TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 37
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....nd enforceable document for determining the nature and genuineness of a transaction involving substantial monetary consideration under the Income Tax Act. 3. The CIT(A) erred in law by failing to recognize that the non- receipt of the full advance as agreed in the Original MOU (25.05.2004), amounting to Rs.5 crores, invalidates the MOU, and such non- compliance affects the validity of the sale agreement for taxation purposes. 4. The CIT(A) erred in law by failing to consider the variations in the Interim MOU (12.08.2013) and the Memorandum of Compromise (23.11.2013) while allowing the appeal, particularly when these documents revised the land extent to 19,365 sq. yds., but the assessee sold 22,258.6 sq. yds. instead. 5. The CIT(A) erred in law by relying on the Original MOU dated 25.05.2004 for calculating Long Term Capital Gains (LTCG), despite significant differences in the extent of land agreed upon in the Original MOU, Interim MOU, Memorandum of Compromise, and the actual land sold by the assessee. 6. The CIT(A) erred in relying on the MOU dated 12.08.2013 and the Memorandum of Compromise dated 23.11.2013 without proper examination of the con....
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....le consideration of Rs. 4,15,00,000/- in its books of account. 4. The AO vide his Show-cause notice (SCN) dated 08-12-2018 (sent by e-mail in ITBA) called upon the assessee company to put forth its explanation as to why the SRO values may not be treated as the full value of consideration for computing the capital gains under Section 50C of the Act. In reply, it was the assessee's claim that, based on an original "Memorandum of Understanding" (MOU) dated 25-05-2004, the sale value of the land was fixed in acres and that it had received the full/part consideration of Rs. 4,15,00,000/- in the year 2004 through banking channels, i.e., cheques. The assessee company produced copies of the bank cheques, audited balance sheets for FY 2004-05 and FY 2005-06, the MOUs of 2004 and 2013, Lok Adalat proceedings, and other supporting documents to substantiate the receipt of consideration and the aforementioned set of facts. 5. Also, the assessee company relied on an interim MOU dated 12- 08-2013 and a Memorandum of Compromise resulting from litigation, and contended that the advances received in the year 2004 were ultimately appropriated against the transfer of about 4.6 acres of land duri....
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....o satisfaction of the set of conditions therein contemplated), therefore, the SRO value of the property adopted by the AO of the year 2015 was not warranted in the case. Accordingly, the CIT(A), by drawing support from a host of judicial pronouncements, directed the AO to recompute the capital gain by adopting the SRO value of the property on the date on which the advance/consideration was received by the assessee company by considering the year of agreement/MOU signed by the appellant and the purchaser party. For the sake of clarity, we deem it apposite to cull out the observations of the CIT(A), as under: "6.2 All the arguments and related supporting documents have been examined by the undersigned. It is noticed from the assessment order that the appellant has executed the sale deed in favour of various persons of M/s. Sama Constructions during the year under consideration whereas a Memorandum of understanding was signed between the appellant and party on 25.05.2004 for sale of the property in question. On later stage, the matter was litigated before the Lok Adalat. Meanwhile both the parties were agreed to resolve the issue and therefore, another Memorandum of understan....
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....f Income Tax, Circle 1(2), Baroda, the Hon'ble ITAT, Ahmedabad while deciding the issue for the AY 2013-14 held that as per the proviso to section 50C, stamp duty valuation of property for purpose of stamp duty payment on date of agreement will be deemed as full consideration of capital asset. The Tribunal held that "14. It is pertinent to observe that an agreement to sale was executed by the assessee on 8.2.2010 which is followed by payment through account payee cheque. Details of payments have been duly noticed by the ld.AO as well as by the ld.CIT(A). First cheque was received on 1.4.2011 for a consideration of Rs. 10 lakhs; then Rs. 30 lakhs on 23.7.2011; Rs. 15 lakhs on 28.12.2011 and Rs. 50 lakhs on 26.3.2012. Similarly on 1.5.2012 Rs. 45 lakhs was received through account payee cheque. It means that sale consideration were received by the assessee before the registration of sale deed regularly on different intervals. As observed earlier, section 50C provides that where the consideration received or accruing as a result of transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority for the pu....
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....ht in persona is created in favour of the transferee/vendee. When such right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because vendee in whose favour right in persona is created has legitimate right to enforce such specific performance of the agreement, if the vendor for some reason is not executing the sale deed. Thus, by virtue of agreement to sell, some right is given to the vendee by the vendor. It is encumbrance on the property. At this stage, we would like to make reference to new proviso appended to section 50C by way of Finance Act, 2016 and the background, under which such provision has been incorporated. In 2015, Government of India has set up Income Tax Simplication Committee headed by Justice R.V.Easwar, former judge of Delhi High Court. The Committee in its reported observed as under: "6.1 RATIONALISATION OF SECTION 50C TO PROVIDE RELIEF WHERE SALE CONSIDERATION FIXED UNDER AGREEMENT TO SELL Section 50C makes a special provision for determining the full value of consideration in cases of transfer of immovable property. It provides that where the consideration declared to be received or ....
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.... Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer." 16. This amendment was explained in the Memorandum explaining the provisions of Finance Bill 2016. It reads as under: "Rationalization of Section 50C in case sale consideration is fixed under agreement executed prior to the date of registration of immovable property under the existing provisions contained in Section 50C, in case of transfer of a capital asset being land or building on both, the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty shall be taken as the full value of consideration for the purposes of computation of capital gains. The Income Tax Simplification Committee (Easwar Committee) has in its first report, pointed out that this provision does not provide any relief where the seller has entered into an agreement to sell the property much before the actual date of transfer of the imm....
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.... in the sale agreement. This proviso would only simplify this exercise i.e. instead remitting the matter to the DVO under section 50C(2), he would conduct an inquiry as to what could be value of the property on the date of execution of the agreement, and whether such agreement has created any encumbrance or not. There could be a difference in the actual sale consideration than the amount on which stamp duty was paid. This proviso has simplified this thing. It contemplates that stamp duty valuation of the property for the purpose of stamp duty payment on the date of agreement can be deemed as full consideration of the capital asset. Thus, in this way, the proviso can be construed as clarificatory in nature, and can be applied on pending matters as already held by the ITAT in the case of Dharamshibhai Sonani (supra). 18. In the present case, we find that the assessee has contended that consideration of Rs. 3,00,11,000/- is more than the valuation for the purpose of stamp duty as on 8.2.2010. No where the assessee has pointed out specific rate on the date of agreement. Therefore, we allow these two grounds of appeal for the statistical purpose. We set aside this issue to the ....
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....eement to sell the property has been entered into on 30/12/2015 by receiving a part sale consideration of Rs. 1.50 Crs on the same shall be deemed to be the sale consideration accepted by the vendor. Section 50C(1) of the Act is reproduced below for reference: "50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed [or assessable] by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed 25a[or assessable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer: [Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consider....
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....istant Commissioner of Income-tax [2022] 136 taxmann.com 94 (Bangalore - Trib.)/[2022] 193 ITD 757 (Bangalore - Trib.)[05-01-2022], the Hon'ble ITAT, Bengaluru Bench while deciding the identical issue for AY 2014-15, held that Proviso to section 50C(1) inserted by Finance Act, 2016 is retrospective. The Tribunal held in its order that: "48. There was payment of Rs. 2,50,00,000 on 23-11-2011 by cheque No. 259865 drawn on Vijaya Bank, Sarakki Branch, Bangalore. Being so, the argument of the ld. DR is that MoU is not suggesting any payment so as to apply the proviso to section 50C, thus it is deemed retrospective in nature. In our opinion, as held by the Madras High Court in the case of Vummudi Amarendran (supra), proviso to section 50C(1) is retrospective in nature applicable from AY 2014-15. Further part of the consideration has already been passed through MoU as enumerated above. It cannot be said that no consideration is paid on the date of MoU. This finding of the lower authorities is not proper. Accordingly, we hold that proviso to section 50C(1) by the Finance Act, 2016 is retrospective and also the assessee proved that the 2nd proviso to section 50C(1) is satisfied si....
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....e date of consideration/advance received by the appellant by considering the year of agreement/MOU signed by the appellant and the party. Accordingly, the ground No. 1 to 3 raised by the appellant are allowed. 8. In the nutshell, the appeal filed by the appellant is allowed." 10. The revenue, being aggrieved with the CIT(A) order, has carried the matter in appeal before us. 11. We have heard the Ld. Authorised Representatives of both parties, perused the orders of the authorities below and considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 12. We shall first advert to the claim of the Ld. AR that for quantification of the LTCG as per the deeming provisions of Section 50C of the Act, the reserve price applicable on the date of execution of the "agreement to sell', dated 25.05.2004 was to be considered, and not that as was available on the dates of execution of the respective 'sale deeds', i.e., dated 24/07/2015. 27/07/2015, 29/07/2015. 16/11/2015 and 18/11/2015. As claimed by the Ld. AR, the amount of the sale consideration for the property under consideration was initially fixe....
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....as entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement, whereas similar provision exists in section 43CA of the Act i.e. when an immovable property is sold as a stock-in- trade. It is proposed to amend the provisions of section 50C so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration. It is further proposed to provide that this provision shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property. 30 These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years. "....
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.... of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer". The trouble, however, is that while the sale consideration is fixed at the point of time when agreement to sell is entered into, there is sometimes considerable gap in parties agreeing to a transaction (i.e. agreement to sell) and the actual execution of the transaction (i.e. sale deed), and yet, it is the value as on the date of execution of sale deed which is recognized by Section 50C for the purpose of computing the capital gain because that is what is relevant for the purpose of computing stamp duty for registration of sale deed. The very comparison between the value as per sale deed and the value as per stamp duty valuation, accordingly, ceases to be devoid of a rational basis because these two values represent the values at two different points of time. In a situation in which there is significant difference between the point of time when agreement to sell is executed and when the sale deed is executed, therefore, should ideally be between the sa....
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....of the asset are not same, the value referred to in sub- section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement. (5) The provisions of sub-section (4) shall apply only in a case where the amount of consideration or a part thereof has been received by any mode other than cash on or before a date of agreement for transfer of the asset. 5. True to the work ethos of the current Government, it was the first time that within four months of the Tax Simplification Committee being notified, not only the first report of the Committee was submitted, but the Government also walked the talk by ensuring that the several statutory amendments, based on recommendations of this report, were introduced in the Parliament. So far as Section 50 C is concerned, the Finance Act 2016, with effect from 1st April 2017, inserted the following provisos to Section 50C: Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or ass....
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....rdingly apply in relation to assessment year 2017-18 and subsequent years. 7. While the Government has thus recognized the genuine and intended hardship in the cases in which the date of agreement to sell is prior to the date of sale, and introduced welcome amendments to the statue to take the remedial measures, this brings no relief to the assessee before me as the amendment is introduced only with prospective effect from 1st April 2017. There cannot be any dispute that this amendment in the scheme of Section 50C has been made to remove an incongruity, resulting in undue hardship to the assessee, as is evident from the observation in Easwar Committee report to the effect that "The (then prevailing) provisions of section 50C do not provide any relief where the seller has entered into an agreement to sell the asset much before the actual date of transfer of the immovable property and the sale consideration has been fixed in such agreement" recognizing the incongruity that the date agreement of sell has been ignored in the statute even though it was crucial as it was at this point of time that the sale consideration is finalized. The incongruity in the statute was glaring an....
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.... Lordships were pleased to hold that this reasoning and rationale of this decision "merits acceptance". The same principle, when applied in the present context, leads to the conclusion that the present amendment, being an amendment to remove an apparent incongruity which resulted in undue hardships to the taxpayers, should be treated as retrospective in effect. Quite clearly therefore, even when the statute does not specifically state so, such amendments, in the light of the detailed discussions above, can only be treated as retrospective and effective from the date related statutory provisions was introduced. Viewed thus, the proviso to Section 50 C should also be treated as curative in nature and with retrospective effect from 1st April 2003, i.e. the date effective from which Section 50C was introduced. While the Government must be complimented for the unparalleled swiftness with which the Easwar Committee recommendations, as accepted by the Government, were implemented, I, as a judicial officer, would think this was still one step short of what ought to have been done inasmuch as the amendment, in tune with the judge made law, ought to have been effective from the date on which....
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....spective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Ltd. Etc. (supra), held that the first proviso was curative in nature, hence, retrospective in operation w.e.f. 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. Etc. (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (when the first proviso stood inserted). Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example-in the present case, the respo....
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...., of the said property. As a corollary thereto, the subsequent developments in respect of the property sold (e.g. the conversion of use of land) are to be ignored. It is on this basis that the capital gains will be recomputed. With these directions, the matter stands restored to the file of the Assessing Officer for adjudication de novo, after giving an opportunity of hearing to the assessee and by way of a speaking order. I order so." The aforesaid order of the Tribunal had thereafter been followed by a coordinate bench of the ITAT, Mumbai, in the case of Kishore Hira Bhandari vs. Income Tax Officer, Mumbai (2019) 107 taxmann. Com 218 (Mumbai). 15. We, thus, based on our aforesaid observations, respectfully follow the aforesaid view taken by the Tribunal, and principally concur with the claim of the assessee company that for the purpose of determining the LTCG as per the deeming provisions of Sec. 50C of the Act (subject to the satisfaction of the pre-conditions therein contemplated), the SRO value of the property which is prevailing on the date on which the "agreement to sell' is executed is to be taken for the purpose of computing the capital gain arising on transfer o....
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....rict, based on the compromises between the parties, was thereafter requested by the parties to record the terms of the compromise decree to the extent of Acres 3 - 0 Guntas of land out of the suit schedule property, i.e., Acres 15 - 0 Guntas, which, inter alia, read as under: " In view of the said compromise, it is therefore prayed that the Hon'ble Court be pleased to record the terms of compromise and pass a compromise decree to an extent of Acres 3 - 0 Guntas of land out of the suit schedule property i.e., Acres 15 - 0 Guntas., in favour of the plaintiff and the balance of the suit schedule property the defendants being the rightful owners shall retain the same as owners and possessors. The Hon'ble Court may be pleased to pass such other or further orders as the Hon'ble Court deems fit and proper under the circumstances of the case." Sd/- For Sama Constructions Sd/- For South India Research Institute Pvt. Ltd." 17. On a perusal of the written submissions filed by the assessee company in the course of the proceedings before the CIT(A)/NFAC, Page 37-43 of APB, as the land admeasuring Acres 3 - 0 Guntas as per the compromise agreement (agreed before the Lok A....
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....hereafter transferred only 22258.6 Sq. Yards of land, i.e., 4 Acres - 72 Guntas for a total sale consideration of Rs. 4.15 Crores (approx.). Also, as pointed out by the Ld. CIT-DR, the assessee company, as against its aforesaid compromise deed (approved by the Add. District Judge-XI, Ranga Reddy District on 23.11.2013) and the 2 memorandums of understanding (MOU's) both dated 12.08.2013, had agreed for transferring 19365 Sq. Yards of land, but had actually transferred 22258.60 Sq. Yards of land, vide 15 registered sale deeds spread over the period 24.07.2015 to 18.11.2015 (as culled out by the AO at Page 2-4 of the assessment order). 20. We shall, in the backdrop of the aforesaid facts, deal with the subject issue, i.e., as to whether or not the AO has rightly adopted the SRO value as was available on the dates of execution of the respective sale deeds, i.e., dated 24/07/2015. 27/07/2015, 29/07/2015. 16/11/2015 and 18/11/2015; OR ought to have taken the SRO value applicable on the date of execution of the 'agreement to sell', dated 25.05.2004, for quantifying the LTCG on the transfer of the land admeasuring 22258.6 Sq. Yards of land, i.e., 4 Acres - 2899 Sq. Yards, as pe....
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.... concur with the Ld. AR that the "provisos" to Sec. 50C will apply to the subject transaction of the sale of land by the assessee company vide 15 registered sale deeds executed during the year under consideration, i.e., over the period 24.07.2015 to 18.11.2015. However, this takes us to the core issue that the SRO value of which year is to be adopted for determining the LTCG as per the deeming provisions of Sec. 50C of the Act, viz. (i) the SRO value applicable at the time of executing the original "agreement to Sell", dated 25.05.2004; or (ii). the SRO value applicable at the time of executing the compromise deed (approved by the Add. District Judge-XI, Ranga Reddy District on 23.11.2013); or (iii). the SRO value applicable on the dates on which the 2 memorandums of understanding (MOU's), both dated 12.08.2013, were executed, as per which it was agreed to further transfer 4845 Sq. Yards, (2769 Sq. yards + 2076 Sq. yards); or (iv). the SRO value applicable at the time the respective 15 registered sale deeds were executed by the assessee company during the year under consideration, i.e., during the period 24.07.2015 to 18.11.2015? 22. On the one hand, it is claimed by the assesse....
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....hile for the 2 memorandums of understanding (MOU's), both dated 12.08.2013, wherein it was agreed to further transfer 2769 Sq. yards and 2076 Sq. yards to M/s Sama Constructions referred to lands situated in Survey Nos. 9/4 AND Survey Nos. 9/4 and 9/5, situated at Saroornagar Mandal, Ranga Reddy District, respectively; and (iii). that, while for, as per the original "agreement to sell", dated 25.05.2004, the subject land was agreed to be transferred @ Rs. 1.5 crores per acre, but in the absence of mention of any consideration either in the order of the Addl. District Judge-XI, Ranga Reddy District, dated 23.11.2013, wherein the compromise between the parties was approved; as well as in the 2 memorandums of understanding (MOU's), both dated 12.08.2013, wherein it was agreed to further transfer 2769 Sq. yards and 2076 Sq. yards to M/s Sama Constructions, i.e., the purchaser party, the total consideration of Rs. 4.15 crores (supra) that was paid by M/s Sama Constructions (supra) to the assessee company as an advance at the time of executing the original "agreement to sell", dated 25.05.2004, was the sale consideration that was paid by the purchaser, viz. M/s Sama Constructions for 4 A....