2021 (2) TMI 426 - AT - Income Tax

Capital gain not taxable in 2011-12, AO's addition deleted. Assessee's appeal allowed.

The Tribunal held that the capital gain in question could not be brought to tax in Assessment Year 2011-12 and directed the deletion of the addition made ... Chargeability of capital gains in the year of transfer - date of transfer under section 45(1) of the Income-tax Act - operation of section 50C as a computation provision (section 48) and not as altering the year of charge - effect of registration under section 47 of the Indian Registration Act, 1908 - integrality of charging and computation provisions for capital gainsDate of transfer under section 45(1) of the Income-tax Act - effect of registration under section 47 of the Indian Registration Act, 1908 - operation of section 50C as a computation provision (section 48) and not as altering the year of charge - Whether the capital gain based on the value adopted by the registering authority under section 50C could be brought to tax in Assessment Year 2011-12 instead of the year in which the sale deed was executed. - HELD THAT: - The Tribunal found that the sale deed was executed on 10.08.2009 and, in absence of any clause postponing its operation, the deed took effect from that date under section 47 of the Indian Registration Act, 1908. Section 45(1) charges capital gains in the previous year in which the transfer takes place; section 2(47) includes sale within the definition of transfer. Section 50C is a special provision for determining the full value of consideration for the purposes of section 48 (computation) where stamp valuation by a State authority is higher than the consideration declared. The Tribunal held that section 50C substitutes the computation value but does not change the year of transfer as fixed by section 45(1). The statutory scheme treats the charging provision and the computation provisions as an integrated code; a computation provision cannot be read so as to create a charge in a year when the charging section does not operate. Applying these principles to the facts, the transfer occurred in the previous year relevant to Assessment Year 2010-11 and therefore the deemed value under section 50C could not be invoked to bring the capital gain to tax in Assessment Year 2011-12. [Paras 8, 9, 10, 14]Capital gain could not be brought to tax in Assessment Year 2011-12; the addition made by the Assessing Officer is deleted.Final Conclusion: Appeal allowed: the Tribunal held that the sale operated from the date of execution (10.08.2009) and, while section 50C affects computation of full value, it does not alter the year of charge under section 45(1); accordingly the addition for Assessment Year 2011-12 is deleted. Issues Involved:1. Validity of initiation of reassessment proceedings under section 148 of the Income Tax Act, 1961.2. Justification of bringing to tax a sum of Rs. 25,53,315/- as capital gain by invoking the provisions of section 50C of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of initiation of reassessment proceedings under section 148 of the Income Tax Act, 1961:The learned Counsel for the assessee submitted that he does not wish to press for adjudication ground No.2 raised by the Revenue with regard to the challenge to the validity of initiation of reassessment proceedings under section 148 of the Income Tax Act, 1961. Therefore, this issue was not adjudicated upon during the appeal.2. Justification of bringing to tax a sum of Rs. 25,53,315/- as capital gain by invoking the provisions of section 50C of the Income Tax Act, 1961:The primary issue for adjudication was whether the Revenue authorities were justified in bringing to tax as capital gain a sum of Rs. 25,53,315/- by invoking the provisions of section 50C of the Act. The assessee sold two shops under a sale deed dated 10.08.2009 for a sale consideration of Rs. 32,27,010/-, while the value adopted by the registering authority for stamp duty was Rs. 57,80,325/-. The assessee did not disclose the capital gain on the sale of the property, prompting the AO to initiate reassessment proceedings.During the reassessment proceedings, the assessee argued that the capital gain should be assessed in the year of transfer, which was the financial year 2009-10, relevant to Assessment Year 2010-11, as the sale deed was executed on 10.08.2009. The AO, however, taxed the difference between the value adopted by the registering authorities and the sale consideration in Assessment Year 2011-12, reasoning that the document was registered on 26.06.2010, making AY 2011-12 the relevant year for applying section 50C of the Act.The CIT(A) upheld the AO's view, agreeing that section 50C would be applicable in AY 2011-12, as the value for stamp duty and registration was fixed in that year. The CIT(A) also referenced the Calcutta High Court decision in M/s. Bagri Impex Pvt. Ltd. vs. ACIT, which upheld the application of section 50C in a different assessment year from the year of receipt of sale consideration or the year of determination of valuation by the registering authority.The Tribunal, however, found that the sale deed executed on 10.08.2009 should be regarded as the date of transfer, as per section 47 of the Indian Registration Act, 1908, which states that a registered document operates from the time it would have commenced to operate if no registration had been required. Therefore, the transfer took place in the previous year relevant to Assessment Year 2010-11, making it the correct year for taxing the capital gain.The Tribunal also noted that section 50C of the Act substitutes the full value of consideration received or accruing on transfer, but does not change the year of transfer as laid down in section 45(1) of the Act. The Tribunal emphasized that section 45 is a charging section for capital gain, while section 48 is a computation provision. If the computation provisions cannot apply, the transaction is not intended to fall within the charging section.The Tribunal distinguished the Calcutta High Court decision, noting that it dealt with different facts and the interpretation of the term 'assessable' post-amendment of section 50C. The Tribunal also found that the decision in the case of J. Appa Rao did not support the Revenue's case regarding the year of taxation.Conclusion:The Tribunal held that the capital gain in question could not be brought to tax in Assessment Year 2011-12 and directed the deletion of the addition made by the AO. The appeal by the assessee was allowed.