The Raipur Bench of the Income Tax Appellate Tribunal (ITAT) has held that deeming sale consideration as per the provisions of section 50C is not applicable for exemption under section 54F of the Income Tax Act. The rationale is that one cannot expect a person to perform impossible things. When the person receives a particular sum, he cannot be expected to invest any amount over and above the amount of consideration received for transfer of property.
Thus, if provisions of section 50C is applied in section 54F, then it is impossible for the appellant to fulfil the conditions for availing the full exemption in spite of investing the entire net consideration in a new residential house. Accordingly, the ITAT held that where the appellant claims exemption under section 54F, the net consideration when deployed in acquisition or construction of residential house, it should be eligible for exemption and the provisions of section 50C should not be imported for such computation.
The ITAT clarified that deeming fiction provided for computing full value of consideration is only for determining full value of consideration as defined in section 48 of the Income Tax Act and for the purpose of computing capital gains under deeming fiction provided in section 50C and this deeming fiction cannot be applied for exemption under section 54F.
The Tribunal explained that a deeming provision cannot be extended beyond the purpose for which it is enacted. Legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond their legitimate field.
The Division Bench comprising Partha Sarathi Chaudhury (Judicial Member) and Avdhesh Kumar Mishra (Accountant Member) referred to the provisions of Section 50C of the Income Tax Act to observe that where the full value of consideration shown to have been received or accruing on the transfer of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by stamp valuation authority, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be full value of consideration received or accruing as a result of such transfer. It is a deeming provision, and it covers land or building or both.
It is manifest that a deeming provision has been incorporated to substitute the value adopted or assessed or assessable by stamp valuation authority in place of consideration received or accruing as a result of transfer, in case the latter is lower than the former. It, therefore, follows that only if a capital asset being land or building or both is transferred and the consideration received or accruing as a result of such transfer is less than the value adopted or assessed or assessable by the stamp valuation authority, the deeming fiction under sub-section (1) of section 50C shall be activated to substitute such adopted or assessed or assessable value as full value of consideration received or accruing as a result of such transfer in the given situation, added the Bench.
The Bench stated that Explanation 2 of Section 50C clearly provides that the value so determined on reference to any authority under the law has to be taken as sale value for stamp purposes. In the case in hand, the Sub-registrar/Stamp Valuation Authority, at the time of registration of the said property, referred the stamp valuation matter to the Collector of Stamps, Raipur under section 47-A(2) of the Indian Stamp Act, 1899. The said valuation, after prolonged litigation as detailed above in para 4 of this order, attained finality at Rs.1.60 crores, which was determined by the Collector of Stamps, Raipur in pursuance of the order of the Chhattisgarh High Court.
Thus, the Bench clarified that for applicability of Explanation 2 of section 50C, there is no need to invoke section 50C(2). The use of word ‘assessable’ under section 50C takes care of all situation where purchaser/seller and or the Sub-registrar/Stamp Valuation Authority has challenged/referred the valuation of the property for stamp purposes to the Court/any authority. Here, the value of said land for stamp purposes has attained finality at Rs.1.60 crores instead of Rs.5.75 crores.
Hence, the value of said property at Rs.1.60 crores has to be taken for computing capital gains under section 50C, and the Bench directed the Assessing Officer to take the sale consideration of Rs.1.60 crores instead of Rs.5.75 crores for computing capital gains under section 50C and to allow the consequential relief to the appellant accordingly.
Briefly, the appellant, along with his siblings had sold land for Rs. 1.30 crores. However, the Stamp Valuation Authority/Sub-Registrar, at the time of registration of the said sale deed, holding that the sale consideration of Rs. 1.30 crores was quite lesser than the market value of the said property, valued the said property at Rs. 5.75 crores for stamp purposes and charged stamp thereon.
On the said information, the Assessing Officer reopened the case and completed the consequential assessment under section 147 read with section 143(3) by adopting the sale consideration at Rs. 5.75 crores instead of Rs. 1.30 crores for computing capital gains under section 50C. This resulted in the addition of Rs. 74.50 lakhs under the head capital gains in the case of the appellant.
Further, while computing the capital gains of Rs. 74.50 lakhs instead of NIL declared by the appellant, the Assessing Officer allowed the claim of exemption of Rs. 19.64 lakhs under section 54F as against the appellant’s claim of allowability of entire capital gains as per deeming provisions.
Cases Relied On:
Naresh Kumar Shrivastava v. Income-tax Officer [2024] 167 taxmann.com 676 (Raipur – Trib.)
CIT v. Amarchand N. Shroff [1963] 48 ITR 59 (SC)
CIT v. Mother India Refrigeration Industries (P.) Ltd. [1985] 155 ITR 711 (SC)
Krisnaswami S PD. v. Union of India [2006] 281 ITR 305 (SC) (SC)
Appearances:
CA Veekaas S Sharma, for the Appellant/ Taxpayer
Dr. Priyanka Patel, for the Respondent/ Revenue
