TaxTMI 
TaxTMI 
2009 (10) TMI 618
X X X X Extracts X X X X
X X X X Extracts X X X X
....nts received by them are listed below: Sl. No. Name Amount 1. Smt. P. Padmavathi 51,50,313 2. Smt. K. Venkatalakshmi 37,50,313 3. Smt. C. Kasturibai 51,50,313 4. Smt. N. Sivaparvathi 51,50,313 5. Smt. M. Varalakshmi 14,66,667 6. Smt. M. Satyavathi 14,66,667 7. Smt. S. Seetaramalakshmi 14,66,667 8. Smt. K. Lakshmi Soujanya 14,00,000 Smt. P. Padmavathi is the wife of Shri P. Venkateswara Rao, Smt. Venkatalakshmi, Smt. Ch. Kasturibai and Smt. N. Sivaparvathi are his daughters. The last mentioned person Smt. K. Lakshmi Soujanya is the daughter of Smt. K. Venkatalakshmi and sin& she was a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; Rs. 2,00,000 (v) Paid to Masetty family Rs. 44,00,000 (c) The assessees claimed the constructed area of the building at 18,000 sq. ft. of ground floor and 18,000 sq. ft. of first floor. However, the AO restricted the constructed portion to 2,000 sq. ft. in ground floor and 1,000 sq. ft. in 1st floor. (d) The market value as on 1st April, 1981 was adopted at Rs. 600 per sq. yd. by the assessees. However, the AO restricted the same to Rs. 150 per sq. yd. (e) The AO granted indexation benefit only from the year in which the property devolved upon these assessees i.e., financial year 1989-90 as against their claim of 1st April, 1981. Accordingly, the AO arrived at tl1e long-term capital gains at Rs. 3,24,76,210. The AO allocated the capital gains in proportion to the sale consideration received by each of these three assessees, i.e., the AO treated the Masetty family also as one of the co-owners of the property. 5. Aggrieved by the order of the AO, these assessees carried the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessed shall, for the purposes of s. 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer." This section provides for adoption of value assessed/determined by the stamp valuation authority for the purpose of payment of stamp duty (hereinafter "stamp duty value), if the sale consideration disclosed in the sale deed is less than the stamp duty value. Sec. 50C was inserted by the Finance Act, 2002 w.e.f. 1st April, 2003. In the instant case, the sale deed was registered with the registration authorities on 11th Oct., 2004. As per the conveyance deed, the vendors have received a sum of Rs. 2,71,01,250 as sale consideration, as against the value of Rs. 3,73,69,350 adopted for the purpose of payment of stamp duty. Accordingly the AO has invoked the provisions of s. 50C and the same was also confirmed by learned CIT(A). 7.1 The submissions of the learned Authorised Representative are that the parties to the sale deed initially entered into an agreement to sell the impugned property for a consideration of Rs 2.71 crores, way back in August, 2001. However, due to disputes created by the persons who also claimed themselves to be the hei....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ative contended that in the instant case, the transaction being bona fide one and further since there was no intention to defraud Revenue, the provisions of s. 50C should not be made applicable to the impugned transaction of the transfer of house property. 7.3 The learned Authorised Representative also placed reliance on the decision of Kolkata Bench of Tribunal in the case of Neville De Noranha vs. Asstt. CIT (2008) 115 TTJ (Kol) 390 : (2008) 5 DTR (Kol)(Trib) 389. In that case the assessee therein applied for no objection certificate under Chapter XX-C of the Act before the 'Appropriate Authority'. However, the Appropriate Authority granted NOC only in April, 2002 and thereafter sale deed was executed in May, 2002 for a consideration of Rs. 2.34 crores. However, by that time s. 50C had came into operation. The stamp duty value was determined at Rs. 3.34 crores. The AO adopted the stamp duty value for the purpose of computation of capital gains by applying the provisions of s. 50C. In those peculiar, circumstances the Hon'ble Tribunal held that only the provisions of Chapter XX-C would be applicable to the said transfer and the provisions of s. 50C introduced later are not applic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... CIT vs. Gillanders Arbuthnot & Co. 1973 CTR (SC) 136 : (1973) 87 ITR 407 (SC); (b) CIT vs. Texspin Engg. & Mfg. Works (2003) 180 CTR (Bom) 497 : (2003) 263 ITR 345 (Bom). 7.4 The learned Departmental Representative on the other hand submitted that the Hon'ble Madras High Court in the case of K.R. Palanisamy & Ors. has upheld the constitutional validity of s. 50C of the Act. He further submitted that the assessees have failed to submit a copy of sale agreement before the tax authorities under the pretext that the same had been misplaced and accordingly contended that no credence should be attached to the sale agreement. According to learned Departmental Representative, the decision of Hon'ble Supreme Court in the case of K.P. Varghese was rendered in the context of then existing s. 52 of the Act and not on s. 50C, now under consideration. In any case, the Hon'ble apex Court has held that, under then existing s. 52, the burden of proving suppression of actual consideration lies upon the Revenue, whereas under s. 50C of the act the burden of proof is placed upon the assessee. He further submitted that the Hon'ble Madras High Court in the case of Ambattur Clothing Co. Ltd. vs. Asstt....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... apex Court on the rule of interpretation and the logical conclusion: "5. Now, on these provisions the question arises as to what is the true interpretation of s. 52, sub-s.(2). The argument of the Revenue was, and this argument found favour with the majority Judges of the Full Bench, that on a plain and natural construction of the language of s. 52, sub-s. (2), the only condition for attracting the applicability of that provision was that the FMV of the capital asset transferred by the assessee as on the date of the transfer exceeded the full value of the consideration declared by the assessee in respect of the transfer by an amount of not less than 15 per cent of the value so declared. Once the ITO is satisfied that this condition exists, he can proceed to invoke the provision in s. 52, sub-s. (2), and take the FMV of the capital asset transferred by the assessee as on the date of the transfer as representing the full value of the consideration for the transfer of the capital asset and compute the capital gains on that basis. No more is necessary to be proved, contended the Revenue. To introduce any further condition such as understatement of consideration in respect of the tran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ads to manifestly unreasonable and absurd consequences. It is true that the consequences of a suggested construction cannot alter the meaning of a statutory provision but it can certainly help to fix its meaning. It is a well recognized rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. There are many situations where the construction suggested on behalf of the Revenue would lead to a wholly unreasonable result which could never have been intended by the legislature. Take, for example, a case where A agrees to sell his property to B for a certain price and before the sale is completed pursuant to the agreement and it is quite well-known that sometimes the completion of the sale may take place even a couple of years after the date of the agreement the market price shoots up with the result that the market price prevailing on the date of sale exceeds the agreed price, at which the property is sold, by more than 15 per cent of such agreed price. This is not at all an uncommon case in an economy of rising prices and in fact we would find in a large number of cases where the sale is completed more than a year or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....teral interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the Court may modify the language used by the legislature or even 'do some violence' to it, so as to achieve the obvious intention of the legislature and produce a rational construction; vide Luke vs. IRC (1963) AC 557 : (1964) 54 ITR 692 (HL). The Court may also in such a case read into the statutory provision a condition which, though not expressed, is implicit as constituting the basic assumption underlying the statutory provision. We think that, having regard to this well recognized rule of interpretation, a fair and reasonable construction of s. 52, sub-s. (2), would be to read into it a condition that it would apply only where the consideration for the transfer is understated or, in other words, the assessee has actually received a larger consideration for the transfer than what is declared in the instrument of transfer and it would have no application in the case of a bona fide transaction where the full value of the consideration for the transfer is correctly declared by the assessee. There are several important considerations....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... existed at the time of entering into the transaction will prevail over the amendments subsequently made. The case law relied upon by learned Authorised Representative are discussed in brief. (a) CIT vs. Nirmal Textiles. In this case the assessee was following Samvat year as his accounting year, which ends on the Diwali day of every year. During the period between 26th Dec., 1973 and 25th March, 1974, he sold certain plots and the said transaction was assessable in the asst. yr. 1975-76. On the date of transfer, the IT Act provided for treatment of immovable property, which was held for less than 24 months, as short-term capital asset. Subsequently, consequent to an amendment made the Finance Act, 1973 w.e.f. 1st April, 1974, the period of holding upto which the capital asset would remain as short-term capital asset was extended to 60 months instead of 24 months. The plots were held by the assessee therein for more than 24 months but less than 60 months. While the assessee claimed the gain on sale of plots as long-term, the AO treated the same as short-term. The Hon'ble Gujarat High Court held that the question whether the said transfer is of long-term capital asset or short-term ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntered into a sale agreement in August, 2001, i.e., the submission of the vendors that the sale agreement was misplaced was also confirmed by the buyer of the property by way of an affidavit executed by its managing director. The parties could have entered into a sale agreement is supported by the fact that the vendors have received part-payment of the total consideration way back in August, 2001 itself. The details of said receipts are also mentioned in the sale deed. Under the Contract Act, by virtue of sale agreement, the buyer of the property gets a pre-emptive right over the property. In view of such pre-emptive right only, the advocates for the buyer have issued a public caution notice cautioning the public about the existence of agreement of sale. This fact also supports the existence of a sale agreement. In view of the foregoing, there is no reason to suspect about the existence of sale agreement. 8.5 In our opinion, the parties have sufficiently explained the causes for the delay in registering the sale deed. From the submission of the assessees, which is also supported by the caution notice issued by the buyer, the vendors were under an obligation to obtain urban land cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....price prevailing on the date of sale exceeds the agreed price, at which the property is sold, by more than 15 per cent of such agreed price. This is not at all an uncommon case in an economy of rising prices and in fact we would find a large number of cases where the sale is completed more than a year or two after the date of the agreement that the market price prevailing on the date of the sale is very much more than the price at which the property is sold under the agreement. Can it be contended with any degree of fairness and justice that in such cases, where there is clearly no understatement of consideration in respect of the transfer and the transaction is perfectly honest and bona fide and, in fact, in fulfilment of a contractual obligation, the assessee, who has sold the property, should be liable to pay tax on capital gains which have not accrued or arisen to him? It would indeed be most harsh and inequitable to tax the assessee on income, which has neither arisen to him nor is received by him, merely because he has carried out the contractual obligation undertaken by him. It is difficult to conceive of any rational reason why the legislature should have thought it fit to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by him is Rs. 3,300 w.e.f. 26th June, 2000 and Rs. 3,800 w.e.f. 9th Feb., 2001. As pointed out by learned Authorised Representative, the sale value agreed to by the parties, as per the sale agreement entered into in August, 2001, was Rs. 2,71,01,250 and the average cost works out to Rs. 4,500 per sq. yd. including the value of building. Thus, we notice that the average cost as per the sale agreement was more than the market/value fixed by the Jt. Sub-Registrar at the time the sale agreement was entered into. From these details, it is noticed that there is no understatement or suppression of actual consideration. It may be noted that the Revenue has also not brought any other material to show that there was suppression of actual consideration. 8.9 In the case of Neville De Noranha vs. Asstt. CIT, the provisions of Chapter XX-C and the provisions of s. 50C overlapped f each other for a period of 3 months from 1st April, 2002 to 30th June, 2002. The assessee therein was granted no objection certificate under Chapter XX-C only in April, 2002 and by the time the provisions of s. 50C had come into operation. The Hon'ble Kolkata Tribunal held that only the Chapter XX-C shall apply to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and on consideration of the facts and circumstances of the case and legal propositions discussed in the preceding paras. we are led to the logical conclusion that the provisions of s. 50C should not be made applicable to these assessees and we order accordingly. 9. The next common ground of the assessees relates to disallowance of payment made to Masetty family and A. Chittamma. The AO treated Masetty family as one of the co-owners. With regard to the payment made to A. Chittamma, the AO noticed that the deed of confirmation dt. 18th Jan., 2005 executed by A. Chittamma and others was typed on a stamp paper dt. 19th Jan., 2005. Accordingly the AO concluded that the deed of confirmation was a fabricated one. The assessees also could not produce Smt. A. Chittamma for examination before the AO. Accordingly the AO disallowed the payment made to Smt. Chittamma. The learned CIT(A) treated the payment made to Masetty family as well as Smt. A. Chittamma as an application of income and accordingly held that the same is not deductible for the purpose of computation of capital gains. 9.1 We have heard the parties on this point and carefully perused the record. The property was originally p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uch circumstances. In the above cited case, the Hon'ble Madras High Court relied upon the decisions of Bombay High Court in the cases of CIT vs. Abrar Alvi (2001) 166 CTR (Bom) 283 : (2001) 247 ITR 312 (Bom) and CIT vs. Shakuntala Kantilal (1991) 190 ITR 56 (Bom), wherein similar views have been taken. It is pertinent to note that the Department's SLP against the decision of the Bombay High Court in the case of Abrar Alvi was dismissed by the Hon'ble apex Court as reported in (2002) 253 ITR (St) 80. In all these cases it has been held that the expenditure incurred for the removal of encumbrances is deductible. Further it is apposite to extract below the observations of the Hon'ble Supreme Court in V. Jaganmohan Rao & Ors. vs. CIT (1970) 75 ITR 373 (SC), though the said decision was rendered in the context of capital versus revenue expenditure. This observation was extracted by Hon'ble Bombay High Court in the case of Hardiallia Chemicals Ltd. vs. CIT (1996) 134 CTR (Bom) 35 : (1996) 218 ITR 598 (Bom). "It is well established that where money is paid to perfect a title or as consideration for getting rid of a defect in the title or a threat of litigation the payment would be a cap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts. Accordingly the AO disallowed the entire amount of Rs. 20 lakhs. The learned CIT(A) noticed that the assessees have paid a sum of Rs. 50,000 by way of cheques to a lawyer for drafting sale deed and assisting in registration of the same. Accordingly the learned CIT(A) allowed a sum of Rs. 50,000 only. 11.1 We have heard the parties and carefully perused the record. From the assessment order, we notice that the assessees have made the payment to the tenants in two instalments, viz., once in September, 2001 and again in January, 2005, which suggests that the initial payment was made on receipt of the advance amount and the final payment was made after the receipt of final payment. As stated earlier, the onus is on the assessee to substantiate his claim towards the expenses. However, in these kinds of transactions, particularly, where the connection between the parties is disconnected permanently, there is some difficulty in making the recipients to oblige to the request of the payers that too after a gap of several years. For similar reasons, it will be difficult to produce those persons for examination. At the same time, for want of foolproof evidences, the expenditure claimed b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lue than the cost certified by the Jt. Sub-Registrar. Hence we find no reason to interfere with the decision of learned CIT(A) on this issue. 14. Now let us consider the appeal of the Revenue in all the three cases. The only common issue urged by the Revenue in the three appeals preferred by it is that the indexation benefit should be given from the financial year 1989-90 and not from 1st April, 1981. The impugned property was purchased by Shri P. Venkateswara Rao during the year 1974. He died on 15th March, 1990, So the assessees herein have inherited the property during the financial year 1989-90. As per s. 49(1)(iii)(a), where the capital asset became the property of the assessee by succession, inheritance or devolution, the cost of acquisition of the asset shall be deemed the cost for which the previous owner had acquired it as increased by the cost of any improvement incurred by the previous owner or the assessee, as the case may be. For the purpose of computation of capital gain, the cost of the asset should be revised upwards by applying the appropriate cost inflation index. If the asset was acquired prior to 1st April, 1981, the cost inflation index relating to the financi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eld by the previous owner shall also be included. Hence, in our view, the decision of Tribunal, Kolkata appears to be most reasonable interpretation. In any case, it is a settled proposition that when two views are possible, the view which is in favour of the assessee has to be adopted. In this regard, reference may be made to the decision of Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC). In view of the foregoing, we uphold the order of learned CIT(A) on this issue. 15. In the appeal filed by Smt. Ch. Kasturi Bai, one more issue is urged, i.e., whether learned CIT(A) is justified in rejecting the exemption under s. 54 of the Act for the second residential house. The assessee claimed exemption in respect of investment made by her in two separate residential houses, i.e., a sum of Rs. 27.48 lakhs on construction of a residential house and a sum of Rs. 17 lakhs on purchase of a flat. The learned CIT(A) restricted the exemption under s. 54 of the Act to Rs. 27.48 lakhs and rejected the claim of the assessee for exemption for the second house, by following the decision of Special Bench of Mumbai Tribunal in the case of I....