2019 (10) TMI 979 - AT - Income Tax

Supreme Court remits FMV determination, upholds Capital Gains Tax levy on property sale

The Supreme Court remitted the determination of Fair Market Value (FMV) back to the Assessing Officer (AO) for referral to the District Valuation Officer ... Capital gain computation - FMV determination - whether Guideline Value is not the Fair Market Value? - determination of value of lad considering the indexed cost of acquisition of 1981 - HELD THAT:- In the judgment of the Supreme Court [2003 (11) TMI 615 - SUPREME COURT].while considering the issue as to whether the land purchased has been undervalued or not, the Supreme Court observed that the guideline value has relevance only in the context of section 47A of the Indian Stamp Act (as amended by T.N. Act 24 of 1967) which provides for dealing with instruments of conveyance which are undervalued. Guideline value will only afford a prima facie basis to ascertain the true or correct market value. Guideline value is not sacrosanct, but only a factor to be taken note of if at all available in respect of an area in which the property transferred lies. When the assessee relies on the Registered Valuer's report and if Assessing Officer is not satisfied about such claim then, the AO should have referred the matter to the DVO to ascertain the fair market value. Therefore, we deem it fit to remit this issue back to the AO who shall refer the matter to DVO and proceed to determine the issue in accordance with law. The assessee’s corresponding grounds of the appeal are treated as allowed for statistical purpose Guarantee / security for the borrowals made by other entities given - benefit or accrue any benefits from the transfer - HELD THAT:- The assessee has pledged its property to Canara Bank as a security to the loan availed by its group concerns. No lay man can execute a deed of mortgage of his property against the loan availed by a third party/ parties, until and unless the individual has substantial interest over them. Thus, it is clear that the assessee availed loan from the Bank under the banner of group concerns by mortgaging its own property and group concerns failed to repay the loan, the bank sold the property and the entire consideration was recovered by the bank. Thus, it cannot be held that the assessee has not received any consideration directly or indirectly, which were liable to tax. As decided in CIT v. Attilli N. Rao [ 2001 (10) TMI 5 - SUPREME COURT ] it is clear that the mortgaged property sold, in discharge of the mortgage created by the assessee itself, belonging to the assessee and the price realized there-form belonged to the assessee and hence the capital gain is very much warranted on the full price [less admissible deduction]. When the law laid down by the Hon’ble Supreme Court is very much available on the identical facts, the cases relied on by the assessee are held as not applicable. Otherwise also, availing loan itself is consideration and in this case, constructive benefit was very well accrued to the assessee when the loan was availed by its group concerns, which was owned partly by the assessee. Accordingly, we dismiss the corresponding grounds of the assessee. Issues Involved:1. Determination of Fair Market Value (FMV) for the purpose of calculating Long Term Capital Gains (LTCG).2. Levy of Capital Gains Tax on property sold to discharge loans of group concerns.Issue-Wise Detailed Analysis:1. Determination of Fair Market Value (FMV) for the purpose of calculating Long Term Capital Gains (LTCG):The core issue revolves around the correct valuation of the land sold by the assessee for calculating LTCG. The assessee sold the land and factory building for a total consideration of Rs. 30,00,00,000/-. The assessee calculated the LTCG by adopting the guideline value of the property u/s.50C of the Income Tax Act at Rs. 36,83,81,500/- and claimed the indexed cost of acquisition of land at Rs. 30,35,53,290/- based on the Registered Valuer’s Report, which valued the land at Rs. 684 per sq. ft. as of 1981.During the assessment, the Assessing Officer (AO) issued a notice u/s.133(6) to the Sub-Registrar Office (SRO), Adyar, which furnished the guideline value at Rs. 8.33 per sq. ft. as of 1981. The AO found the assessee's valuation unreasonable and recalculated the indexed cost of acquisition based on the SRO's guideline value, resulting in a significantly higher LTCG of Rs. 36,18,63,672/-.The assessee contended that the AO ignored the Registered Valuer's Certificate and relied solely on the guideline value, which the Supreme Court has held is not conclusive evidence of FMV. The ITAT noted that the AO should have referred the matter to the District Valuation Officer (DVO) if unsatisfied with the Registered Valuer's report. Consequently, the ITAT remitted the issue back to the AO to refer the matter to the DVO and determine the FMV in accordance with the law. The corresponding grounds of appeal were allowed for statistical purposes.2. Levy of Capital Gains Tax on property sold to discharge loans of group concerns:The second issue pertains to whether the assessee is liable for Capital Gains Tax when the property was sold to discharge loans of group concerns. The assessee argued that since it did not receive any benefit from the transfer, no capital gain should be levied. The assessee relied on case law where it was held that if a property is sold to discharge a mortgage, the amount realized does not constitute capital gains.The ITAT considered the Supreme Court's judgment in CIT v. Attilli N. Rao, which held that when a mortgaged property is sold, the entire sale consideration belongs to the assessee, and capital gains must be computed on the full price realized. The ITAT concluded that availing a loan itself constitutes consideration, and constructive benefit accrued to the assessee when the loan was availed by its group concerns. Hence, the levy of Capital Gains Tax was justified, and the corresponding grounds of the assessee were dismissed.Conclusion:The assessee's appeal was partly allowed. The issue of FMV determination was remitted back to the AO for referral to the DVO, while the levy of Capital Gains Tax on the sale of property to discharge loans of group concerns was upheld. The order was pronounced on 6th September 2019 at Chennai.