Jagdish C. Dhabaliaan Individual Residing Atground Floor, Bhavsar Compoundm.g. Road, Borivali (W),Mumbai – 400 066 v. The Income Tax Officer, 25(2)(1)Having His Office Atpratyakshakar Bhavan,Bandra Kurla Complex, Bandra (E),Mumbai – 400 051

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.981 OF 2016 Jagdish C. DhabaliaAn Individual residing atGround Floor, Bhavsar CompoundM.G. Road, Borivali (W),Mumbai – 400 066. .... Appellant versus The Income Tax Officer, 25(2)(1)Having his office atPratyakshakar Bhavan,Bandra Kurla Complex, Bandra (E),Mumbai – 400 051.... Respondent WITH INCOME TAX APPEAL NO.983 OF 2016 Mehul Jagdish DhabaliaAn Individual residing at501/502 Alaknanda, B-WingTPS, III 51[st] Road Borivali (W)Mumbai – 400 092..... Appellant versus The Income Tax Officer, 25(2)(2)Having his office atPratyakshakar Bhavan,Bandra Kurla Complex, Bandra (E),Mumbai – 400 051.... Respondent….... Mr.V.Joshi a/w Mr.Nishith Gandhi, Ms.Namrata Kasa,e Mr.V.Joshi a/w Mr.Nishith Gandhi, Ms.Namrata Kasa,e Mr.Mayur Patel & Ms.Urvi Patel i/b. M.M. Patel & Co., Advocate for Appellants.Advocate for Appellants. Mr.Arvind Pinto, Advocate for Respondent.Mr.Arvind Pinto, Advocate for Respondent. CORAM : AKIL KURESHI &SARANG V. KOTWAL, JJ.DATE: 12[th] MARCH, 2019. ORAL JUDGMENT -: (PER : AKIL KURESHI, J.) 1. These Appeals arise out of common background. Theyhave been heard together and would be dispose of by thiscommon order. We may record facts from Income Tax AppealNo.983/16. The Appeal is filed by individual assessee tochallenge the Judgment of Income Tax Appellate Tribunal ('Tribunal'for short). Following question is presented for our consideration; “Whether, in the facts and circumstances of thecase, and in law, the Tribunal was right, whilereversing the order of CIT in confirming the actionof the assessing officer in taxing capital gain, to theextent of the enhanced and notional saleconsideration under section 50 C of the Act, inspiteof the fact that the Appellant had invested theentire sale consideration accruing on transfer of theimmovable property in the prescribed bonds interms of section 54 EC of the Act?” 3 / 17 01-ITXA-981-16.odt 2. The assessee was a joint owner of a plot of landsituated at Borivali, Mumbai, having 25% undivided share in theplot. The assessee and other co-owners transferred the plot infavour of purchaser under a sale deed dated 29/09/2007pursuant to which the assessee received a sum of Rs.25 lakhs byway of sale consideration. The assessee invested entire amountof Rs.25 lakhs in the bond of 'Rural Electrification CorporationLtd.' as specified under section 54 EC of the Income Tax Act,1961 ('the Act' for short). In the return of income filed for theyear 2008-2009 the assessee had declared the long term capitalgain on transfer of land at Rs.21,19,344/- and claimed fullexemption of such capital gain, under section 54 EC of the Act.plot. The assessee and other co-owners transferred the plot infavour of purchaser under a sale deed dated 29/09/2007pursuant to which the assessee received a sum of Rs.25 lakhs byway of sale consideration. The assessee invested entire amountof Rs.25 lakhs in the bond of 'Rural Electrification CorporationLtd.' as specified under section 54 EC of the Income Tax Act,1961 ('the Act' for short). In the return of income filed for theyear 2008-2009 the assessee had declared the long term capitalgain on transfer of land at Rs.21,19,344/- and claimed fullexemption of such capital gain, under section 54 EC of the Act. 3. The Stamp Duty Authorities however had valued theland for the purpose of levying stamp duty at Rs.3,04,70,810/-.The Assesse's share of such stamp valuation of the property at25% comes to Rs.76,17,702/-.land for the purpose of levying stamp duty at Rs.3,04,70,810/-.The Assesse's share of such stamp valuation of the property at25% comes to Rs.76,17,702/-. 4. During the course of scrutiny of assessee's return, theAssessing Officer determined the long term capital gain ofAssessing Officer determined the long term capital gain of 3. The Stamp Duty Authorities however had valued theland for the purpose of levying stamp duty at Rs.3,04,70,810/-.The Assesse's share of such stamp valuation of the property at25% comes to Rs.76,17,702/-.land for the purpose of levying stamp duty at Rs.3,04,70,810/-.The Assesse's share of such stamp valuation of the property at25% comes to Rs.76,17,702/-. 4. During the course of scrutiny of assessee's return, theAssessing Officer determined the long term capital gain ofAssessing Officer determined the long term capital gain of 4 / 17 01-ITXA-981-16.odtRs.49,47,344/- and accordingly passed the order of assessmenton 29/12/2010. 5. The assessee filed Appeal against the order ofAssessment, before CIT (Appeals). The Assessee contended thatsince the entire sale consideration of Rs.25 lakhs was invested inthe specified bond, the assessee must get full exemption fromcapital gain, irrespective of the computation of the deemed saleconsideration under section 50C of the Act. CIT Appeals allowedthe assessee's Appeal, upon which the revenue filed Appealbefore the Tribunal. The Tribunal by the impugned judgmentallowed the revenue's Appeal. The tribunal was of the opinionthat for the purpose of exemption under section 54EC of the Act,deeming fiction contained in section 50C of the Act cannot beignored. The assessee could claim exemption only in relation tothe investment made in the specified bond and not qua theentire capital gain. 6. Learned Counsel for the Appellant raised followingcontentions; 5 / 17 01-ITXA-981-16.odt (i)Taking through the provisions contained inChapter IV of the Act it was contended that thedeeming fiction contained in section 50C of theAct, would have no applicability while computingthe exemption as provided in section 54EC of theAct. He contended that section 45 which is acharging provision, is made subject to variousexemption provisions, including (though not sostated in the section) section 54EC of the Act.Chapter IV of the Act it was contended that thedeeming fiction contained in section 50C of theAct, would have no applicability while computingthe exemption as provided in section 54EC of theAct. He contended that section 45 which is acharging provision, is made subject to variousexemption provisions, including (though not sostated in the section) section 54EC of the Act. (ii)It was contended that section 50C of the Actcreates a deeming fiction for the purpose ofcomputation of capital gain under section 48 of theAct. Such fiction would have no applicability forthe purpose of charging capital gain as per section45 or for computing exemption under section 54ECof the Act. It was contended that the effect ofdeeming provision would be limited to the purposefor which the same has been enacted. In thiscontext, learned Counsel relied on the decision ofcreates a deeming fiction for the purpose ofcomputation of capital gain under section 48 of theAct. Such fiction would have no applicability forthe purpose of charging capital gain as per section45 or for computing exemption under section 54ECof the Act. It was contended that the effect ofdeeming provision would be limited to the purposefor which the same has been enacted. In thiscontext, learned Counsel relied on the decision of 6 / 17 01-ITXA-981-16.odt Supreme Court in the case of CIT Vs. Amarchand N. Shroff, reported in (1963) 48 ITR 59 (SC)and CIT Vs. Vadilal Lallubhai, reported in (1972) 86 ITR 2 (SC). (iii)Learned Counsel submitted that in the present case, the relevant provisions would require harmonious construction. The interpretationadopted by the revenue as accepted by the tribunaladopted by the revenue as accepted by the tribunal would lead to anomalous situation which shouldbe avoided.be avoided. (iv)It was further contended that the legislature would 6 / 17 01-ITXA-981-16.odt Supreme Court in the case of CIT Vs. Amarchand N. Shroff, reported in (1963) 48 ITR 59 (SC)and CIT Vs. Vadilal Lallubhai, reported in (1972) 86 ITR 2 (SC). (iii)Learned Counsel submitted that in the present case, the relevant provisions would require harmonious construction. The interpretationadopted by the revenue as accepted by the tribunaladopted by the revenue as accepted by the tribunal would lead to anomalous situation which shouldbe avoided.be avoided. (iv)It was further contended that the legislature would not expect a person to perform an impossible task.If the assessee had received total sale considerationof Rs.25 lakhs from transfer of the land, he couldnot be expected to invest any amount in accessthereto, for claiming full exemption under section54 EC of the Act.If the assessee had received total sale considerationof Rs.25 lakhs from transfer of the land, he couldnot be expected to invest any amount in accessthereto, for claiming full exemption under section54 EC of the Act. (v) Our attention was drawn to the decision ofSupreme Court in case of K.P. Verghese Vs.Supreme Court in case of K.P. Verghese Vs. Income Tax Officer, as reported in 131 ITR 597 (SC)in support of the proposition that to avoidabsurdity and incongruent consequences, the Courtwould adopt an interpretation not emerging fromthe plain language of a statute. 7. On the other had, the learned Counsel Mr.Arvind Pintofor the revenue contended that tribunal has correctly interpretedthe relevant statutory provisions. The interpretation advancedby the Assessee would effectively render the provisions ofsection 50C of the Act redundant. The exemption provisionshould be strictly construed. Assessee can claim exemption onlyin relation to investment made in the specified bond and notbeyond. 8. Having heard learned Counsel for the parties, to testthe correctness of the interpretation of the tribunal, we mayrefer to the relevant statutory provisions. Part E of the ChapterIV of the Act pertains to capital gains. Section 45 contained the 8 / 17 01-ITXA-981-16.odtsaid part is the charging provision for the capital gain arisingfrom transfer of a capital asset. Sub-section (1) of section 45provides that any profits or gains arising from the transfer of acapital asset effected in the previous year shall, save asotherwise provided in section 54, 54B, 54D, 54E, 54EA, 54EB,54F, 54G and 54H be chargeable to income tax under the head“Capital gains” and shall be deemed to be the income of theprevious year in which the transfer took place. Section 48 of theAct provides the mode of computation of capital gain. In termsof this provision, the income chargeable under the head “Capitalgains” would be computed by deducting from the full value ofconsideration received or accruing as a result of the transfer ofthe capital any amounts towards expenditure incurred whollyand exclusively with such transfer and the cost of acquisition ofthe asset and the cost of any improvement thereto. 9. Section 54EC of the Act pertains to capital gain not tobe charged on investment in certain bonds. Relevant portion ofthis section reads as thus ; 9 / 17 01-ITXA-981-16.odt 9. Section 54EC of the Act pertains to capital gain not tobe charged on investment in certain bonds. Relevant portion ofthis section reads as thus ; 9 / 17 01-ITXA-981-16.odt 54 EC. - (1) Where the capital gain arises from the transferof a long-term capital asset (the capital asset sotransferred being hereafter in this section referred toas the original asset) and the assessee has, at any timewithin a period of six months after the date of suchtransfer, invested the whole or any part of capitalgains in the long-term specified asset, the capital gainshall be dealt with in accordance with the followingprovisions of this section, that is to say, -of a long-term capital asset (the capital asset sotransferred being hereafter in this section referred toas the original asset) and the assessee has, at any timewithin a period of six months after the date of suchtransfer, invested the whole or any part of capitalgains in the long-term specified asset, the capital gainshall be dealt with in accordance with the followingprovisions of this section, that is to say, - (a)if the cost of the long-term specified asset is notless than the capital gain arising from thetransfer of the original asset, the whole of suchcapital gain shall not be charged under section45;less than the capital gain arising from thetransfer of the original asset, the whole of suchcapital gain shall not be charged under section45; (b)if the cost of the long-term specified asset is lessthan the capital gain arising from the transfer ofthe original asset, so much of the capital gain asbears to the whole of the capital gain the sameproportion as the cost of acquisition of the long-term specified asset bears to the whole of thecapital gain, shall not be charged under section45.”than the capital gain arising from the transfer ofthe original asset, so much of the capital gain asbears to the whole of the capital gain the sameproportion as the cost of acquisition of the long-term specified asset bears to the whole of thecapital gain, shall not be charged under section45.” 10. Section 50C of the Act introduced by the legislatureunder Finance Act 2002 with effect from 01/04/2003, reads asunder ; 50 C. - (1) Where the consideration received or accruing asa result of the transfer by an assessee of a capitalasset, being land or building or both, is less than thevalue adopted or assessed by any authority of a StateGovernment (hereafter in this section referred to asthe “stamp valuation authority”) for the purpose ofpayment of stamp duty in respect of such transfer thevalue so adopted or assessed shall, for the purposes ofsection 48, be deemed to be the full value of theconsideration received or accruing as a result of suchtransfer.a result of the transfer by an assessee of a capitalasset, being land or building or both, is less than thevalue adopted or assessed by any authority of a StateGovernment (hereafter in this section referred to asthe “stamp valuation authority”) for the purpose ofpayment of stamp duty in respect of such transfer thevalue so adopted or assessed shall, for the purposes ofsection 48, be deemed to be the full value of theconsideration received or accruing as a result of suchtransfer. "Provided that where the date of the agreement fixing theamount of consideration and the date of registrationfor the transfer of the capital asset are not the same,the value adopted or assessed or assessable by thestamp valuation authority on the date of agreementmay be taken for the purposes of computing full valueof consideration for such transfer:amount of consideration and the date of registrationfor the transfer of the capital asset are not the same,the value adopted or assessed or assessable by thestamp valuation authority on the date of agreementmay be taken for the purposes of computing full valueof consideration for such transfer: "Provided that where the date of the agreement fixing theamount of consideration and the date of registrationfor the transfer of the capital asset are not the same,the value adopted or assessed or assessable by thestamp valuation authority on the date of agreementmay be taken for the purposes of computing full valueof consideration for such transfer:amount of consideration and the date of registrationfor the transfer of the capital asset are not the same,the value adopted or assessed or assessable by thestamp valuation authority on the date of agreementmay be taken for the purposes of computing full valueof consideration for such transfer: Provided further that the first proviso shall apply only ina case where the amount of consideration, or a partthereof, has been received by way of an account payeecheque or account payee bank draft or by use ofelectronic clearing system through a bank account, onor before the date of the agreement for transfer.". (2) Without prejudice to the provisions of sub-section (1),where—where— (a) the assessee claims before any Assessing Officerthat the value adopted or assessed [or assessable]by the stamp valuation authority under sub-section (1) exceeds the fair market value of theproperty as on the date of transfer;that the value adopted or assessed [or assessable]by the stamp valuation authority under sub-section (1) exceeds the fair market value of theproperty as on the date of transfer; (b) the value so adopted or assessed [or assessable] bythe stamp valuation authority under sub-section(1) has not been disputed in any appeal orrevision or no reference has been made before anyother authority, court or the High Court,the stamp valuation authority under sub-section(1) has not been disputed in any appeal orrevision 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 ismade, the provisions of sub-sections (2), (3), (4), (5) and(6) of section 16A, clause (i) of sub-section (1) and sub- 12 / 17 01-ITXA-981-16.odtsections (6) and (7) of section 23A, sub-section (5) ofsection 24, section 34AA, section 35 and section 37 of theWealth-tax Act, 1957 (27 of 1957), shall, with necessarymodifications, apply in relation to such reference as theyapply in relation to a reference made by the AssessingOfficer under sub-section (1) of section 16A of that Act. [Explanation 1] — For the purposes of this section, "Valuation Officer" shallhave the same meaning as in clause (r) of section 2 of theWealth-tax Act, 1957 (27 of 1957). [Explanation 2 ]— For the purposes of this section, the expression "assessable"means the price which the stamp valuation authority wouldhave, notwithstanding anything to the contrary containedin any other law for the time being in force, adopted orassessed, if it were referred to such authority for thepurposes of the payment of stamp duty.] (3) Subject to the provisions contained in sub-section (2),where the value ascertained under sub-section (2)exceeds the value adopted or assessed [or assessable]by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed [orwhere the value ascertained under sub-section (2)exceeds the value adopted or assessed [or assessable]by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed [or 13 / 17 01-ITXA-981-16.odtassessable] by such authority shall be taken as the fullvalue of the consideration received or accruing as aresult of the transfer.] (3) Subject to the provisions contained in sub-section (2),where the value ascertained under sub-section (2)exceeds the value adopted or assessed [or assessable]by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed [orwhere the value ascertained under sub-section (2)exceeds the value adopted or assessed [or assessable]by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed [or 13 / 17 01-ITXA-981-16.odtassessable] by such authority shall be taken as the fullvalue of the consideration received or accruing as aresult of the transfer.] 11. Combined reading of these provisions would show thatcapital gain upon transfer of a capital asset is to be charged asper section 45 of the Act and which shall be deemed to be theincome of the assessee for the previous year in which thetransfer took place. In terms of the provisions contained insection 48 the capital gain would be computed by deductingfrom the full value of consideration received or accruing as aresult of transfer, expenditure incurred wholly and exclusively inconnection with the transfer and the cost of acquisition of theasset and cost of improvement thereof. It is at the stage ofcomputation that section 50C of the Act kicks in. This provision,as can be seen, provides for a deeming fiction. Sub-section (1) ofsection 50C provides that where the consideration received oraccruing as a result of the transfer by an assessee of a capitalasset, being land or building or plot or both is less than thevalue adopted or assessed or assessable by stamp valuation 14 / 17 01-ITXA-981-16.odtauthority for the purpose of stamp duty collection in respect ofsuch transfer, the value so adopted, assessed or assessable shallfor the purpose of section 48 be deemed to be the full value ofconsideration for transfer received or accruing as a result of suchtransfer. In plain terms, the stamp valuation assessment by thestamp duty officer of the State Government would be deemed tobe the sale consideration of capital asset, replacing the declaredsale consideration, if it happens to be less than stamp dutyvaluation. For the purpose of charging capital gain in view ofsection 45, to be computed as provided in section 48, thisdeemed consideration would be applied. 12. We may refer to section 54EC which is an exemption ofprovision. Sub-Section (1) of section 54EC provides that wherethe capital gain arising from the transfer of a long-term capitalasset being land or plot or both and the assessee has, at any timewithin a period of six months after the date of such transfer,invested the whole or part of the capital gains in specified asset,the capital gain shall be dealt with in accordance with clause (a) 15 / 17 01-ITXA-981-16.odtand (b) of sub-section (1). As per clause (a) if the cost of thelong-term specified asset is not less than the capital gain arisingfrom the transfer of the original asset, the whole of such capitalgain shall not be charged under section 45. As per clause (b) ifthe cost of the long-term specified asset is less than the capitalgain arising from the transfer of the original asset, the Assesseewould receive proportionate exemption from payment of capitalgain. Further proviso of sub-section (1) of section 54EC limitsthe investment that an assessee can make in any specified assetto Rs.50 lakhs. In other words, therefore clauses (a) and (b) ofsub-section (1) of section 54EC would always have limit ofRs.50 lakhs specified in the further proviso for investment in thespecified asset. 13. We do not find any conflict or any incongruentconsequences of applying the provisions of section 50C for thepurpose of computation of capital gain tax after claimingexemption under section 54EC of the Act. The deeming fictionunder section 50C of the Act, must be given its full effect and 13. We do not find any conflict or any incongruentconsequences of applying the provisions of section 50C for thepurpose of computation of capital gain tax after claimingexemption under section 54EC of the Act. The deeming fictionunder section 50C of the Act, must be given its full effect and 16 / 17 01-ITXA-981-16.odtthe Court should not allow to boggle the mind while giving fulleffect to such fiction. We are not opposing the propositioncanvassed by the Counsel of the Assessee that deeming fictionmust be applied in relation to the situation for which it iscreated. However, while giving full effect to the deeming fictioncontained under section 50C of the Act for the purpose ofcomputation of the capital gain under section 48, for whichsection 50C is specifically enacted, the automatic fallout thereofwould be that the computation of the assessee’s capital gain andconsequently the computation of exemption under section 54EC,shall have to be worked out on the basis of substituted deemedsale consideration of transfer of capital asset in terms of section50C of the Act. 14. Any other interpretation, particularly one canvassed bythe learned Counsel for the Assessee, would render theprovisions of section 50C redundant. In a situation like the oneon hand, even if for the purpose of section 48, in terms ofsection 50C of the Act, the sale consideration deemed to havethe learned Counsel for the Assessee, would render theprovisions of section 50C redundant. In a situation like the oneon hand, even if for the purpose of section 48, in terms ofsection 50C of the Act, the sale consideration deemed to have 17 / 17 01-ITXA-981-16.odt been received by the Assessee may be much higher than onedeclared in the sale deed, the Assessee would claim no furthercapital gain tax liability by simply claiming to have madeinvestment in specified asset the full declared sale consideration. 15. Under such circumstances we do not find that theTribunal has committed error in interpreting the relevantstatutory provision. Income Tax Appeals are therefore dismissed. (SARANG V. KOTWAL, J.) (AKIL KURESHI, J.)