2019 (3) TMI 1455 - AT - Income Tax

Tribunal directs LTCG calculation as per declared consideration, emphasizes need for evidence

Sir Mohd. Yusuf Trust Versus ACIT-18 (1), Mumbai

Sir Mohd. Yusuf Trust Versus ACIT-18 (1), Mumbai - TMI Issues Involved:1. Invocation of Section 50C of the Income Tax Act.2. Addition of Long Term Capital Gain (LTCG) based on stamp duty valuation.3. Timing of income recognition for capital gains.4. Double taxation of income distributed to beneficiaries.5. Verification of individual returns for income offered by beneficiaries.Detailed Analysis:1. Invocation of Section 50C of the Income Tax Act:The assessee challenged the invocation of Section 50C, arguing that the sale price of the capital asset was the fair market value as per the highest bid received in response to a public advertisement in July 2003, approved by the Bombay High Court on 1-10-2004. The assessee contended that the provisions of Section 50C should not apply as the transaction price was finalized in 2003 and the Memorandum of Intent (MOI) was entered into on 18-12-2003. The Tribunal noted that the property was encumbered and the assessee did not have a clear marketable title. The Tribunal referred to various case laws, including K.P. Varghese vs. ITO, which held that Section 50C should not be applied in cases of bona fide transactions where the full value of consideration is correctly declared. The Tribunal concluded that the adoption of stamp valuation as the sale consideration by applying Section 50C was not justified in the absence of evidence that the sale consideration was more than the value shown in the MOI.2. Addition of Long Term Capital Gain (LTCG) Based on Stamp Duty Valuation:The Assessing Officer (AO) made an addition of LTCG based on the stamp duty valuation, which was significantly higher than the sale consideration declared by the assessee. The AO treated the stamp valuation as the value of consideration, despite the assessee's contention that the property was encumbered and sold on an 'as is where is' basis. The Tribunal observed that the property was under various encumbrances and the assessee did not have an absolute marketable title. The Tribunal directed the AO to compute the capital gain based on the consideration shown by the assessee, allowing grounds No. 1 to 3 of the appeal.3. Timing of Income Recognition for Capital Gains:The assessee argued that the capital asset was transferred during the Assessment Year (AY) 2010-11 in accordance with the Bombay High Court order, and only the registration was done in AY 2011-12. Since the Tribunal granted relief to the assessee on grounds No. 1 to 3, this ground did not require specific adjudication.4. Double Taxation of Income Distributed to Beneficiaries:The assessee contended that the income distributed to the beneficiaries of the trust had already been offered to tax in their individual returns, leading to double taxation. The Tribunal noted that the assessee failed to furnish the required copies of returns of the beneficiaries to substantiate this claim. The issue was restored to the AO for verification, directing the assessee to provide relevant documentary evidence.5. Verification of Individual Returns for Income Offered by Beneficiaries:The Tribunal directed the AO to verify the fact that the amounts distributed to the beneficiaries had been offered to tax in their individual returns. The AO was instructed to grant relief to the assessee in accordance with the law, after providing an opportunity for the assessee to file relevant documentary evidence.Conclusion:The appeal of the assessee was partly allowed. The Tribunal directed the AO to compute the LTCG based on the consideration shown by the assessee and to verify the claim of double taxation of income distributed to beneficiaries. The Tribunal emphasized the need for the AO to provide the assessee an opportunity to substantiate its claims with relevant documentary evidence.