Commissioner Of Income-Tax-Ii, Agra v. Shimbhu Mehra

Tarun Agarwala, J.

1. The present appeals relate to the assessment years 2003-04 and 2004-05. All the appeals involve the same question of law and are being disposed of by a common order. All the appellants are co-owners of a land situate at khasra no. 634 at village Artoni, Mathura Road, Agra. The land was mortgaged with State Bank of India, Agra, for the loan taken by the firm M/s Mehra Off Set Press in which the assessees were partners. On account of the non-payment of the outstanding dues, the Bank filed a civil suit for recovery of the amount and pendente lite interest. The suit was subsequently transferred to the Debt Recovery Tribunal. During the pendency of the proceedings, One Time Settlement was arrived at, on the basis of which, the assessees negotiated and entered into an agreement on 04.07.2001 with subsequent purchaser to sell the land at Rs. 34,71,750/- per hectare. In furtherance of the said agreement, the assessees received part consideration through which the liabilities of the State Bank of India were cleared and upon receiving the payment the Bank lifted the encumbrances and released the mortgaged property on 21.11.2001. The sale deed was eventually executed in April, 2003.

2. All the assessees filed their separate return, which was processed under under Section 143(1) of the Act. In the return, the assessees showed the income received from salary, income from other sources and long term capital gains. Subsequently, the assessees received a notice under Section 148 of the Act to show cause as to why the assessment should not be reopened and why capital gains should not be assessed as per provisions of Section 50C of the Act. The Assessing Officer reopened the proceedings and reassessed the income computing the long term capital gains on the basis of Section 50C of the Act taking the value assessed by the local authority.

3. The assessees, being aggrieved, filed separate appeals, which were allowed by the Ist appellate authority holding that capital gains was not taxable for the assessment year under appeal and the amount of capital gains assessed was deleted. The Ist appellate authority held that the provisions of Section 50C was not applicable. The Department, being aggrieved, filed an appeal before the Tribunal, which was dismissed. Consequently, the present appeals have been filed by the Department under Section 260(A) of the Act, which were admitted on the following substantial question of law:—

"Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is legally justified in confirming the findings of the learned CIT (A) holding that the agreement to sell the land under consideration was made on 04.07.2001, prior to insertion of section 50c of i.t.act,1961 ignoring the fact that the sale deed was executed in April, 2003, the sale consideration agreed upon was paid in April, 2003 and the possession of the land was handed over to the transferee after execution of Sale Deed?"

4. We have heard S.D.Singh, the learned Senior Counsel assisted by Sri Aditya Pandey, the learned counsel for the assessee and Sri Krishna Agrawal, the learned counsel for the Department.

5. Effectively, the issue which is to be considered is whether the provisions of Section 50C of the Act is applicable in the case of the assessees' or not.

6. Section 50C of the Act was inserted w.e.f. 01.04.2003. For facility, the said provision is extracted hereunder:—

"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 [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.

(2) Without prejudice to the provisions of sub-section (1), where—

(a) the assessee claims before any Assessing Officer that the value adopted or assessed [or assessable] by the stamp valuation authority under sub- section (1) exceeds the fair market value of the property as on the date of transfer;

(b) the value so adopted or assessed [or assessable] by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16a of that act.

[Explanation 1].—For the purposes of this section, "Valuation Officer" shall have the same meaning as in clause (r) of section 2 of the Wealth-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 would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes 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 [or assessable] by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer."

7. The said provision contemplates that where the consideration received or accrued as a result of transfer of land is less than the value adopted or assessed by any authority of the State for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed is, for the purpose of Section 48 of the Act be taken to be the full value of the consideration received or accrued as a result of such transfer.

8. The Assessing Authority was of the view that since the sale deed was executed in April, 2003, the provision of Section 50C of the Act, which came into effect from 01.04.2003 would be applicable. The Ist Appellate Authority held that the provision of Section 50C of the Act comes into play on the date when the property was transferred. The Ist Appellate Authority found that the transfer took place on 01.07.2001 and, therefore, the provision of Section 50C of the Act, which came into effect from 01.04.2003 was not applicable. The reasoning adopted by the Ist Appellate Authority is as under :—

"I have gone through the matter and looked into the provisions of section 50C. The provisions of sections 50C also refer to the date when the asset is transferred. In the light of discussions in above paras it is clear that the transfer of the property took place on the date of the agreement dated 4th July, 2001. The provisions of section 50C were inserted by Finance Act, 2002 w.e.f. 1-4-2003 and were not in existence on the date of the agreement. Therefore the provisions of section 50C are not applicable to the cases of the appellants and therefore, grounds no.6 and 8 are allowed."

9. The Tribunal for a different reason, confirmed the order of the Ist Appellate Authority.

10. Having heard the learned counsel for the parties, we find that Section 45 of the Act provides that any profit or gains arising from a transfer of capital asset would be chargeable to income tax under the head capital gains and shall be deemed to be the income of the previous year in which the transfer takes place. When would the transfer takes place has not been specified under Section 45 of the Act or under Section 50C of the Act for the purpose of computing the income chargeable under the head capital gains under Section 48 of the Act. According to the Assessing Officer, the transfer took place in April, 2003 when the sale deed was executed. According to the Ist Appellate Authority, the transfer takes place when the agreement of sale was executed on 04.07.2001.

11. Transfer has been defined under Section 2(47) of the Act, which is extracted hereunder :—

'"transfer", in relation to a capital asset, includes,—

(i) the sale, exchange or relinquishment of the asset ; or

(ii) the extinguishment of any rights therein ; or

(iii) the compulsory acquisition thereof under any law ; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or

(iva) the maturity or redemption of a zero coupon bond;or

(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or

(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Explanation 1.—For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA.

Explanation 2.- For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;'

12. Sub-clause (ii) of Section 2(47) of the Act states that the transfer, in relation to a capital asset, includes the extinguishment of any rights therein. In Sanjeev Lal v. CIT [2014] 365 ITR 389/225 Taxman 239/46 taxmann.com 300 (SC), the Supreme Court considered the question as to whether the date on which the agreement for sale was executed could be considered the date on which the property was transferred. The Supreme Court held that when an agreement to sell in respect of immovable property is executed, a right in personam is created in favour of the vendee and when such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee gets a legitimate right to enforce a specific performance of the agreement. The Supreme Court, while considering the provisions of Section 2 (47) (ii) of the Act held that if a right in respect of any capital asset is extinguished and that right is transferred to someone else, it would amount to transfer of a capital asset. The Supreme Court held that once an agreement to sell is executed in favour of some person, the said person gets a right to get the property transferred in his favour and, consequently, some right of the vendor is extinguished.

13. Explanation 2 to Section 2(47) of the Act was added by Finance Act, 2012 with retrospective effect on 1.4.1962 and, consequently, the said provision would be applicable. The said explanation clearly provides that transfer of an asset includes disposing of or parting with an asset by way of an agreement.

14. In the light of the aforesaid provision, it is apparently clear that the moment an agreement to sell is executed between the parties and part consideration is received, the transfer for the purpose of Section 50C of the Act takes places and computation under Section 48 of the Act will start accordingly, for the purpose of calculating the capital gains under Section 45 of the Act. From the aforesaid, it is apparently clear that the transfer of the property took place in the year 2001 when the provision of Section 50C of the Act was not in existence. Consequently, the Assessing Officer was not justified in making the reassessment and computing the capital gains by invoking the provision of Section 50C of the Act, which was clearly not applicable in the assessees' case.

15. Consequently, for the reasons stated aforesaid, the appeals fail and are dismissed. The question of law is answered in favour of the assessees and against the Department.