TaxTMI 
TaxTMI 
2010 (11) TMI 129
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....Mumbai vide agreement dated 22.10.2003 for a total consideration of Rs. 30,00,000. This property was sold by the assessee in the previous year relevant to the assessment year under consideration vide agreement dated 29.09.2004 to Mr. Siddharth Ranjit Shahani for a total consideration of Rs. 35,00,000. Short term capital gain of Rs.2,76,250 was computed by the assessee considering the sale consideration at Rs. 35 lakhs. The Assessing Officer noted that the value of flat for the purpose of Stamp duty valuation was Rs. 1,18,07,180. The assessee was called upon to explain as to why the provisions of section 50C be not applied for the purposes of computing capital gain. The assessee vide reply dated 8.11.2007 stated that the property which was purchased by her on 22.10.2003 for Rs.30 lakhs had market value of Rs. 24,60,523 on that date as per the Registrar. It was argued that the value of the same property sold within the period of less than one year could not be expected to be as high as Rs. 1.18 crore for the purpose of stamp duty. It was further explained that the building in which flat was purchased, was old one and in dilapidated condition. Members of the building in General Body m....
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....the value adopted by DVO be not rejected. The assessee strongly opposed this move by arguing that the A.O. had no power or jurisdiction to reject the value determined by the DVO. Not convinced with the assessee's objections, the Assessing Officer held that the DVO was not correct in allowing such deductions and adopting a fair market rate at lower value. In para 5.2.3 of the assessment order, the A.O. went on to the extent of mentioning that the DVO had exceeded the brief accorded to him u/s. 50C(2) as should have stopped just at the fair market value of Rs.85 lakhs. He further opined that the DVO had no business to step into the shoes of the Assessing Officer and to preside over other legal issues outside his jurisdiction. He also took note of the provisions of section 50C(2) and section 16A of the Wealth-tax Act and on that basis held that the Act does not expressly prohibit the A.O. from not accepting the report of DVO on its face value. In reaching this conclusion he also took into account the provisions of sub-section (5) of section 16A of the Wealth-tax Act, 1957, as per which the valuation done by the DVO was only an estimate. He also interpreted the provisions of sub-sectio....
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....a situation the actual sale consideration received or accruing as a result of transfer is substituted with the value adopted, assessed or assessable by a stamp valuation authority for the purpose of computing capital gains u/s 48. 8. Adverting to the facts of the instant case it is noticed that the assessee sold her property for a total consideration of Rs. 35 lakhs and the value of such flat for the purpose of stamp duty valuation is at Rs. 1.18 crore. Going by the mandate of sub-section (1) of section 50C, the sale consideration of Rs.35 lakhs shown by the assessee was liable to be replaced with the stamp valuation of Rs. 1.18 crore for the purpose of computing capital gain u/s.48 of the Act. 9. At this stage it will be relevant to take note of the provisions of section 50C(2) of the Income-tax Act, which is as under:- (2) Without prejudice to the provisions of sub-section (1), where - (a) the assessee claims before any Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer; (b) the value so adopted or assessed by the stamp valua....
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....mp valuation authority valued it at Rs. 1.18 crore. The magnitude of difference in two values over a period of less than one year justifies the assessee's claim before the A.O. that the value as per stamp valuation authority far exceeded the fair market value of the property on the date of transfer. The Assessing Officer also got convinced to this extent when he concurred with the assessee's submission that the valuation should be referred to DVO. On such reference, the DVO determined the fair market value of the property at Rs. 46.48 lakhs, which has not been accepted by the Assessing Officer on the premise that such valuation is not binding on him. 11. The moot question is - can the Assessing Officer disregard the value determined by the DVO and proceed to compute long term capital gain in accordance with the value determined by stamp valuation authority? The answer to this question is embedded in sub-section (2) of section 50C itself which provides that : "........... where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, ............. of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in r....
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.... proceed to complete the assessment in conformity with the estimate of the Valuation Officer." 12. As per sub-section (1) of section 16A, the Assessing Officer has been empowered to refer the valuation of any asset to the Valuation Officer where the value of the asset as returned by the assessee is in accordance with the estimate made by the registered valuer but the A.O. is of the opinion that the value so returned is less than its fair market value. Clause (b) of sub-section (1) further empowers the Assessing Officer to make reference for the valuation of any asset where the A.O. is of the opinion that the fair market value exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned or by more than such amount as may be prescribed in this behalf. Apart from that, the Assessing Officer is also authorized to make reference to the DVO where he is of the opinion that it is necessary so to do considering the nature of asset and other relevant circumstances. Thus sub-section (1) of section 16A empowers the Assessing Officer to make reference to the DVO in certain circumstances. As per sub-section (2) of section 16A, the DVO may serve....
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....nd substitute his own estimate for the purpose of completing assessment, then the entire set of provisions in this regard would become otiose. 13. Our view about the binding nature of the report of the DVO in the matter of framing assessment by the Assessing Officer is fortified by Circular No. 96 dated 25.11.1972. Relevant part of para 32 of the Circular reads as under:- "32. The Valuation Officers will be associated with the valuation of assets at the stage of assessment of wealth-tax. For this purpose, the Wealth-tax Officer may refer the matter of valuation of any asset to the Valuation Officer. The latter will thereupon proceed to deal with the matter and for this purpose, he will give an opportunity to the assessee to present his case regarding valuation of the asset. The valuation will thereafter be finalised by the Valuation Officer after considering the assessee's objections and other evidence. The valuation as made by the Valuation Officer will be binding on the Wealth-tax Officer who will make the assessment in conformity with the said valuation ................" 14. It is clearly borne out from this Circular that the valuation made by the Valuation Officer is b....
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....s, therefore, discernible that once reference is made by the AO to the DVO, then the spirit of section 16A of the WT Act, that is, making the report of the DVO as binding on the AO, shall apply to such reference. The ambit of expression 'with necessary modifications' implies striking out the inapplicable fractions of the provision which align strictly with the specifics of the W.T. Act. It does not and cannot oust the application of the soul of section 16A, which is the process of determination of the value of capital asset by the DVO and then making such report as binding on the AO. 17. The above referred part of section 50C(2) referring to section 16A of the Wealth-tax Act is a piece of legislation by incorporation. The effect of legislation by incorporation is that the provisions of the first Act which have been referred to in the second Act, become part and parcel of the second Act. The interpretation given to such provision of the second enactment by the Courts holds good in the interpretation of the first enactment. As such, the provisions of sub-section (6) of section 16A stipulating that the report of DVO is binding on the Assessing Officer, is bodily lifted from the Wea....
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....lue as per stamp valuation is Rs. 150. If the assessee objects to the stamp value of Rs. 150 and eventually reference is made to the DVO u/s. 50C(2), who estimates the value at Rs. 160, the value under subsection (1), namely, Rs.150 shall be considered as the full value of consideration received or accruing as a result of transfer of capital asset and the computation of capital gain u/s 48 shall be made accordingly. In this situation, the higher value determined by DVO at Rs.160 shall be disregarded by virtue of the provisions of sub-section (3). 20. Sub-section (3) opens with the expression 'Subject to the provisions contained in sub-section (2)'. The effect of this expression in the beginning of sub-section (3) is that the application of sub-section (2) is otherwise unbridled but for the situation visualized in the ambit of sub-section (3), viz., where the value as ascertained in sub-section (2) is higher than the value as per sub-section (1). Ordinarily where a reference is made to DVO under sub-section (2), the value so determined by the DVO is binding on the Assessing Officer. If such value is higher than the value adopted, assessed or assessable by the stamp valuation auth....