2014 (3) TMI 1114 - AT - Income Tax

Tribunal rejects Section 50C application, allows enhanced compensation deduction

Krishi Utpanna Bazar Samittee, Versus Dy. Commissioner of Income Tax, Circle-2, Jalgaon and Asstt. Commissioner of Income Tax, Circle-2, Jalgaon Versus Krishi Utpanna Bazar Samittee

The Tribunal ruled in favor of the assessee, rejecting the application of Section 50C of the Income Tax Act for properties sold through public auction. ... Invoking of section 50C in relation to the two properties sold by the assessee through Public auction - Held that:- Invoking section 50C for the purposes of substituting the full value of consideration in order to compute the capital gain would fail since there would not be any differential between the stated consideration and the Value to be considered by the stamp valuation authority of the state government for the payment of stamp duty. However, it has been pointed out by the Revenue that the buyers of the properties have paid stamp duty at the value determined on the basis of rates prescribed in the ready reckenor, which are higher than stated consideration. In our considered opinion, the aforesaid factum would not make any difference to the rationale of invoking section 50C of the Act, which has to be decided on the basis of the prevailing legal position, and not on the basis of the position taken by a party. Pertinently, the purchaser of the properties are liable to bear expenses of stamp duty and it was not within the domain of the assessee and therefore assessee cannot be put to a jeopardy of invoking of section 50C of the Act merely because of the fault of the buyers of the properties. The CIT(A) erred in affirming the invoking of section 50C of the Act in relation to the two properties sold by the assessee through Public auction. Accordingly, we set-aside the order of the CIT(A) and direct the Assessing Officer to allow appropriate relief to the assessee as per law. Enhanced compensation paid to the owner of land as a part of cost of acquisition for the purposes of computation of capital gains - Held that:- The claim of the assessee in question has a bearing on the ultimate determination of tax liability. Admittedly, an appellate authority has wide powers to admit a fresh claim which was not before the Assessing Officer. The legal position in this regard is quite well-settled and we may refer to the judgements of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. Cit [1996 (12) TMI 7 - SUPREME Court] and Jute Corporation of India Ltd. vs. CIT (1990 (9) TMI 6 - SUPREME Court) in this regard. In the present case, the additional ground entertained by the CIT(A) involved a point of law and it related to assessability of capital gain, which was subject-matter of consideration before him. It is also evident that the claim was based on an order of a judicial body, namely, District Judge, Jalgaon rendered with reference to section 18 of the Land Acquisition of Act, 1894. The claim of the assessee is arising from operation of law and therefore, in our view, the CIT(A) made no mistake in admitting such a claim for the purposes of computing assessee’s correct tax liability. Accordingly, we hereby affirm the action of the CIT(A) in this regard and the Revenue has to fail. Issues Involved:1. Invocation of Section 50C of the Income Tax Act for computation of long-term capital gains.2. Deduction of enhanced compensation paid as part of the cost of acquisition for computing capital gains.Issue-wise Detailed Analysis:Invocation of Section 50C of the Income Tax Act for Computation of Long-term Capital Gains:The primary dispute in both the appeals revolves around the application of Section 50C of the Income Tax Act, which allows the substitution of the value adopted by the Stamp Valuation Authority for the purpose of stamp duty as the full value of consideration for computing capital gains, instead of the actual sale consideration received by the assessee.The assessee, a statutory body under the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963, sold two properties through public auction. The properties were sold for Rs. 91,00,000 and Rs. 15,51,000 respectively. However, the Stamp Valuation Authority valued these properties at Rs. 1,15,50,000 and Rs. 26,14,000 respectively. The Revenue invoked Section 50C, arguing that the higher values determined by the Stamp Valuation Authority should be considered for computing capital gains.The assessee contended that since the properties were sold through public auction, the highest price obtained in the auction should be considered as the fair market value for stamp duty purposes, supported by a Circular issued by the Inspector General of Registration and Controller of Stamps, Government of Maharashtra, and the proviso to rule 4(6) of the Bombay Stamp (Determination of True Market Value of Property) Rules, 1995.The Tribunal noted that Section 50C creates a deeming fiction where the value adopted by the Stamp Valuation Authority is taken as the full value of consideration if it is higher than the actual sale consideration. However, the assessee's sales through public auction should be considered under the Circular dated 30.06.2005, which states that the highest auction price should be treated as the fair market value for stamp duty purposes. The Tribunal concluded that the assessee's sales fall within the purview of this Circular, and thus, the actual sale consideration should be accepted as the fair market value. Consequently, Section 50C should not be invoked, and the CIT(A)'s decision to affirm the application of Section 50C was incorrect. The Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to provide appropriate relief to the assessee.Deduction of Enhanced Compensation Paid as Part of the Cost of Acquisition for Computing Capital Gains:The Revenue's appeal focused on the CIT(A)'s decision to allow a deduction of Rs. 25 lakhs, which the assessee paid as enhanced compensation to the landowners, from the cost of acquisition for computing capital gains.The assessee argued that this payment, made pursuant to an order from the Court of Civil & District Judge, Jalgaon, should be included in the cost of acquisition. The CIT(A) accepted this claim after seeking a remand report from the Assessing Officer, who objected to the admission of this additional evidence.The Tribunal upheld the CIT(A)'s decision, noting that appellate authorities have broad powers to admit fresh claims not raised before the Assessing Officer, especially when such claims affect the determination of tax liability. The Tribunal referenced the Supreme Court judgments in National Thermal Power Co. Ltd. vs. CIT and Jute Corporation of India Ltd. vs. CIT, which support the admission of new claims at the appellate stage. The Tribunal found that the assessee's claim, based on a judicial order, was valid and should be considered for computing the correct tax liability. Therefore, the Tribunal affirmed the CIT(A)'s decision to include the enhanced compensation in the cost of acquisition.Conclusion:The Tribunal allowed the assessee's appeal, rejecting the invocation of Section 50C for the properties sold through public auction. It dismissed the Revenue's appeal, affirming the deduction of the enhanced compensation from the cost of acquisition for computing capital gains. The order was pronounced in the open Court on 20th March 2014.