2019 (2) TMI 1124 - AT - Income Tax

Tribunal rules FMV as of agreement date for Section 50C

Assistant Commissioner of Income Tax – 15 (1) (2), Mumbai Versus M/s. Balmer Lawrie Van Leer Ltd.

The Tribunal affirmed the CIT(A)'s decision that the fair market value (FMV) of the property should be taken as on the date of the agreement to sell ... Capital gain computation - assessee has entered into agreement to sale of its factory line and building on 14/08/2007 wherein consideration of ₹ 27.62 Crores was decided and also received a sum of ₹ 14.39 Crores by cheque at the signing of the agreement - AO proposed to take valuation of property as on the date of registration i.e., 29/04/2009 and thereafter, at the request of the assessee matter was referred to the DVO - whether valuation to be taken as on the date of entering into agreement or as on the date when the sale deed is actually registered - HELD THAT :- From the record, we found that at the time of entering into agreement to sale, the assessee has already received more than 50% of the advance, however, due to certain conditions, the sale deed could not be registered. Finally, it was registered only on 29/04/2009. When agreement to sale is executed between the parties and part consideration is received, approval of the authorities of Section 50C of the Act takes place and computation u/s.48 of the Act will start accordingly. We do not find any infirmity in the order of CIT(A) above for holding that provisions of 50C is applicable as on the date of execution of the agreement to sale. Accordingly, AO is directed to take the fair market value of property as on the date of agreement to sale i.e., on 14/08/2007. We direct accordingly. Issues Involved:1. Determination of the date for adopting the value of the capital asset transferred under Section 50C of the IT Act.2. Applicability of the fair market value (FMV) as on the date of signing the Memorandum of Understanding (MOU) versus the date of executing the conveyance deed.Issue-wise Detailed Analysis:1. Determination of the date for adopting the value of the capital asset transferred under Section 50C of the IT Act:The primary issue in this case was whether the date of signing the MOU or the date of executing the conveyance deed should be considered for adopting the value of the capital asset transferred under Section 50C of the IT Act. The Revenue argued that the actual possession was handed over at a much later date, i.e., at the time of executing the conveyance deed, and hence, the date of the conveyance deed should be considered. The assessee contended that the relevant date should be the date of the MOU, as the sale consideration was fixed at that time, and part of the payment was received.2. Applicability of the fair market value (FMV) as on the date of signing the MOU versus the date of executing the conveyance deed:The assessee company entered into an agreement with Hindustan Petroleum Corporation Ltd. (HPCL) on 14.08.2007 for the transfer of its land and factory building for a total sale consideration of Rs. 27.62 crores. The conveyance deed was executed on 29.04.2009. The value adopted by the stamp valuation authorities for the purpose of stamp duty was Rs. 52.90 crores. The AO proposed to take the valuation of the property as on the date of registration, i.e., 29.04.2009, and referred the matter to the District Valuation Officer (DVO) for determining the FMV of the capital asset transferred. The DVO estimated the FMV as on 29.04.2009 at Rs. 42.83 crores.The CIT(A) observed that various courts have consistently held that the stamp duty value/fair market value on the date of agreement to sell and not the registration date is to be considered for the purpose of Section 50C. The CIT(A) relied on several judicial pronouncements, including the decision of the Hon'ble Supreme Court in the case of Sanjeev Lal & Anr. Vs. CIT & Anr. (2014) 365 ITR 389 (SC), which held that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred. The CIT(A) directed the AO to consider the FMV of the property as on the date of signing the MOU, i.e., 14.08.2007.The Tribunal upheld the CIT(A)'s decision, noting that at the time of entering into the agreement to sell, the assessee had already received more than 50% of the advance. The Tribunal concluded that the provisions of Section 50C are applicable as on the date of execution of the agreement to sell, and accordingly, the AO was directed to take the FMV of the property as on the date of the agreement to sell, i.e., 14.08.2007.Conclusion:The appeal of the Revenue was disposed of with the Tribunal affirming the CIT(A)'s decision that the FMV of the property should be taken as on the date of the agreement to sell (14.08.2007) for the purposes of Section 50C of the IT Act. The Tribunal found no infirmity in the CIT(A)'s order and directed the AO to adopt the FMV as on the date of the MOU. The judgment emphasized the importance of the date of agreement to sell in determining the FMV for capital gains computation under Section 50C.