TMI Blog2008 (11) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... ircle rates are announced for the purposes of determining payment of stamp duty in respect of registration of sale deed. Then the stamp valuation authority adopts such declared rates. Second situation is where DM circle rates are not declared then stamp valuation authorities carry out an assessment as to what should be the market value of the land/building for the purposes of levying stamp duty. Thus, he word 'adopted' used in the s. 50C covers the situation where DM circle rates are already announced and which are picked up for ascertaining stamp duty and the word 'assessed' is used to cover a situation where such circle rates are not announced and actual assessment of market value for levying stamp duty is carried out. As the crux of invoking s. 50C is actual registration of transfer under Registration Act, the adoption or assessment of value for the purpose of levying stamp duty would arise only thereafter. As a result, we hold that AO was not justified in invoking the provisions of s. 50C, therefore, the value at which capital asset is transferred to the firm as recorded by it in its books would only be the full value of the consideration for the purpose of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpired on 31st March, 1990. However, the assessee continued to be in possession of the land. In pursuant to State Government's notification, land measuring 3,64,937 sq. ft. in possession of the assessee was converted into freehold land with payment of freehold charges of Rs. 8,94,94,944, in addition to stamp duty charges of Rs. 1,02,36,000. Subsequently, freehold charges were revised to Rs. 10,23,59,924.30. Thus, total payment including stamp duty charges amounting to Rs. 11,11,89,03,440 was paid by the assessee and was recorded in the books under the head 'Land'. The registration of freehold land was made on 31st March, 2002, in assessee's favour. 6. Out of the land in possession of the assessee company, land measuring 10,000 sq. ft. was sold to M/s Sahara India Commercial Corporation Ltd. on 30th Nov., 2003 for a sum of Rs. 1,23,94,000 on which long-term capital gains of Rs. 60,74,821 was offered by the assessee. For calculating capital gains assessee adopted cost of acquisition being fair market value as on 1st April, 1981. The Revenue has disputed the same and has adopted nil value as cost of acquisition on the ground that assessee had shown nil value in the books. 7. Regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial Corporation Ltd. which has been empowered to introduce new partners, assessee does not have any right over the goodwill of the firm, assessee cannot make any change in the composition of board which has controlling interest in its 3hare capital, disputes shall be resolved only by Shri Subrat Roy Sahara etc. Thus, it clearly indicated that transfer of land to the firm is only a sale and therefore, provisions of s. 50C would be applicable. The AO referred to the provisions of ss. 45(3) and 50C together and held that s. 50C would be applicable even in a situation covered by s. 45(3) which provided that when an asset is transferred to a firm in which assessee becomes a partner then the amount recorded in the books of the firm shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. According to the AO, s. 50C works as a proviso not only to sub-so (1) to s. 45 but also to sub-s. (3) to s. 45. Therefore, provisions of s. 50C would be applicable to the cases covered by s. 45(3) also. The AO further observed that s. 45(3) was introduced to charge capital gains in the cases where assessee intends to go scot-free from capital gains t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for valuation purposes. She endorsed the view of the AO that s. 50C nowhere mentions that registration of the transfer deed is necessary when value of assets by stamp valuation authority is to be adopted. Further, the value adopted by the assessee for transferring the land to the firm is not at ALP but collusive one. The assessee has surrendered its interest only for a pretence and in return, received only 5 per cent interest without any controlling rights in the firm. She referred to s. 2(47) of the Act and s. 53A of the Transfer of Property Act to emphasize the point that the transfer made by the assessee to the partnership firm is a deemed transaction, therefore, not only the provisions of s. 45(3) but also s. 50C would be applicable. She referred to the decision of Hon'ble Supreme Court in the case of Commonwealth Trust Ltd. vs. CIT (1997) 142 CTR (SC) 214 : (1997) 228 ITR 1 (SC), South India Corporation (P) Ltd. vs. Secretary, Board of Revenue 15 STC 74 (SC) and also CIT vs. Oil and Natural Gas Commission (2002) 172 CTR (Raj) 297 : (2002) 255 ITR 413 (Raj), to emphasize that non obstante clause in s. 50C would make it clear that this section would be applied notwithstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jodhpur Bench SMC in the case of Navneet Kumar Thakkar vs. ITO (2007) 112 TTJ (Jd) 76 : (2008) 110 ITD 525 (Jd), for the proposition that unless property is transferred through a registered sale deed and stamp duty has been paid by the parties, s. 50C cannot be put to operation. 14. The learned Authorised Representative further submitted that s. 45(3) is creating a deeming fiction and capital gain is charged as a result of this fiction. The asset is still in the name of the partner and it is only through book entries assessee has made capital contribution therefore, by deeming fiction created by s. 45(3), consideration recorded by the firm into its books would be the sale consideration for the purposes of computing capital gains. No other figure can be substituted in its place. Thus, according to him, in a situation like this, provisions of s. 50C cannot be invoked and even if there is apparently a lower value recorded for transfer of the asset to the firm, the alleged fair market value as could have been adopted by stamp valuation authority cannot be substituted in place of consideration recorded by the firm in its books. Further, s. 45(3) is to be invoked then it is only the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed circle rates which are only required to be adopted for the purposes of working out sale consideration and hence, capital gains. There is no provision in the law not to invoke s, 50C where s. 45(3) is invoked. He strongly supported the order of the learned CIT(A) and AO by emphasizing that assessee has clearly understated the sale consideration for effecting capital gains which needed to be correctly charged by adopting fair market value. On enquiry from the Bench it was clarified that the land in question has not been referred to DVO for working out fair market value of the land so transferred by the assessee to the firm. 16. We have considered the rival submissions and perused the material on record. In our considered view, the stand of the Revenue cannot be sustained. For the purposes of applying s. 50C, the conditions required are mentioned in that section itself. For the sake of convenience, we reproduce s. 50C as under: "50C. Special provision for full value of consideration in certain cases-(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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or are not legally required to be registered under Registration Act, s. 50C cannot be put into operation. 19. Sec. 45(3) is a deeming fiction and it treats a particular type of transaction as transfer and the capital gains is directed to be charged by treating book entry in the books of the firm as sale consideration, being the value of the asset transferred from individual partner to the firm without getting it registered under Registration Act. For the sake of convenience, we reproduce s. 45(3) as under: "(3) The profits or gains arising from the transfer of a capital asset by a person to a firm or other AOP or BOI (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of s. 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset." 20. It clearly creates a fiction by deeming the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empowered to take a different figure as full value of consideration other than what the firm has recorded in the books. It is immaterial as to whether the value so recorded by the firm in its books by crediting the capital bringing partner is less than the fair market value of the capital asset which was contributed to the firm. 22. The argument of the learned Authorised Representative is that once a legal fiction is invoked then this cannot be put at naught by invoking another legal fiction by adopting different value of consideration on the pretext that recorded value of transfer is less than the fair market value. Adoption of fair market value in place of recorded consideration depends upon specific power, if any, given to the AO to do so. Law only directs the AO to adopt recorded value as sale consideration then he has no option but only to adopt that value and no more. 23. The learned Departmental Representative, on the other hand contended that AO has been given power under s. 55A and under s. 50C to adopt a different value of consideration other than what is recorded and they do not come in conflict with s. 45(3). 24. We are of the considered view that s. 45(3), s. 50C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that under s. 50C the word used is 'adopted' the AO has only adopted the DM circle rates for working out capital gains to the transfer in place of consideration recorded by the firm in its books. 27. In our considered view, the argument of the learned Departmental Representative is not legally sound. The words used 'adopted or assessed' in s. 50C refer to two different situations. One is where for certain area, DM circle rates are announced for the purposes of determining payment of stamp duty in respect of registration of sale deed. Then the stamp valuation authority adopts such declared rates. Second situation is where DM circle rates are not declared then stamp valuation authorities carry out an assessment as to what should be the market value of the land/building for the purposes of levying stamp duty. Thus the word 'adopted' used in the s. 50C covers the situation where DM circle rates are already announced and which are picked up for ascertaining stamp duty and the word 'assessed' is used to cover a situation where such circle rates are not announced and actual assessment of market value for levying stamp duty is carried out. As the crux of invoking s. 50C is actual regi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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