned CIT (A), are as follows :

Objections of Assessee :

“The following aspects of the property brought down its value as compared to the Stamp Duty Value for retail plots adopted by the stamp duty authority :

5. ECR Link Road was sluggish and the connecting roads to ECR were not complete and were in progress during the year of sale. These Road were completed fully only during 2012-13. Hence adopting the value of fully completed connected roads with that of unconnected roads for computing the stamp value is incorrect.

6. There were no housing project and commercial project started up to 2012 on either side of ECR Link Road. It is to state that there were open lands only. Hence the place was completely underdeveloped. However the values adopted were of retail plots after the land was developed which is unfair.

7. The guideline rate published by government from 2007 to 2012 was Rs.1000/- per sq. feet all through these years. The guideline was revised upwards at the end of 2012 and the rate specified is Rs.1500/- per square feet in the said location. Hence the value before 2012 should be adopted.

8. The entire parcel of land to the extent of 3.32 acres was sold by three sale deeds at the same date -28^th April 2011. The land being underdeveloped the guideline rate prescribed by the government for the developed saleable land cannot be a yard-stick for valuing the underdeveloped large parcel of land.

II. In this regard we reply on the decision of the Hon’ble Delhi High Court in the case of CIT v. Khoobsurat Resorts (P.)Ltd. . It was held in para 15 as under :

‘This court is of the opinion that the express provision of Section 50-C enabling the revenue to treat the value declared by an assessee for payment of stamp duty, ipso fact, cannot be a legitimate ground for concluding that there was undervaluation, in the acquisition of immovable property. If parliamentary intention was to enable such a finding, a provision akin to Section 50-C would have been included in the statute book, to assess income on the basis of a similar fiction in the case of the assessee who acquires such an asset. No doubt, the declaration of a higher cost for acquisition for stamp duty might be the starting point for an inquiry in that regard; that inquiry might extend to analyzing sale or transfer contemporaneously at the time of transaction. Yet, the finding cannot start and conclude with the fact that such stamp duty value or basis is higher than the consideration mentioned in the deed. The compulsion for such higher value, is the mandate of the Stamp Act, and provisions which levy stamp duty at pre-determined or notified dates. In the present case, the revenue did not rely on any objection fact or circumstances; consequently, the Court holds that there is no infirmity in the approach of the lower authorities and the Tribunal, granting relief to the assessee. This question is accordingly answered in favour of the assessee, and against the revenue.’

III. Without prejudice to the above, the difference between the value adopted by the appellant and the Stamp Valuer is Rs.18052 per square feet which is only 15% of the guideline value. Considering the larger size of the land, the margin of 15% can be allowed since the value of retail plots was adopted as comparable.

Findings of CIT (Appeals) :

The appellant’s above contentions along with reliance on case laws referred above have been carefully considered. I find that the case laws referred are squarely distinguishable on facts and accordingly, the appeal is adjudicated on this issue. The appellant has raised the ground of appeal that the AO has erred in adding Rs.2,61,05,992/- as the difference between the sale consideration shown and the value adopted by the stamp value authority u/s.50C in computing capital gains. The AR contended that when the AO issued Show Cause notice as to why the difference between the sale consideration shown and the value adopted by the stamp value authority should not be added back, in a reply to the Show Cause Notice, the appellant has submitted that for the purpose of stamp duty, there was a dispute between the buyer and the State Government and only at the time of assessment proceedings, the assessee came to know that the buyer had paid some extra stamp duty to get the registration completed. However, when the sale deed was executed, the consideration money as stated in the sale deed was only received. Hence, substituting the stamp value as the sale consideration will be a gross injustice. During the assessment proceedings, the assessee has requested AO vide letter dated 10.03.2015 to carry out the valuation of the property by valuation officer u/s.142A of the Act. However, the assessment was getting time barred on 31.03.2015 and by that time the valuation report was not received by the AO. Accordingly, the AO considered the sale consideration of the property at 50C value and computed LTCG. Therefore, the difference of sale consideration as shown in the sale deed and the 50C value of the property was added in computing the LTCG. The appellant has filed the appeal against the order by raising the grounds of appeal supra on the issue. During the appeal proceedings, the AO has further forwarded the valuation report dated 15.07.2015 determining the value of the property at 27,36,04,000/-of the valuation officer. The copy of the valuation report dated 15.07.2015 was handed over to the AR for his comment on the issue. The AR contended that they have raised objection before the DVO. Thereafter, the DVO has passed the valuation report dated 15.07.2015 valuating the property at Rs.27,36,04,000/- and the order of the DVO is incorrect and cannot be adopted as it exceeds the stamp duty value. I have given careful consideration to the assessee’s objection (sic !) raised before the DVO. From the valuation report, it is apparent that the DVO has given careful consideration to the assessee’s objection raised before him and accordingly arrived to a value of the property at Rs.27,36,04,000/-. Moreover, statute provision of sec.50C (2) r.w.s. 50C (3) has a mandate that subject to the provision 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. Accordingly, I confirm the action of the assessing officer adopting 50C value of the property as the sale consideration for computing the capital gain. The ground of appeal on this issue is dismissed.”

6. The Assessee insisted before CIT (A) that sale value declared in the sale deed was the fair market value of the property in question and, therefore, not only the valuation given by the Departmental Valuation Officer could not be adopted for imposition of Capital Gains Tax nor the presumptive value under Section 50-C of the Act could be so adopted.

7. From the above quoted portions of the order of CIT (A), it appears that CIT (A) had neither himself considered the objections of the Assessee in detail nor did he choose to remit the matter back to the Assessing Officer on that issue. Instead, the learned CIT (A) chose to observe that since the Departmental Valuation Officer had ‘carefully’ considered the objections of the Assessee and accordingly arrived at the value of Rs.27,36,04,000/-, but he would still approve the ‘Guidance Value’ under Section 50C of the Act, to be adopted by the Assessing Authority for computing the Capital Gains Tax liability of the Assessee. The Tribunal also dismissed the appeal of the Assessee in this regard and upheld the ‘Guidance Value’ as determined by the State Government for stamp duty purposes as ‘Fair Market Value’ and thus upheld the addition of Rs.2,61,05,992/- in the declared sale value of the asset in the Sale Deeds. The Tribunal, thus, adopted the said Fair Market Value under Section 50C of the Act and directed the Assessing Authority to compute the relief under Section 54F of the Act accordingly. The relevant Paragraphs 7.5 and 7.6 of the order of the Tribunal, dated 27.09.2017, are quoted below for ready reference :

“7.5 With regard to full value of consideration as a result of transfer of a capital asset, the provisions of section 48 of the Act is very clear that 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. In this case, as per section 50C(1) of the Act, where the consideration received by the assessee as a result of transfer of a capital asset, being land, building or both, is less than the value adopted or assessed by an authority of State Government [Stamp Valuation Authority] for the purpose of stamp duty, the value so assessed shall, for the purpose of section 48 of the Act, be deemed to be the full value of consideration received on such transfer. Thus, the full value adopted for the purpose of computation of capital gain tax as per the provisions of section 45 r.w. section 50C of the Act was at Rs.19,70,85,992/-, as determined by the Stamp Value Authority. In the same scenario, for claiming the exemption under section 54F of the Act from the capital gain chargeable under section 45 of the Act, the full value on transfer of asset should also be the same as determined by the Stamp Value Authority and not less than that. As explained in CIT v. Citi Bank N.A. [2003] 261 ITR 570 (Bom), the different provisions of Chapter IV-E of the Act form part of one integrated code. The same are to be read harmoniously and not disjointedly. A deeming provision, it is trite law, is to be read in light of the object of the provision and, further, is to be taken to its logical end. When, for the purpose of computation under section 48 of the Act, the full value of consideration was taken as per section 50C of the Act, the Assessing Officer was not justified in adopting the sale consideration as admitted in the sale deed viz., Rs.17,09,80,000/-. Similar view has also been taken by the Tribunal in ITO v. Kondal Reddy Mandal Reddy in I.T.A. No. 848/Hyd/2015 dated 13.05.2016.

7.6 In view of the foregoing, we direct the Assessing Officer to adopt the full value on transfer of asset as was determined under the provisions of section 50C of the Act, viz., Rs.19,70,85,992/- for allowing the claim of exemption under section 54F of the Act. Accordingly, the ground raised by the assessee is allowed and the Assessing Officer is directed to recompute the taxable income after allowing the claim of exemption under section 54F of the Act.”

8. Mr.Karthik Ranganathan, learned Senior Standing Counsel for the Revenue, supported the impugned order of the Tribunal and urged that the Assessing Authority and also the Appellate Authorities were bound to adopt the valuation given as per ‘Guidance Value’ under Section 50C of the Act and that the Assessing Authority did not have any discretion in the matter in this regard.

9. We have heard the learned counsel for the parties and given our due consideration to the rival submissions and also the material available on record.

10. Section 50C of the Act, as it now stands after its amendment by Finance Act, 2018, with effect from 01.04.2019, adding Third Proviso to Section 50C (1), is quoted below for ready reference:

“50C. Special provision for full value of consideration in certain cases. — (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 transfer.

Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer:

Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer.

Provided also that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five percent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration.”

(2) Without prejudice to the provisions of sub-section (1), where—

the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act.

Explanation 1.—For the purposes of this section, -”Valuation Officer” shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).

Explanation 2.—For the purposes of this section, the expression -”assessable” means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes 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 1 [or assessed or assessable] by the stamp valuation authority referred to in sub-section (1), the value so adopted 1 [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.”

11. The Delhi High Court, in the case of CIT v. Khoobsurat Resorts (P.) Ltd. (supra), referred to above, dealing with a similar question held in our respectful opinion rightly and we fully agree with the same, that the provisions of Section 50C of the Act only enable the Revenue to adopt the Guidance Value declared by the State for payment of stamp duty, as the Fair Market Value under Section 48 of the Act. But, that Guidance Value cannot, ipso facto, be taken as the valuation for the purpose of computing Capital Gains Tax liability in the hands of the assessee/seller. Sub-section (2) of Section 50C of the Act itself provides for reference to Departmental Valuation Officer if the Assessee objects to invoking of Section 50C (1) of the Act. The relevant Paragraph 15 of the said judgment is quoted below for ready reference :

“15. This Court is of the opinion that the express provision of Section 50-C enabling the revenue to treat the value declared by an assessee for payment of stamp duty, ipso facto, cannot be a legitimate ground for concluding that there was undervaluation, in the acquisition of immovable property. If Parliamentary intention was to enable such a finding, a provision akin to Section 50-C would have been included in the statute book, to assess income on the basis of a similar fiction in the case of the assessee who acquires such an asset. No doubt, the declaration of a higher cost for acquisition for stamp duty might be the starting point for an inquiry in that regard; that inquiry might extend to analyzing sale or transfer deeds executed in respect of ITA 776/2011 Page 12 similar or neighbouring properties, contemporaneously at the time of the transaction. Yet, the finding cannot start and conclude with the fact that such stamp duty value or basis is higher than the consideration mentioned in the deed. The compulsion for such higher value, is the mandate of the Stamp Act, and provisions which levy stamp duty at pre-determined or notified dates. In the present case, the revenue did not rely on any objective fact or circumstances; consequently, the Court holds that there is no infirmity in the approach of the lower authorities and the Tribunal, granting relief to the assesse. This question is accordingly answered in favour of the assessee, and against the revenue.”

12. In our considered opinion also, the Assessee’s objections against higher valuation by DVO as well as in terms of Section 50C of the Act were never dealt with by any of the authorities including the Appellate Authorities in the present case, firstly because, the objections could be raised by the Assessee only before CIT (A), as the Assessing Authority adopted the valuation as per Section 50C of the Act and produced Report of DVO only before CIT (A). Even though a reference was made to the Departmental Valuation Officer a few days prior to completion of assessment on 30.03.2015 in terms of Section 50C (2) of the Act, since the DVO’s Report did not come forth before the assessment could be completed, the same was confronted by the assessee for the first time only before CIT (A). The objections raised by the assessee were never really considered by CIT (A) nor did he choose to remit the matter back to the Assessing Officer for that purpose. Thus, the presumptive value under Section 50C of the Act giving rise to the additions to the extent of Rs.2,61,05,992/- to the declared sale value, as disclosed by the assessee, was adopted by the Appellate Authorities, without meeting the objections of the assessee at all. As such, the presumption under Section 50C (1) of the Act, even though rebuttable in law, was never allowed to be rebutted by the Assessee at all. The so called ‘careful consideration’ of objections by CIT (A) or by DVO himself is not borne out at all on record and, therefore, nothing can be said about that. But, in any case, the consideration of objections of the Assessee by the Assessing/Appellate Authorities was a must to be undertaken exercise. But, that was not done. In other words, the Departmental authorities failed to meet the objections of the Assessee, which were raised before CIT (A) for the first time at the appeal stage, but were never overruled by a speaking order and the Guidance Valuation as per Section 50C (1) of the Act was taken as a Gospel Truth against the disclosed and declared value of the sale by the Assessee. This was not permitted in law.

13. Why ‘Guidance Value’ under Section 50C (1) of the Act should not be taken as a Gospel Truth and why Section 50C (2) provided for reference to DVO in case an objection is raised by Assessee has another reason too. The ‘Guidance Value’ fixed for stamp duty purposes is fixed by the authority concerned, taking into account the location, current market price of property in particular area etc., as a standard measure to iron out the differences of personal factors, such as, sale in distress for meeting financial emergency, sale to related parties and a host of such other factors. But, in Income Tax Act, the concept of levy of tax on ”real income” exists. Therefore, Capital Gains Tax can also be levied on ‘real’ capital gains and not on the presumptive capital gains. The need to determine a Fair Market Value upon a fact finding exercise is a sine qua non. But, such fact finding exercise by the Departmental authorities, be that Assessing Authority or even the Appellate Authority, was not really undertaken in the present case and that is where, failure and miscarriage of justice has occurred.

14. It would be an insult to the honest tax payer to adopt an assumed higher market value to impose Capital Gains Tax without allowing him or her an opportunity to rebut even the legal presumption under Section 50C (1) of the Act, even though law itself provides for a further fact finding exercise to be undertaken by reference to DVO under Section 50C (2) of the Act and thereupon meeting the objections of the Assessee and allowing him full opportunity to prove that the value declared in the sale deeds is the true and fair Market Value of the Capital Asset and the actual consideration received by him and, therefore, Capital Gains Tax can be imposed only on that basis.

15. It is undoubted that both the Appellate Authority and the Assessing Authority, in law, had powers of a Civil Court also vide Section 131 of the Act and, therefore, the Valuation Report of Departmental Valuation Officer as well as the presumption under Section 50C of the Act about the Fair Market Value has to be treated as an evidence or a legal presumption, which is open to be rebutted by the Assessee in accordance with law.

16. A bare reading of Scheme of Section 50C of the Act would show that Assessee can object to presumptive value as per Section 50C (1) and, therefore, it is only after hearing the objections of the Assessee, the Fair Market Value of the Capital Asset as per ‘Guidance Value’ can be determined by the authorities. The Assessee cannot be denied an opportunity to raise his objections even against the presumptive Fair Market Value under Section 50C (1) of the Act or Report of DVO under Section 50C (2) of the Act and the Assessing Authority or the Appellate Authorities, whose powers are co-extensive with those of the Assessing Authority, cannot refuse to meet those objections point by point.

17. The Fair Assessment Procedure under the scheme of assessment in the Income Tax Act has it at the root the principles of natural justice and the same has not been denied by presumptive provisions, such as Section 50C of the Act and several other provisions in the scheme of the Act.

18. In the present facts noted above, we are of the opinion that CIT (A), where, for the first time, the Report of DVO came up, could either deal with the objections of Assessee himself or remit the matter back to the Assessing Authority for dealing with the said objections in an appropriate and detailed manner. But, such an exercise does not seem to have been undertaken by him in the present case.

19. Therefore, we are constrained to remit the matter back to the Assessing Authority even at this stage, even though belatedly, and allow the Appeal of the Assessee for the said purpose. We, accordingly, allow this Appeal and set aside the orders passed by the learned CIT (A) and also the learned Tribunal and remit the matter back to the Assessing Authority to decide both the questions about the valuation of the property to be taken while dealing with the objections of the assessee against the Report of Departmental Valuation Officer as well as the presumptive value under Section 50C of the Act and then compute ‘Fair Market Value’ under Section 48 of the Act and the relief under Section 54F of the Act.

20. In view of the above, the Substantial Questions of Law framed above are answered in favour of the Assessee and against the Revenue.

21. Before parting, we may say, that for weighing the evidence by the Assessing Authority, the Assessing Authority has the powers of a Civil Court conferred upon him by virtue of Section 131 of the Act by way of enforcing the attendance of any person, including any officer of a banking company or examining him on oath, production of documents, discovery and inspection, as the case may be. Therefore, while dealing with the aforesaid piece of evidence, namely, Departmental Valuation Officer’s Report or in allowing the Assessee to controvert the presumptive value under Section 50C of the Act, the Assessing Authority can very well exercise the said powers conferred upon him.

22. With the above observations and directions, this Tax Case Appeal is allowed. No costs.

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