Ita/62/2011 Of M/S Guru Dashmesh Rice & General Mills Moga v. Commissioner Of Income Tax-3 Ludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.62 of 2011Date of decision: 14.1.2016 M/s Guru Dashmesh Rice & General Mills, Moga through its partnerDaljit Singh Vs, .....- Appe Commissioner of Income Tax III, Ludhiana ....mesponden CORAM: HON BLE MR. JUSTICK AJAY KUMAR MITTALHON BLE MRS. JUSTICEK RAJ RAHUL GARG 1. Whether Reporters of local papers may be allowed to see thejudgment?2. To be referred to the Reporters or not?YES3. Whether the judgment should be reported 1n the Digest? Present: Mr. Ravish Sood, Advocate for the appellant-assessee. Mr. Rajesh Katoch, Advocate for the respondent-revenue. Ajay Kumar Mittal,J, 1]This appeal has been preferred by the appellant-assesseeSection 260A of the Income Tax Act, 1961 (in short, “the Act”) against theorder dated 30.4.2010, Annexure A.3 passed by the Income Tax AppellateTribunal, Amritsar Bench, Amritsar (in short, “the Tribunal”) in ITA No.471](ASR)/2009 for the assessment year 2006-07. It was admitted on 17.7.2012 “Whether the Tribunal has erred in law by failing to appreciatethat as the 'Pre-amended' deeming provisions of Section 50C ofthe Income Tax Act, 1961 (1..e. those as were available on thestatute upto 30.9.2009) did not take within its purview‘Agreement to Sell’, therefore the authorities below were inerror 1n computing the ‘Capital gains’ in the hands of theappellant firm by applying the provisions of Section 50C?” |A few facts relevant for the decision of the controversy,involved as narrated in the appeal may be noticed. The appellant firm wasrunning a rice mill at Moga under the name and style of M/s GuruDashmesh Rice and General Mills. It executed an agreement to sell dated3.11.2004 in the financial year 2004-05 with regard to land measuring 24kanals 4 marlas, 6 Sarsai for a total sale consideration ofLy12,80,000/-.Earnest money of “a2? lacs was received while balance was to be received athe time of execution of the registered deed by not later than 30.5.2005. Asper the said agreement to Sell, the appellant firm was to vest the legal title ofwhole of the aforesaid property vide two sale deeds in favour of thepurchaser. Pursuant to the said agreement, the appellant firm executed saledeed as on 27.12.2004 in the financial year 2004-05 and pursuant wheretoabsolute internal and external rights, right to passage alongwith title asregards part of the land measuring 6 kanals | marla 4 sarsai out of the saidland stood vested in favour of the purchaser. During the financial year2005-06 relevant to the assessment year 2006-07, the appellant executedanother sale deed on 10.5.2005 in respect of the balance land measuring 18kanals 3 marlas 2 Sarsai against a pre-settled sale consideration of 49,30,000/- as per the terms of the agreement. Thus, long term capital gain of ITA No.62 of 201 same. Aggrieved by the order, the assessee filed appeal before theCommissioner of Income Tax (Appeals) |[CIT(A)]. Vide order dated21.8.2009, Annexure A.2, the CIT(A) partly allowed the appeal sustainingthe findings of the Assessing Officer with regard to applicability of theprovisions of section 50C of the Act to the appellant firm. Still not satisfiedthe assessee filed appeal before the Tribunal. The Tribunal vide order dated30.4.2010, Annexure A.3 partly allowed the appeal upholding the findingsrecorded by the CIT(A). Hence the instant appeal by the assessee. 3)Learned counsel for the appellant assessee raised two-foldsubmissions to assail the order of the Tribunal. Firstly, 1t was contended thatSection 50C of the Act cannot be made applicable on the basis of sale deeddated 10.5.2005. It was further submitted that agreement to sell 1s dated3.11.2004 and therefore by virtue of Explanation 2 to Section 2(47) of theAct, it could not be taxed in the assessment year 2006-07. | 4 On the other hand, learned counsel for the revenue besidessupporting the order of the Tribunal submitted that the rate of registeringauthority was much more. 3)Learned counsel for the appellant assessee raised two-foldsubmissions to assail the order of the Tribunal. Firstly, 1t was contended thatSection 50C of the Act cannot be made applicable on the basis of sale deeddated 10.5.2005. It was further submitted that agreement to sell 1s dated3.11.2004 and therefore by virtue of Explanation 2 to Section 2(47) of theAct, it could not be taxed in the assessment year 2006-07. | 4 On the other hand, learned counsel for the revenue besidessupporting the order of the Tribunal submitted that the rate of registeringauthority was much more. 4 We have heard learned counsel for the parties. We do not findany infirmity in the order of the Tribunal and as a consequence there is nomerit in the submissions of learned counsel for the assessee-appellant. 6.Finance Act, 2002 effective from |.4.2003 inserted Section 50Cin the Act. The said section as inserted at the relevant time reads thus:- CHOC.Special provision for full value of consideration incertain cases.—(1) Where the consideration received oraccruing as a result of the transfer by an assessee of a capitalasset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government(hereafter in this section referred to as the "stamp valuationauthority’) for the purpose of payment of stamp duty 1n respectof such transfer, the value so adopted or assessed shall, for thepurposes of section 48, be deemed to be the full value of theconsideration received or accruing as a result of such transfer. (2) Without prejudice to the provisions of sub-section (1),where— .6) the assessee claims before any Assessing Officer that thevalue adopted or assessed by the stamp valuation authorityunder sub-section (1) exceeds the fair market value of theproperty as on the date of transfer; .b) the value so adopted or assessed by the stamp valuationauthority under sub-section (1) has not been disputed in anyappeal or revision or no reference has been made before anyother authority, court or the High Court, the Assessing Officer may refer the valuation of the capitalasset to a Valuation Officer and where any such reference 1smade, the provisions of sub-sections (2), (3), (4), (5) and (6) ofsection 16A, clause (7) of sub-section (1) and sub-sections (6)and (7) of section 23A, sub-section (5) of section 24, section34AA, section 35 and section 37 of the Wealth-tax Act, 1957(27 of 1957), shall, with necessary modifications, apply inrelation to such reference as they apply in relation to areference made by the Assessing Officer under sub-section (1)of section 16A of that Act. Explanation.—xxxXXXXXXXXXXXXXXXXNXXXXXXXX (3) Subject to the provisions contained in sub-section (2),where the value ascertained under sub-section (2) exceeds thevalue adopted or assessed by the stamp valuation authorityreferred to in sub-section (1), the value so adopted or assessedby such authority shall be taken as the full value of theconsideration received or accruing as a result of the transfer.’ doSub section (1) of Section 50C of the Act envisages a situationwhere the consideration received or accruing as a result of the transfer of acapital asset by an assessee 1n the case of land or building or both, is lessthan the value adopted or assessed by any Stamp Valuation Authority of theState Government for the purposes of payment of stamp duty in respect ofsuch transfer. The value as assessed or adopted by the said authority shall bedeemed to be the full value of the consideration in terms of Section 48 ofthe Act. doSub section (1) of Section 50C of the Act envisages a situationwhere the consideration received or accruing as a result of the transfer of acapital asset by an assessee 1n the case of land or building or both, is lessthan the value adopted or assessed by any Stamp Valuation Authority of theState Government for the purposes of payment of stamp duty in respect ofsuch transfer. The value as assessed or adopted by the said authority shall bedeemed to be the full value of the consideration in terms of Section 48 ofthe Act. 8.|Sub section (2) of Section 50C of the Act provides that withoutprejudice to the provisions of sub section (1) and in a situation where theassessee claims before the Assessing Officer that the value adopted orassessed by the Stamp Valuation authority under Section 50C(1) exceeds thefair market value of the property as on the date of the transfer; and the valueso adopted or assessed by the Stamp Valuation authority under Section 50C(1) has not been disputed in any appeal or revision or no reference has beenmade before any other authority, court or the High Court, the AssessingOfficer may refer the valuation of the capital asset to a Valuation Officer.Wherever any reference 1s made to the Valuation Officer, the variousprovisions of the Wealth Tax Act, 19577 enumerated thereunder shall apply QSub section (3) of Section 50C of the Act is subject to theprovisions contained in Section 50C(2) and enacts that where the valuedetermined under Section 50C(2) exceeds the value adopted or assessed bythe Stamp Valuation authority referred under Section 50C(1), in thateventuality, the value so adopted or assessed by such authority shall betaken as the full value of the consideration received or accruing as a result ITA No.62 of 201 oft the transfer 10.|The provisions of Section 50C of the Act are deemingprovisions for the purposes of taxing the difference between the apparentconsideration in the instrument of transfer and the valuation done for thepurpose of Section 50C of the Act under the head capital gains. The purposeof incorporating this provision 1s to prevent undervaluation of the real valueof the property in the instrument of transfer so as to defraud the revenue ofits legitimate claim to capital gain tax thereon. 11.The scope and effect of Section 50C of the Act was elaborately discussed 1n Circular No.& of 2002 dated 27[th]August 2002 as under:- *37. Computation of capital gains in real estate transactions — 371The Finance Act, 2002 has inserted a new Section 50C inithe Income Tax Act to make a special provision for determiningthe full value of consideration in cases of transfer of 1mmovableproperty, 37.2It provides that where the consideration declared to bereceived or accruing as a result of the transfer of land orbuilding or both, is less than the value adopted or assessed byany authority of a State Government for the purpose of paymentof stamp duty in respect of such transfer, the value so adopted orassessed shall be deemed to be the full value of theconsideration and capital gains shall be computed accordinglyunder section 48 of the Income tax Act. 37.3It is further provided that where the assessee claims thatthe value adopted or assessed for stamp duty purposes exceedsthe fair market value of the property as on the date of transferand he has not disputed the value so adopted or assessed 1n anyappeal or revision or reference before any authority or court, theAssessing Officer may refer the valuation of the relevant assetto a Valuation Officer in accordance with section 55A of the 37.3It is further provided that where the assessee claims thatthe value adopted or assessed for stamp duty purposes exceedsthe fair market value of the property as on the date of transferand he has not disputed the value so adopted or assessed 1n anyappeal or revision or reference before any authority or court, theAssessing Officer may refer the valuation of the relevant assetto a Valuation Officer in accordance with section 55A of the Income tax Act. If the fair market value determined by theValuation Officer 1s less than the value adopted for stamp dutypurposes, the Assessing Officer may take such fair market valueto be the full value of consideration. However, 1f the fair marketvalue determined by the Valuation Officer 1s more than thevalue adopted or assessed for stamp duty purposes, theAssessing Officer shall not adopt such fair market value andShall take the full value of consideration to be the value adoptedor assessed for stamp duty purposes. 37.4This amendment will take effect from Ist April 2003, andwill accordingly, apply in relation to the assessment year 2003-04 and subsequent years (section 24)” 12) Adverting to the factual matrix herein, a perusal of the findings| recorded by the authorities below shows that the Assessing Officercomputed the capital gains in respect of the appellant firm by invoking thedeeming provisions of section 50C of the Act by adopting the segment rateotL22 lacs 1.e. rates adopted by the stamp valuation authority at the timeof executing the sale deed as the deemed sale consideration and calculatedthat the capital gains was shown short by an amount of <a17,64,189/-. Onappeal, the CIT(A) held that as per provisions of Section 50C of the Act, 1fthe value estimated by the Assistant Valuation Officer (AVO) 1s more thanthat as per the collector rates, the latter should be taken to be the full valueof consideration. However, if the value estimated by the AVO 1s less thanthat as per the collector rates, that lesser value is to be taken into account.Consequently, the fair market value as on 10.5.2005 estimated by the AVOat|=a18,16,250/- was taken to be the full value of consideration as against =22 lacs considered by the Assessing Officer for computing long term capital gain. The Tribunal upheld the findings recorded by the CIT(A). The relevant findings recorded by the Tribunal read thus:- “I1(10) A bare perusal of the above reproduced documentsclearly reveals that a single agreement to sell was executed on3.11.2004 in respect of sale deeds executed by the assessee inrespect of '4 share and ’4 share on 27.12.2004 and 10.5.20respectively. A perusal of the conveyance deed registered on10.5.2005 reveals the possession of the land in question hasbeen handed over to the vendee on 10.5.2005 1.e. the date ofregistration of the sale deed. Thus, the vendee was not handedOver possession of the said land earlier to this specified date.This factum is further established as no possession had beengiven to the vendee vide single agreement to sale dated3.11.2004. Thus, the finding of the AO as reproduced above, onthe date of handing over the possession on 10.5.2005, 1sfactually correct. In view of this, the transfer of the said landdoes not fall under section 2(47)(v) of he Act as contended bythe assessee. 11(11). In this context, the relevant para 4 of the assessmentorder is reproduced hereunder, wherein the AO recorded thefindings that possession of the land was given to the purchaseron 10.54.2005 11(11). In this context, the relevant para 4 of the assessmentorder is reproduced hereunder, wherein the AO recorded thefindings that possession of the land was given to the purchaseron 10.54.2005 “4. | have carefully gone through the written submissions filedby the assessee and the various judgments cited therein. Thejudgments cited by the assessee relate to the period when theprovisions of section 50C of the Income Tax Act were notapplicable and as such these judgments are not applicable tothe facts of the present case. The assessee himself stated thatSection 50C was effective w.e.f 1.4.2003. The provision ofsection 50C 1s deeming provision and capital gain is leviableas per law and that is the valuation adopted by stamp dutyauthorities of the state government. Moreover, other contentionraised by the assessee is also not applicable as per registrationdeed dated 10.5.2005 which itself says that possession of land to the purchaser has been given today 1.e. 10.5.2005 and it 1snot the case of the assessee that the possession has earlier beengiven to the purchaser. The fact that only some advancemoney has been received as per agreement dated 3.11.2004have no effect. Thus, the provision of section 50C is clearlyapplicable to the facts of the case and valuation adopted by theState Government is the value of consideration received. Theassessee has not produced any evidence regarding the disputeof valuation adopted by the registering authority of the StateGovernment. Hence the valuation so adopted 1.e. at =ao) lacshas been accepted by the nearby people as the correct value,hence the same 1s adopted. As regards the copy of agreementdated 3.11.2004 filed by the assessee at a lesser sale value isconcerned, it 1s pertinent to mention here that this agreementby the Notary Public attached with the return bears the samedate on which the registration has been made 1.e. 10.5.2005.Hence this evidence 1s created after thought and it has no valuein the eyes of law so far as the value of property sold videregistration deed 10.5.2005, for a _ consideration §422,00,000/- on account of deeming provisions as per section50C of the Income Tax Act, 1961 although the sale rate wasshown at Ly12,00,000/- as per registry. Therefore, thecontention of the assessee has no force and 1s not acceptable.”11(12). From the above, it 1s clear that the AO recorded findingthat the possession of the said land was handed over to thepurchaser on 10.5.2005. In view of the above discussion, it 1samply clear that the registered sale deed certified that thepossession of the said land was given to the vendee, on10.5.2005. Thus, the transfer for the purpose of charging capitalgain has become effective and concluded, on the date ofregistration of said sale deed as on this date, the possession ofthe land was handed over to the vendee. In view of this, the pleaof the assessee that land in question stands transferred within themeaning of section 2(47)(v) of the Act is not legally and factually tenable. The land in question does not fall within thedefinition of transfer as contemplated under section 2(47) of theAct. Accordingly, the capital gain 1s to be charged from the dateof registration of the said deed, as the possession was given tothe vendee only on that date. factually tenable. The land in question does not fall within thedefinition of transfer as contemplated under section 2(47) of theAct. Accordingly, the capital gain 1s to be charged from the dateof registration of the said deed, as the possession was given tothe vendee only on that date. 11(13) The learned counsel for the assessee placed reliance onthe judgment of Hon'ble Supreme Court 1n the case ofCIT vs.Podar Cement Pvt. Limited and others,(1997) 226 ITR 625.The decision has been rendered by the Hon'ble Supreme Court,in the context of section 22 of the Income Tax Act, 1961. In thiscase, 1t was held that the ‘owner' 1s a person who receives incomefrom the property, in his own right. It was held by the Hon'bleSupreme Court that for the purpose of section 22 of the Act, the‘owner’ 1S a person, who 1s entitled to receive income in his ownright and as such where the house property is handed over topurchaser to enjoy fruits of that property by thecontractor/builder, the purchaser 1s to be treated as ‘owner’ of theproperty for the purpose of section 22 even though no registereddocuments as required under Section 54 of the Transfer ofProperty Act or the Registration Act are executed. In the presentcase as discussed earlier, the assessee has not handed over thepossession, to the purchaser, as is evident from the saleagreement dated 3.11.2004, reproduced above. The possessionwas handed over to the purchaser vide registered sale deed dated10.5.2005, as is evident from the reproduction of the saidregistered sale deed and findings of the revenue authorities. Inview of this, the purchaser, in the present case has not beenhanded over any possession of the land in question prior to thisdate. Hence, he is not in possession of the land, to enjoy thefruits of the property, as he is neither beneficial owner nor legalowner. Legal owner in this case vested in the purchaser of theland, on the registration of the sale deeds on 10.5.2005. Further,the sale agreement does not speak handing over of the possessionto the purchaser of the land. In view of this, facts of the case relied upon by the learned counsel for the assessee, 1n the case ofCIT vs. Podar Cement Pvt. Limited(supra) are different anddistinguishable. Thus, ratio of this case is not applicable to thefacts of the present case. Moreover, the Hon'ble Supreme Court,has rendered the decision in the context of charging of incomeunder section 22 of the Act and has never dealt with thedefinition of ‘transfer of asset’, as contemplated under section 2(47)(v) of the Act. For the purpose of proper appreciation of thedecision of the Hon'ble Supreme Court, 1n the case of|CIT vs.Podar Cement Pvt. Limited(supra), the relevant part of thedecision 1s reproduced hereunder:- “House property — owner — meaning of “owner” - in thecontext of section 22 “owner” 1s person who 1s entitled toreceive income in his own right — Section 22 does notrequire registration of sale deed — Amendment of section 27by Finance Act of 1987 is classificatory in nature — IncomeTax Act, 1961 —ss 22, 277 — Indian Income Tax Act, 1922.Interpretation of taxing statutes — Construction which takesinto account changes since provision was enacted —Construction beneficial to assessee in case of ambiguity —Rule against retrospectivity not applicable to declaratoryprovisions. 12. In view of the above detailed discussion, we are of theconsidered opinion that the provisions of section 50C areattracted to the sale of land in question made by the assessee.Thus, the findings of the CIT(A) on this issue are upheld andconsequently, the grounds of appeal bearing No.2, 3 and 4 raisedby the assessee are dismissed.” 13.|Examining the next contention, Explanation 2 to Section 2(47) of the Act was inserted by the Finance Act 2012 with retrospective effectfrom 1.4.1962. According to the said explanation, the term “transfer” 1sdefined to include and shall be deemed to have always included disposing ITA No.62 of 201 12. In view of the above detailed discussion, we are of theconsidered opinion that the provisions of section 50C areattracted to the sale of land in question made by the assessee.Thus, the findings of the CIT(A) on this issue are upheld andconsequently, the grounds of appeal bearing No.2, 3 and 4 raisedby the assessee are dismissed.” 13.|Examining the next contention, Explanation 2 to Section 2(47) of the Act was inserted by the Finance Act 2012 with retrospective effectfrom 1.4.1962. According to the said explanation, the term “transfer” 1sdefined to include and shall be deemed to have always included disposing ITA No.62 of 201 of or parting with an asset or any interest therein, or creating any interest inany asset in any manner whatsoever, directly or indirectly, absolutely orconditionally, voluntarily or involuntarily, by way of an agreement (whetherentered into in India or outside India) or otherwise, notwithstanding thatsuch transfer of rights has been characterized as being effected or dependentupon or flowing from the transfer of a share or shares of a companyregistered or incorporated outside India. 14Elaborating his submission on this aspect, learned counsel forthe appellant-assessee submitted that the appeal was decided by the Tribunalon 30.4.2010 whereas Finance Act, 2012 retrospectively effective from1.4.1962 had inserted Explanation 2 to Section 2(47) of the Act, accordingto which the case of the assessee was covered under the expression“transfer” as envisaged under Section 2(47) of the Act. On the saidpremises, it was urged that the agreement of sale was executed on3.11.2004 in the financial year 2004-05 relating to assessment year 2005-06and therefore, no addition could be made for the assessment year 1n question1.e. 2006-07. It may be noticed that as the assessee itself had claimed capitalgains in the return filed for the assessment year 2006-07 on the basis of thesale deed dated 10.5.2005, it would not be open for the assessee to nowchallenge its assessability in the assessment year 2006-07 by contendingthat it was taxable in the assessment year 2005-06 on the basis ofretrospective amendment by incorporating Explanation 2 to Section 2(47)by Finance Act, 2012 which is made effective from 1.4.1962. Learnedcounsel for the assessee-appellant was unable to substantiate that on thebasis of sale deed dated 10.5.2005, the capital gains could not be taxed in ITA No.62 of 201 ITA No.62 of 201 the assessment year 2006-07 and equally had failed to demonstrate that theprovisions of section 50C of the Act were not applicable particularly whenthe AVQO_ had assessed the fair market value at=a18,16,250/-. The assesseeitself having chosen to discharge capital gain tax liability in the assessmentyear 2006-07 cannot now rely upon Explanation 2 to Section 2(47) insertedretrospectively from 1.4.1962,14)Learned counsel for the appellant has not been able to showany illegality or perversity in the findings recorded by the authorities belowwatranting interference by this Court. Learned counsel for the appellant-assessee relied upon judgments inCIT ys. India Discount Co. Limited,(1970) 75 ITR I91- andNavin Jindal and others vs. AssistantCommissioner ofIncome Tax,(2010) 320 ITR 708. In.India Discount Co.Limited'scase (supra), 1t was held that arrears of dividend received bydealer of shares after the purchase of shares alongwith such arrears is ofcapital nature and the same cannot be assessed to tax under section 10 orsection 12 of the Income Tax Act, 1922. It was further held that a receiptwhich in law cannot be regarded as income cannot become so merelybecause the assessee erroneously credited it to the profit and loss account.In|Navin Jindal'scase (supra), it was held that right to subscribe foradditional offer of shares/debentures on rights basis comes into existencewhen the company decides to come out with the rights offer and therefore,in order to determine the nature of the capital gains/loss on renunciation ofright to subscribe for additional shares/debentures, the crucial date is thedate on which such right to subscribe for additional shares/debentures|comes into existence and the date of transfer 1.e. renunciation of such right. ITA No.62 of 201 The said judgments being based on individual fact situation involvedtherein do not come to the rescue of the appellant. Consequently, thesubstantial question of law 1s answered against the assessee. The appealstands dismissed. (Ajay Kumar Mittal)Judge| January 14, 2016?- ? (Raj Rahul Garg)Judge