TMI Blog2010 (7) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... e result, the appeal of the assessee is dismissed - IT Appeal No. 587 (Bang.) of 2009 - - - Dated:- 16-7-2010 - GEORGE GEORGE K., A. MOHAN ALANKAMONY, JJ. V. Srinivasan for the Appellant. Smt. V.S. Sreelekha for the Respondent. ORDER Per Shri A. Mohan Alankamony, Accountant Member. This appeal of the assessee is directed against the order of the Ld. CIT (A), Hubli in ITA No. 61/CIT(A) HBL/08-09, dated 16-2-2009 for the assessment year 2005-06. 2. The assessee has raised five grounds in his appeal. The first ground being general and no specific issue involved, it becomes non-consequential. In the remaining grounds, the cruxes of the issues raised are reformulated as under: (1) the CIT(A) was not justified in upholding the LTCG of Rs. 14.06 lakhs as worked out by the Assessing Officer on sale of property; - he had failed to appreciate that the entire CG arising from transfer of property qualify for exemption under section 54F(1)(a) of the Act; - without prejudice, the CIT(A) was not justified in confirming the adoption of Rs. 36 lakhs as sale consideration in terms of section 50C of the Act as the assessee was in receipt of Rs. 20 lakhs on the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the income chargeable to tax had escaped assessment within the meaning of section 147, a notice under section 148 was served on the assessee. In compliance, the assessee vide his communication requested that the return of income already furnished be treated as in response to notice under section 148 of the Act. 4.2 It was contented, briefly, by the assessee that The sale consideration of the site situated at Bangalore was only for Rs. 20,00,000 and the entire sale proceeds was utilized for construction of the house at Gangavathi and, hence, the entire sale consideration was eligible for deduction under section 54C of the Act. The assessee, a senior citizen and being a freedom fighter receives freedom fighter s pension and, there was no other taxable income and, hence, no return of income was furnished. The cost of construction was estimated at Rs. 24 lakhs as per valuation report and the difference of Rs. 4 lakhs utilized for construction was from the agricultural income and past savings of pension. 4.3 After giving due weight-age to the assessee s contention with regard to the applicability of section 50C for calculating exemption under section 54F of the Act, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot disputed. Whereas the only objection of the AR is that a notional amount of sale proceeds cannot be applied when the actual amount as per the sale deed is declared by the appellant. The provisions of section 50C are incorporated by the Finance Act 2002 with effect from 1-4-2003. The intention of the Legislature was to bring to tax the transactions over and above the recorded transactions and to keep the infirmity the concerned Registration Authorities have introduced certain fixed value area-wise and city-wise after the proper survey of the real value which is generally not shown in the real estate transactions. Therefore, after well decided consideration both the Registration Authorities as well as the provisions of section 50C are going to indicate that the real sale proceeds are not declared. Hence, these over-riding provisions are introduced. The Apex Court while deciding the issue of levy of concealment penalty in the case of Dharmendra Textiles has taken enough care in respect of interpretation of Legislative Statutes cannot be interpreted in a way other than what is intended by Legislative body, right or wrong. In this situation, the provisions are introduced after a well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EV, 54F, 54G and 54H 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 took place. - As can be seen from the aforesaid charging section any profits or gains arising from the transfer of the capital asset is chargeable to capital gains and the capital gains shall be deemed to be the income of the previous year in which the transfer took place. However, by virtue of the use of the expression save as otherwise provided after the comma in section 45(1), the said charging section is made, subject to the provisions of sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H of the Act that follow the expression save as otherwise provided in. It means that the first limb of section 45(1) of the Act ending with the word shall should yield to the following limb in which, the above stated provisions are mentioned. In other words, in situations to which the aforesaid sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H of the Act are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 48 of the Act by the amount taken by the Sub-Registrar for registration purposes. Thus, this fiction under section 50C of the Act is extended only the second aspect of computation of capital gains and the same does not extent of the charging section or the exceptions to the charging section. It is well settled that the fiction created by the Legislature has to be strictly construed and applied only for the particular purpose for which the fiction has been created. It is impermissible to extend the operation of the fiction to situations or circumstances for which, the said fiction has not been extended. This is because, the Legislature is fully aware of the meaning of the term full value of consideration , which is employed in several sections. The Legislature consciously intended to apply the fiction under section 50C of the Act only to the expression used in section 48 of the Act and not in any other place. This is because, the Legislature would have used the expression, for the purpose of this chapter instead of for the purpose of section 48 in the provisions of section 50C of the Act, if it intended to apply the fiction to the exemption provisions as well. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeability itself; - After giving illustration of the application of section 54F in a case where the provisions of section 50C are attracted, the contention was that the aforesaid construction placed on the provisions of section 54F would be only construction that would be effectuate the object behind the enactment of the provisions of section 54F and make the same workable. The scope and effect of section 54F has been explained in the Board s Circular No. 346, dated 30-6-1982 [138 ITR (St.) 24] and in Circular No. 794, dated 9-8-2000 [245 ITR (St.) 21] the extension of the scope of section 54F was explained. A conjoined reading of the aforesaid two circulars brings out the intention of the Legislature to treat the capital gains on the sale of long term assets in a concessional manner with the object of encouraging house construction; - The provisions of section 54F(1)(a) will become unworkable, if the construction placed thereon, would require the consideration as per section 50C to be taken to work out the amount of exemption of the capital gains. This would mean and require the assessee to invest the entire deemed consideration under section 50C of the Act to avail the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he extent of available funds, having regard to the rationale behind the use of the said expression. Thus, where any assessee complies with the requirements of section 54F(1)(a) having regard to the plain language employed therein, he cannot be denied the benefit of exemption by referring to the provisions of section 50C which is applicable for computation and which is a step removed from the levy. In cases where the provisions of section 54F(1)(b) are attracted, the proportionate exemption of capital gain is available. In either case, the extent of exemption is based upon the fulfilment of the criteria mentioned under section 54F of the Act only. (ix) when the provisions of section 54F and section 50C are to be construed, it has to be so construed in a manner that effectuate and advances of the object of section 54F of the Act entirely and not in a manner to defeat or render inoperable any of the said provisions. This is because the provisions of section 54F are incentive provisions and, therefore, any construction that seeks to restrict the benefit given by virtue of section 54F of the Act cannot be adopted as the provisions of section 50C have not been enacted to explain and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he full value of the consideration, and capital gains shall be computed accordingly under section 48 of the Income-tax Act. 8. We have duly considered the rival submissions, diligently perused the relevant records and also the case laws on which the either party had placed their respective reliance. 8.1 On examining the ground raised by the assessee for award of cost in prosecuting the appeal and to refund of institution fees, we do not find any merit since the issue involved is complex. Therefore this ground is dismissed. 8.2 Before looking into the main issue, let us now address to the additional grounds raised by the assessee during the course of hearing. The assessee s grievance was that the impugned order of the Assessing Officer passed under section 143(3) read with section 147 of the Act was bad in law in as much as there was no income escaping assessment, considering the ROI filed by the assessee on 9-1-2007 (sic) 9-1-2008 and, therefore, the impugned order invoking the provisions of section 147 of the Act deserves to be cancelled and that [without prejudice] the order of the reassessment was bad in law and void ab initio for want of requisite jurisdiction, especially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... savings. He had pleaded before the Assessing Officer on the one hand that he did not have any source of income other than the freedom fighter s pension and on the other hand, when he had tried to explain the balance of Rs. 4 lakhs purported to have been invested in the house property at Gangavathi, a part of the amount from agricultural income. However, no documentary evidence is forth-coming to suggest that the assessee owns agricultural lands. 8.8 Reverting back to the main theme, the assessee asserts that he had received the sale consideration of only Rs. 20 lakhs. However, the Stamp Valuation Authority - an authority of the State Government, on the basis of Government Guideline rate, had adopted the value of the plot at Rs. 36,00,000 for the transfer of the said property. The assessee had, perhaps, inadvertently, admitted the very fact that the stamp duty value of the plot sold was for Rs. 36,00,000, but, his affirmation that he received consideration of Rs. 20 lakhs only doesn t hold water. His other contention that he received DD for Rs. 20 lakhs as sale consideration cannot in any way come to his rescue for the simple reason that the person who obtained the DD for Rs. 20 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957) (3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.) As per section 50C of the Act [inserted by the Finance Act, 2002 with effect from 1-4-2003] which makes abundantly clear that where the consideration received or accruing as a result of the transfer by an assessee of a capital asset is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer. Thus, the value so adopted [Rs. 36,00,000] for the purposes of section 48, be deemed to be the full value of consideration received as a result of such transfer. 8.11 Now, let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave as otherwise provided in sections 54,54B,54D, [ 54EA, 54EB, ] 54F [54G and 54H] of the Act; and (3) be chargeable to Income-tax under the head Capital Gains and shall be deemed to be the income of the previous year in which such transfer took place. The first limb of the section pinpoints at the profits or gains arising from the transfer of a capital asset effected during the previous year. The second limb of the section provides for the amount to be excluded from the profits or gains referred in the first limb of the section. The ratio of the case mentioned supra by the ld. AR in V.V. George s case (supra) had also made it clear that the second limb of section 45(1) is in the nature of exemption. Therefore, it is obvious that one has to compute the profits or gains as per the provisions of the Act and thereafter compute the exemption as provided under the relevant exemption sections and exclude the same from the profits and gains so computed. Needless to mention that, the computation of the capital gain has to be in accordance with section 48 of the Act and computation of exemptions in accordance with the relevant exemption sections of the Act i.e., sections, 54,54B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. On this submission of the Ld.AR, we would like to clarify that, by virtue of section 45(1), a charge is created for levy of tax on the profit or gains arising out of the transfer of capital asset effected during the previous year coupled with certain exemptions. The exemption sections 54, 54B, 54D, [54EA, 54EB,] 54F [54G and 54H], are self contained sections which also includes the method of computation of the exemption. The manner in which the profits or gains arising out of the transfer of the capital asset are to be computed as mentioned in section 48 which goes without saying that the charge is on the profits or gains so computed. While computing the profits or gains as per section 48, the deeming provision imbedded in section 50C has to be given effect to. The charge is created on the enhanced profits or gains arrived at from the fiction of section 50C. This aspect was justified by the Hon ble. Finance minister in his budget speech that section 50C will curb the menace of unaccounted income in the property transactions by presuming the sale consideration to be the value of the guide line value for registration in case it is stated lower than that. 8.16 With respect to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of section 54F of the Act and section 45(1) of the Act along with computational provisions of section 48 read with section 50C of the Act can only be achieved if the provisions of section 54F are given its natural and literal meaning and not a strained meaning by subjecting it to the provisions of section 50C of the Act. 8.17 We do accept that section 54F of the Act is an exemption provision and a complete code in itself. Since it is a complete code in itself, the computation of eligible exemption has to be worked out within its framework as far as possible. Being an exemption provision, beneficial interpretation has to be given. However, in any interpretation, the maxim ut res magis valeat quan pareat should be kept in mind. The construction which would reduce the legislation to a futility should be avoided; and alternative that will introduce uncertainty, fiction or confusion into the working of the system should be rejected. An interpretation which leads to unworkable results and absurdity should be avoided. 8.18 Section 54F of the Act is reproduced herebelow for an analytical understanding: 54F. (1) Subject to the provisions of sub-section (4), where, in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above facts, it is apparent that as far as arriving at the exemption allowable under section 54F of the Act, one has to strictly follow the provisions of the section and compute the exemption accordingly without imposing any section creating a legal fiction into the section. The case law - CIT v. Ace Builders (P.) Ltd. [2006] 281 ITR 2103 (Bom.), on which the ld. AR has placed reliance also subscribes to the aforesaid view. It was held thus : that there was nothing in section 50 to suggest that the fiction created in section 50 is not only applicable to sections 48 and 49 but also applies to other provisions. On the contrary, this section makes it explicitly clear that the deeming fiction created in sub-sections (1) and (2) s restricted only to the mode of computation of capital gains contained in sections 48 and 49. The legal fiction is to deem the capital gain as short-term capital gain and not to deem the asset as short term capital asset. Section 50 did not convert a long term capital asset into a short term capital asset. Though section 50 was enacted with the object of denying multiple benefits to owners of depreciable assets, yet that restriction was limited to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and capital gains mentioned in section 54F(1)(a) (b) of the Act refers to the capital gains arising from the transfer of any long term capital asset worked out as mentioned in section 54F(1) of the Act read with section 48 and not worked out as mentioned in section 45(1) read with sections 48 and 50C of the Act. When this interpretation is adopted, every provisions of the Chapter will fall in line without producing any absurd result and thereby giving a fruitful purpose for the enactments. Alternatively, as canvassed by the learned AR, if the term capital gain in section 54F is arrived at by imposing section 50C of the Act, then the intention for introducing section 50C of the Act would be defeated, because whatever may be the capital gain arrived at by imposing section 50C of the Act would be exempt, if the net consideration, however meagre it may be, is invested in the new asset. 8.22 To make the concept clear, we here below demonstrate with an illustration modifying the illustration submitted by the ld. AR. Sl. No. Particulars Amount Rs. ( a ) Saleconsideration actually received 1,00,000 ( b ) Guideli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore the allowable deduction shall be restricted to Rs. 60,000 even though the assessee has invested the entire sale consideration of Rs. 1,00,000 which is more than the net consideration. Situation II: (When the assessee has invested Rs. 90,000) In this situation the assessee has invested the entire net consideration of Rs. 90,000 as worked out in para 8.22(3). However the maximum deduction possible under section 54F will be Rs. 60,000 because the capital gain recognised under section 54F of the Act is only Rs. 60,000 as worked out in para 8.22(1). Situation III: (when the assessee has invested Rs. 50,000) In this hypothesis the assessee has invested only Rs. 50,000 which is below the net consideration. Therefore the assessee can claim exemption, so much of the capital gain as it bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration. In other words where part of the net consideration is invested on the new asset, exemption can be availed proportionately. The proportionate exemption will be that amount which bears the same proportion which amount invested in the new asset bears to the net consideration of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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