2019 (2) TMI 280 - AT - Income Tax

Tribunal recalculates capital gains, upholds section 50C(1) amendment, excludes liability from sale proceeds

Dy. C.I.T., Range-2, Lucknow. Versus Ms. Zubeida Shahanshah

The Tribunal partly allowed the Revenue's appeal, directing the recomputation of capital gains based on correct valuation. It concluded that the property ... Distress sale - section 50C applicability - CIT-A adopted fair market value as on the date of agreement instead of taking the value as per collector’s rate for calculation - Held that:- Originally the assessee had entered into an agreement for a small piece of land measuring 884.24 sq. mtr. and later on the area was increased to 2591.12 sq. mtrs. Therefore, it can not be said that the assessee had made the sale as a distress sale as the land area in new agreement is much more than area in original agreement and there is no dispute about the increased area as the dispute remained limited to original area of 884 sq. mtrs. Thus argument of Learned A. R., that the sale of entire property was a distress sale, do not hold force. Invoking amended proviso to section 50C(1) retrospectively and taken the fair market value as on agreement to sell i.e. on 11/10/2011 - Held that:- The amendment to section 50C by the Finance Act 2016 has to be applied retrospectively as the amendment is curative in nature therefore, collector’s rate prevalent at the time of entering agreement has to be taken as deemed consideration. Therefore, ground is dismissed. Excluding the value of land area of 844.24 sq.mtr. for stamp duty valuation as per section 50C in as much as the assessee received an advance of ₹ 10,00,000/- towards the same earlier as per Builder's Agreement - Held that:- In the original agreement dated 10/10/2005, there is mention of ₹ 10,00,000/- which was paid to the assessee but this agreement was not executed and became a matter of dispute and a fresh memorandum of understanding was entered into by the assessee whereby the entire sale consideration was refixed and there is no mention of this amount of ₹ 10,00,000/-. Querist is bound to return to the Builder the sum of ₹ 10 lacs which is stated to have been paid to the Querist by the Builder as advance as per Clause 23 of the Builders Agreement dated 10.10.2005. The said repayment may be made in installments as may be agreed by the parties but since it is the admitted case of the parties that the said amount has neither been adjusted by the Builder nor forfeited by the Querist, the same needs to be repaid by the Querist to the Builder. We further find that clause 43 of the Builder’s Agreement clearly states that the amount of ₹ 10,00,000/- is refundable. Thus the action of the AO in making addition being deemed value of ₹ 10,00,000/- is not correct and CIT(A) has rightly deleted the same holding the same to be liability of the assessee. Section 50C(1) applicability on date of agreement to sell i.e. 11.10.2011 by adopting stamp Duty Valuation as on the date of agreement or the Fair Market Value as there was no distress sale of property - Held that:- As the agreement to sell was entered on 11/10/2011. The stamp duty valuation as on this date was ₹ 4,18,52,923/-, as per the approved value report, placed at pages 142 to 148 of the paper book. The learned CIT(A) has taken ₹ 4,05,00,000/- as the value of sale consideration. However, since we have held that assessee has sold property on principal to principal basis and not as a distress sale after entering memorandum of understanding for a much more area therefore, this amount, which is the deemed value existing at the time of entering agreement, was to be taken into consideration as per the provisions of section 50C. Therefore, the Assessing Officer is directed to take the consideration of ₹ 4,18,52,923/- instead of ₹ 4,05,00,000/- and is accordingly directed to recompute the capital gains Issues Involved:1. Whether the sale of the property was a distress sale.2. Whether the CIT(A) erred in deleting the addition by invoking the amended proviso to section 50C(1) retrospectively.3. Whether the CIT(A) erred in excluding the value of land area for stamp duty valuation.4. Whether the CIT(A) should have taken the stamp duty value as on the date of agreement instead of the fair market value.5. Whether the CIT(A) allowed relief to the assessee without proper appreciation of facts and law.Issue-wise Detailed Analysis:1. Distress Sale:The first issue was whether the CIT(A) wrongly considered the sale of the property as a distress sale. The Tribunal noted that the original builder agreement dated 10/10/2005 involved a smaller land area of 884.24 sq. meters, while the subsequent memorandum of understanding dated 11/10/2011 increased the area to 2591.12 sq. meters. The Tribunal concluded that the sale could not be considered a distress sale since the land area in the new agreement was significantly larger. Therefore, the argument that the entire property was sold under distress was not upheld, and the first ground of appeal was allowed.2. Retrospective Application of Section 50C(1):The second issue was whether the CIT(A) correctly invoked the amended proviso to section 50C(1) retrospectively. The Tribunal found that the amendment to section 50C(1) by the Finance Act 2016, which allows the value on the date of the agreement to be considered if part of the consideration was paid by cheque or electronic means, should be applied retrospectively. This interpretation was supported by the judgment of the Ahmedabad Tribunal in the case of Dharmshibhai Sonani vs. ACIT. Therefore, the Tribunal upheld the CIT(A)’s decision to take the circle rate as of the agreement date, dismissing the second ground of appeal.3. Exclusion of Land Area Value:The third issue concerned the exclusion of the value of land area for stamp duty valuation. The Tribunal noted that the original agreement dated 10/10/2005, which mentioned an advance of Rs. 10,00,000, was not executed due to disputes, leading to a fresh memorandum of understanding with a revised sale consideration. Legal opinion indicated that the Rs. 10,00,000 was a liability to be repaid. The Tribunal agreed with the CIT(A) that the addition of Rs. 46,43,320, being the deemed value of Rs. 10,00,000, was incorrect, and thus, this ground was dismissed.4. Stamp Duty Value vs. Fair Market Value:The fourth issue was whether the CIT(A) should have taken the stamp duty value as on the date of the agreement instead of the fair market value. The Tribunal found that the agreement to sell was entered on 11/10/2011, with a stamp duty valuation of Rs. 4,18,52,923. Since the property was not sold under distress, the Tribunal directed the Assessing Officer to take the consideration of Rs. 4,18,52,923 instead of Rs. 4,05,00,000 and recompute the capital gains. Thus, this ground was allowed.5. Proper Appreciation of Facts and Law:The fifth issue was whether the CIT(A) allowed relief to the assessee without proper appreciation of facts and law. The Tribunal’s detailed analysis and decisions on the previous grounds indicate that the CIT(A)’s decisions were reviewed comprehensively, leading to a partial allowance of the appeal.Conclusion:The appeal of the Revenue was partly allowed, with specific directions to recompute the capital gains based on the correct valuation. The Tribunal concluded that the sale was not a distress sale, upheld the retrospective application of the amended section 50C(1), and agreed with the CIT(A) on the exclusion of the Rs. 10,00,000 liability from the sale proceeds.