Long term capital gains on immovable property: jantri value at agreement date to be adopted and cost of acquisition allowed

Long term capital gain on sale of immovable property concerned application of stamp duty based valuation (jantri) for computing capital gain. The tribunal found that where substantial advance was paid and the sale agreement was acted upon, the jantri value as on the date of the agreement must be adopted, the retrospective operation of the valuation amendment supporting that approach, and directed remand to the assessing officer to adopt that jantri rate. The tribunal also directed allowance of cost of acquisition (with evidence) and independent inquiry into fair market value as on the base date where applicable.

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Issues: (i) Whether the jantri (stamp-duty) value as on the date of execution of the agreement for sale (Satakhat) should be adopted under the first proviso to Section 50C of the Income-tax Act, 1961 for computing capital gains; (ii) Whether the addition of long term capital gain in the hands of the assessee without allowing deduction for cost of acquisition was sustainable and whether the matter should be remitted to the Assessing Officer for fresh computation.

Issue (i): Whether the jantri value as on the date of the agreement for sale is to be adopted for computation of capital gains under the first proviso to Section 50C of the Income-tax Act, 1961.

Analysis: The tribunal examined the factual finding that an agreement for sale was executed in February 2011 and 50% of the sale consideration was received as advance, and noted that the Assessing Officer had accepted receipt of advances though he disputed registration of the agreement. The tribunal applied the retrospective operation of the amendment to Section 50C as held by the Supreme Court in Vatika Township and treated the first proviso to Section 50C as applicable to adopt the stamp-duty (jantri) value prevailing on the date of the agreement when advance payment was made and the transaction was acted upon.

Conclusion: In favour of Assessee.

Issue (ii): Whether the Assessing Officer was correct in treating the entire proportionate sale consideration as long term capital gain without allowing deduction for cost of acquisition, and whether the matter should be remitted for fresh computation.

Analysis: The tribunal found that the Assessing Officer had not allowed set off for cost of acquisition and that relevant evidence regarding cost of acquisition and jantri value as on agreement date was not fully considered. In the interest of accurate determination of taxable capital gain, the tribunal directed that the matter be set aside to the Jurisdictional Assessing Officer for adoption of jantri value on the date of the agreement and for allowing deduction/ set off for cost of acquisition, permitting the assessee to produce evidence and permitting the AO to make independent inquiries including as to fair market value as on 1-4-2001 if relevant.

Conclusion: In favour of Assessee.

Final Conclusion: The appeal is allowed for statistical purposes and the matter is remitted to the Jurisdictional Assessing Officer for recomputation of long term capital gain adopting the jantri value as on the date of the agreement and allowing appropriate deduction for cost of acquisition, with directions for compliance and inquiry as necessary.

Ratio Decidendi: Where an agreement for sale is executed and advance payment is made and the transaction is acted upon, the first proviso to Section 50C applies and the stamp-duty (jantri) valuation as on the date of the agreement must be used for the deeming provision, and the Assessing Officer must allow deduction for cost of acquisition when determining capital gains.

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