2010 (7) TMI 1034 - AT - Income Tax

Tribunal Reverses CIT(A) Orders, Directs Deletion of Section 50C Additions

Koduru Satya Srinivas & Koduru Anupama Versus Assistant Commissioner of Income Tax, Circle-2 (1) Vijayawada

The Tribunal allowed the appeals, setting aside the CIT(A)'s orders and directing the Assessing Officer to delete the additions made under section 50C. ... Computation of capital gains - adoption of a higher value by invoking the provisions of section 50C on the date of sale agreement - AO adopted the value determined by the SRO - HELD THAT:- There is no dispute that the assessees herein entered into sale agreements on 04-6-2005 and the sale value fixed on that date was equivalent to the SRO rates fixed for stamp duty purposes. The conveyance deed was registered on 25.8.2005, i.e. within a period of three months. Though the SRO rates had been raised upwards on that date, the assessees herein have fulfilled a contractual obligation, which they are bound by law to carry out. Since the process of sale has been initiated from the date of sale agreement, the applicability of provisions of section 50C should be looked at only on the date of sale agreement. In the instant cases, the question of adoption of a higher value by invoking the provisions of section 50C on the date of sale agreement does not arise as the sale value fixed by the assessees was equivalent to the SRO value for stamp duty purposes. Therefore, we set aside the orders passed by CIT(A) in the hands of these two assessees and direct the AO to delete the addition made in the computation of capital gains in the hands of both the assessees. Issues Involved:1. Whether the CIT(A) was correct in law in confirming the action of the Assessing Officer in invoking the provisions of section 50C in the case of the assessees.Issue-wise Detailed Analysis:1. Invocation of Section 50C:Facts:The assessees owned an immovable property in Vijayawada, which they sold by executing separate conveyance deeds. The sale value for each property was Rs. 32,94,720/-, but for stamp duty purposes, the SRO determined the market value at Rs. 55,11,000/- and Rs. 54,98,000/-. The Assessing Officer adopted the higher value determined by the SRO for the computation of capital gains, invoking the provisions of section 50C. This action was confirmed by the CIT(A), leading to the present appeals.Submissions of the Assessees:- An agreement was entered on 04-06-2005, with an oral agreement preceding it on 19-05-2005, fixing the selling rate at Rs. 2,750/- per Sq. yard.- Advances were received by cheques at the time of the agreement.- The SRO rates for stamp duty purposes were Rs. 2,750/- per Sq. yard as on 04-06-2005 and 31-07-2005.- The SRO rates were revised to Rs. 4,500/- per Sq. yard by the time the conveyance deed was registered on 25-08-2005.- The assessees argued that section 50C should apply based on the date of the sale agreement, not the registration date.Tribunal's Analysis:- The Tribunal referred to its decision in the case of M/s Lahiri Promoters, emphasizing the interpretation of section 50C in light of the Supreme Court's ruling in K.P. Verghese vs. ITO.- The Supreme Court had held that a literal interpretation of tax provisions should be avoided if it leads to unreasonable and absurd consequences. The intent of the legislature should be discerned from the language used.- The Tribunal noted that section 50C was introduced to prevent undervaluation of property to evade taxes, similar to the objective of the earlier section 52(2).Relevant Case Law:- The Tribunal cited the Supreme Court's decision in K.P. Verghese, which emphasized avoiding literal interpretation leading to absurd results. The Court had ruled that provisions should apply only where there is an understatement of consideration, not in bona fide transactions.- The Tribunal also referenced the Madras High Court's decision in K.R. Palani Swamy, which upheld the constitutional validity of section 50C, noting its purpose to prevent under-valuation and tax evasion.Conclusion:- The Tribunal concluded that the applicability of section 50C should be considered based on the conditions prevailing at the time of the sale agreement.- The Tribunal found that the sale value agreed upon by the assessees was equivalent to the SRO value for stamp duty purposes at the time of the agreement.- Consequently, the Tribunal directed the Assessing Officer to delete the addition made in the computation of capital gains, reversing the CIT(A)'s order.Result:- The appeals filed by both assessees were allowed, and the Tribunal set aside the orders passed by the CIT(A), directing the Assessing Officer to delete the additions made under section 50C.Pronouncement:- The judgment was pronounced in the open Court on 02.07.2010.