2023 (2) TMI 1125 - HC - Income Tax

Court Rules Section 50C Doesn't Apply to Compulsory Acquisitions

The court held that Section 50C of the Income Tax Act does not apply to compulsory acquisitions, as the compensation is determined by statutory ... Capital gain computation - addition invoking the provisions of the Section 50C - land in question was compulsorily acquired for the NHAI - whether the assessing officer was justified in invoking the provisions of the Section 50C? - HELD THAT:- CIT(A) relied on the decision of the Hyderabad tribunal in the case of Southern Steel Limited [2018 (1) TMI 582 - ITAT HYDERABAD] and granted relief to the assessee. This finding of the CIT(A) was affirmed by the tribunal - revenue seeks to distinguish the decision in the case of Southern Steels by contending that it was not the case of the transfer of the immovable consisting of land and building but it is the case of transfer of their rights to receive the amount of compensation and the TDR rights and both the assets do not fall under the category of immovable property. Though it may be true that in the case of Southern Steels the facts were slightly different, the Hyderabad tribunal had analyzed the scope of Section 50C and the purpose for introducing the said provisions in the statute namely to curb the menace of unaccounted cash being infused in the real estate transaction. The principle which was culled out by the Hyderabad tribunal is a correct interpretation of the provisions of the Section 50C in the case of the compulsory acquisition of land. Thus, the findings rendered by the CIT(A) as affirmed by the tribunal on this issue does not call for any interference. Disallowance on account of claim of shortage of coal - AO noticed shortage of coal was abnormally high in view of the facts in the preceding assessment year where there was a surplus of 18,450.24 metric tons of coal - CIT(A) refused to accept the conclusion arrived at by the assessing officer and allowed the assessee’s appeal and deleted the disallowance on the shortage of coal - HELD THAT:- As mentioned about the quantity and value as was shown and from the notes and financial statements for the year ended 31.03.2015, we find that the quantity of 27,426.39 metric tons was subtracted from the total quantity of 10,52,299.00 metric tons which would show that the actual consumption of coal was 10,24,872.61/- metric tons. The total value of the coal as at 31.03.2015 was Rs. 41,278.13/-. If these figures are compared with the figures shown in the chart for coal consumption of power plant for the year 2014-2015, it clearly matches as the figures 27,426.39/- is reflected. Thus, the assessee did not properly explain the said aspect before the CIT(A) nevertheless such explanation has been given before us which we find to be factually acceptable - the issue relating to the alleged shortage of coal being entirely factual had been rightly explained. Taxability of the compensation received by the assessee for the lands compulsory acquired under the 2013 Act - stated that the 2013 Acquisition Act came into effect from 01.01.2014 and Section 96 inter alia provides that income tax shall not be levied on any award or agreement made except those made under Section 46 of the said Act. Therefore, it was directed that compensation for compulsory acquisition of land under the 2013 Acquisition Act except those made under Section 46 of the said act is exempted from the levy of income tax. Further it was ordered that as no distinction has been made between compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income tax under 2013 Acquisition Act, the exemption provided under Section 96 of the 2013 Acquisition Act is wider in scope than the tax exemption provided under the existing provisions of the Income Tax Act, 1961. It was pointed out that this aspect has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land especially those relating to acquisition of non-agricultural land. This matter was examined by the CBDT and it was clarified that compensation received in respect of award or agreement which has been exempted from the levy of income tax under Section 96 of the 2013 Acquisition Act shall also not be taxable under provisions of the Income Tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income Tax Act, 1961. The said Circular No. 36 of 2016 would come to the aid and assistance of the assessee and the compensation received by the assessee on account of the compulsory acquisition of land under the 2013 Acquisition Act is exempt from the tax - Decided against revenue. HIRANMAY BHATTACHARYYA, J. - Consent Judgement Addition u/s 50C - When the language of a statutory provision is plain and unambiguous, it is not permissible for the Court to add a substract words to or from a statute or read something into it which is not there. The Court cannot rewrite or recast a legislation in [Kotak Mahindra Bank Limited [2022 (6) TMI 13 - SUPREME COURT] and Md. Shahabuddin Versus State of Bihar & Others [2010 (3) TMI 991 - SUPREME COURT] It is also well settled that the Court has to make an effort to give effect to each and every word used by the legislature and it is to be presumed that the legislature inserted every part thereof for a purpose and the legislative intention is that every part of the provision should have effect. While interpreting a provision the Court should keep in mind that the legislature did not intend to use superfluous word(s) or expressions in a statutory provision. Nathi Devi Versus Radha Devi Gupta [2004 (12) TMI 668 - SUPREME COURT] Therefore, keeping in mind the aforesaid canons of interpretation and the object behind inserting the said provision it appears to this Court that the legislature used the words and expressions in Section 50C of the Act consciously to give the same a restricted meaning - the term “transfer” used in Section 50C has to be given a restricted meaning and the same do not have a wider connotation so as to include all kinds of transfer as contemplated under Section 2(47) of the Act. This Court accordingly holds that the provisions of Section 50C shall be applicable in cases where transfer of the capital asset has to be effected only upon payment of stamp duty. Whether in cases of compulsory acquisition of a capital asset being land or building or both, the provisions of Section 50C will be applicable? - In case of a transfer by way of compulsory acquisition, the capital asset being land or building or both vests upon the government by operation of the provisions of the relevant statute governing such acquisition proceeding and subject to the terms and conditions laid down in the said statute being followed. In case of compulsory acquisition the transfer of property takes place by operation of law and the provisions of the Transfer of Property Act or the Indian Registration Act do not have any manner of application to such transfers. The question of payment of stamp duty also does not arise in such cases. This Court accordingly holds that in case of compulsory acquisition of a capital asset being land or building or both, the provisions of Section 50C cannot be applied as the question of payment of stamp duty for effecting such transfer does not arise. In the instant case, the property was acquired under the provisions of the National Highways Act 1956. The property vests by operation of the said statute and there is no requirement for payment of stamp duty in such vesting of property. As such there was no necessity for an assessment of the valuation of the property by the stamp valuation authority in the case on hand. Ths the provisions under Section 50C of the Income Tax Act cannot be applied to the case on hand. Issues Involved:1. Applicability of Section 50C of the Income Tax Act in the case of compulsory acquisition of land by the National Highways Authority of India (NHAI).2. Relevance of the Hyderabad Tribunal's decision in ITA Nos. 1680/Hyd/2018 & 1681/Hyd/2018 to the present case.3. Justification for the claim of shortage of coal by the respondent.4. Tribunal's decision on the claim of shortage of coal despite contradictory statements by the respondent.Detailed Analysis:1. Applicability of Section 50C of the Income Tax Act:The primary issue was whether the Assessing Officer (AO) was justified in invoking Section 50C of the Income Tax Act for the compulsory acquisition of land by NHAI. The land was compulsorily acquired, and the compensation received was Rs. 4,47,17,396, whereas the stamp valuation was Rs. 9,95,60,980. The AO treated the stamp valuation as the deemed sale consideration, resulting in a capital gain addition of Rs. 5,48,43,584.The court held that Section 50C is designed to curb the suppression of actual consideration in private transactions, not applicable to compulsory acquisitions where the compensation is determined by statutory authorities. The court noted that the compensation determined by such authorities is typically lower than market value, and there is no room for suppression of value in compulsory acquisitions. The court distinguished the present case from Ambattur Clothing Company Limited, where Section 50C was applied to a private sale transaction.The court also referenced a CBDT Circular No. 36/2016, which exempts compensation received from compulsory acquisition under the 2013 Act from income tax, reinforcing that Section 50C does not apply to such cases.2. Relevance of Hyderabad Tribunal's Decision:The CIT(A) had relied on the Hyderabad Tribunal's decision in Southern Steel Limited, which interpreted Section 50C as not applicable to compulsory acquisition. The court found this interpretation correct, emphasizing that Section 50C aims to curb unaccounted cash in real estate transactions and not transactions involving compulsory acquisition by the government.3. Justification for the Claim of Shortage of Coal:The AO disallowed the respondent's claim of a shortage of 27,426.39 metric tons of coal, valued at Rs. 7.41 crores, citing an abnormal shortage compared to the previous year. The CIT(A) accepted the respondent's explanation, noting that various factors could lead to such a shortage and that the AO did not thoroughly examine the reasons or relevant documents.The court reviewed the financial statements and other documents provided by the respondent, confirming that the shortage was accurately accounted for and that the CIT(A)'s acceptance of the explanation was justified.4. Tribunal's Decision on the Claim of Shortage of Coal:The court found that the tribunal had merely reproduced the CIT(A)'s findings without independent examination. However, the court accepted the respondent's detailed explanation and supporting documents, validating the claim of coal shortage and concluding that the tribunal's decision was correct.Separate Judgment by Hiranmay Bhattacharyya, J.:Justice Bhattacharyya provided additional reasoning, emphasizing that Section 50C applies only to transfers requiring stamp duty payment, which does not include compulsory acquisitions. He reiterated that the transfer in compulsory acquisition occurs by operation of law, not requiring stamp duty, thus Section 50C is inapplicable.Conclusion:The court upheld the tribunal's decision, rejecting the revenue's appeal and affirming that Section 50C does not apply to compulsory acquisitions. The court also validated the respondent's claim of coal shortage, finding no grounds for interference with the tribunal's order.