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TMI Blog2010 (7) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs as sale consideration in terms of section 50C of the Act as the assessee was in receipt of Rs. 20 lakhs on the sale of property and consequently the assessment of LTCG on Rs. 36 lakhs was unjustified; - without prejudice, the taxable of Long Term Capital Gain determined by the authorities below was highly excessive and liable to be reduced substantially; (2) the assessee denies himself liable to be charged to interest under sections 234A and 234B of the Act; and (3) the assessee may be awarded costs in prosecuting the appeal and also order for the refund of institution fees as part of the costs. 3. During the course of hearing, the Ld. A.R came up with a plea for admission of additional grounds of appeal, the gist of which is as under: "(i) 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 ROl filed by the assessee on 9-1-2007 and, therefore, the impugned order invoking the provisions of section 147 of the Act deserves to be cancelled; and - Without prejudice, the order of the reassessment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge to the assessee's contention with regard to the applicability of section 50C for calculating exemption under section 54F of the Act, the Assessing Officer, by extensively quoting section 50C which was inserted by the Finance Act, 2002 with effect from 1-4-2003 [special provision for full value of consideration in certain cases], had observed thus- "9 .......... the assessee has not disputed the value so adopted or assessed by the Stamp Valuation Authority in any court of law. The assessee in his reply accepts that entire capital gain claimed as exemption under section 54F and section 50C is applicable for adoption of net consideration for the purpose of section 48 i.e. while calculating gross taxable gain i.e., capital gain before calculating exemption under sections 54A, 54E C and 54F. 10. The assessee's request to consider Rs. 20,00,000 as sale consideration as against value of the property valued at Rs. 36,00,000 as per the Government guidelines value is not acceptable and section 50C is clear regarding the consideration received or accruing as a result of transfer of capital asset. I proceed to conclude the assessment as under adopting the value as adopted by the Valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in a way other than what is intended by Legislative body, right or wrong. In this situation, the provisions are introduced after a well thought scheme to curb or to reduce the transactions of real estate at a lower rate. In view of the same, the stamp duty registered value of Rs. 36 lakhs is a valid one though the Assessing Officer has not established the actual receipt of Rs. 36 lakhs and after reading the provisions of section 50C of the Act along with the decision of the Apex Court in the case of Dharmendra Textiles in respect of interpretation of Legislative Statutes, there is no need for the Assessing Officer to establish the receipt of Rs. 36 lakhs. This is over riding section and naturally it has to be interpreted from the importance of the provision being introduced. Therefore, the Assessing Officer has rightly adopted Rs. 36 lakhs at the sale proceeds to compute the capital gain tax in the case." 6. Agitated, the assessee has come up with the present appeal. The lengthy and elaborate arguments/submissions made by the Ld. AR during the course of hearing are summarized as under: "(i) During the year under dispute, the assessee had sold a site at Bangalore for Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove 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 attracted, the levy of tax under section 45(1) of the Act will be modified and subject to the aforesaid provisions. Thus, in order to determine the charge under section 45(1) of the Act and the taxable capital gain, necessarily, the provisions of sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H of the Act have to be applied and in that sense, both section 45(1) and section 54F are provisions that have to be applied simultaneously in the first place. - relies the case law in the case of V.V. George reported in 227 ITR 893 (Ker.) - thus, the levy of capital gain under the provisions of section 45(1) of the Act and the exceptions to the levy contained in the provisions of sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H of the Act have to be examined in order to determine the taxable capital gains; (iv) The provisions of section 48 relate to the process of computing the capital gain and they may be called the computational provisions. The process of computing the capital gains is the next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. In other words, the fiction contained in section 50C of the Act can be applied only for the purpose of computation of capital gains under section 48 of the Act and not beyond;. (vi) With regard to section 54F of the Act, the provisions of this section was inserted by the Legislature as an incentive provision to exempt the levy of capital gains for encouraging purchase of a new residential house; - the provisions of section 54F carves out an exception to the levy of capital gain under section 45(1) of the Act. The exception craved out results either in the exemption of the entire capital gain or in the exemption of only the partial capital gain. In other words, section 54F of the Act modifies the extent of capital gains chargeable under section 45(1) of the Act; - the provisions of section 54F contain a complete code in itself by which the extent of the modification to section 45(1) is specified. The conditions mentioned under section 45F and enquiry to be made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration 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 benefit of exemption in full. An assessee who does not have the resources beyond the net consideration cannot be expected to invest amounts that he never realized in order to come within the ambit of section 54F(1)(a). This is precise reason that the Legislature has consciously restricted the operation of the legal fiction under section 50C only for the purpose of section 48 and not for the entire Chapter IV-E relating to the taxation of capital gains. - When the provisions of section 54F have been enacted to give an incentive to the taxpayer and to encourage house construction, they have to be construed in a manner to effectuate the object and intention of Legislature. (vii) the provisions of section 50C were introduced by the Finance Act, 2002 with effect from 1-4-2003. the Board's Circular No. 8 of 2002, dated 27-8-2002 has explained the scope of section 50C, according to which, the deeming fiction under section 50C of the Act is restri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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 limit the benefits given under section 54 of the Act. Furthermore, the above construction placed on section 54F will not frustrate the provisions of section 50C, because, the provisions of section 50C are intended to curb unaccounted money in property transactions and the same would apply in circumstances where the exceptions contained under section 54F are not applicable; (x) thus, the harmonious construction of section 54F and section 45(1) of the Act along with the computational provisions of section 48, read with section 50C of the Act can only be achieved, if the provisions of section 54F are given the natural and literal meaning not a strained meaning by subjecting it to the provisions of section 50C of the Act - relies on the case laws: (a) CIT v. Ace Builders (P.) Ltd. [2006] 281 ITR 210 (Bom.) (b) ITO v. Sak Soft Ltd. [2009] 30 SOT 55 (Chennai)(SB)." 7. On the other hand, the Ld. D R was very vehement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the mandatory requirements to assume jurisdiction under section 148 of the Act did not exist and have not been complied with. 8.3 We have duly considered the submission of the Ld. AR and also perused the relevant records. It is evident from the reasoning of the Assessing Officer that he was in possession of information that the assessee had sold a property for Rs. 36 lakhs in Bangalore which was not finding a place anywhere in the earlier return of income which was processed under section 143(1). 8.4 In our considered view, this reasoning indicates that the Assessing Officer had reason to believe that the income had escaped assessment. Thus, the Assessing Officer was within his domain to assume jurisdiction under section 147 of the Act. Accordingly, the additional ground raised on this count is dismissed. 8.5 The crux of the issues raised are two-fold, namely- (i) the Assessing Officer was not justified in working ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 lakhs would have tendered the said amount which, by any stretch of imagination, would not suffice to constitute the full sale consideration for the said plot. 8.9 We have carefully considered the elaborate submission made by the Ld. A R wherein he had elaborately dealt with the applicability of the provisions of sections 45, 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G & 54H of the Act. However, the moot question before us is - whether the provisions of section 50C of the Act which is a deeming section can be imposed on section 54F of the Act? 8.10 Let us have a look at the provisions of section 50C of the Act. "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 assessed by any authority of a state Government (hereafter in this sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 us move on to have a glimpse of section 45(1) of the Act which is the charging section. "Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54,54B,54D, [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 the previous year in which the transfer took place." 8.12 The contention of the Ld. AR is that, by virtue of the saving clause in the section, the first limb of the section which ends with word "SHALL" should yield to the following limb of the section. In other words, wherein sections 54, 54B, 54D, [54EA, 54EB,] 54F [54G and 54H], of the Act apply, the charge created by virtue of the first limb of section 45(1) of the Act will be modified and subject to the aforesaid sections of the Act. Thus, in order to determine the charge under section 45(1) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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,54D, [54EA, 54EB,] 54F [54G and 54H] of the Act. Section 45(1) is a charging section therefore while interpreting the section strict construction principle is applicable. The provisions of the charging sections must be interpreted as per the language used therein and when the words of the statute are in themselves precise and unambiguous, no more exercise is necessary than to expound those words in their natural and ordinary sense. It is also made it clear in the case Shri Sajjan Mills Ltd. v. CIT [1985] 156 ITR 5852 (SC) that the strict construction principle does not rule out the application of principle of reasonable construction to give effect to the purport and intention of any particular provisions as apparent from the scheme of the Act. Therefore, it is apparent that the submissions of the ld. AR that "the provisions of section 48 of the Act are not something that are to be determined before the exemption provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 54F of the Act, the Ld. AR made the following submissions: (i) The provisions of section 54F of the Act is a complete code in itself by which the extent of modification to section 45(1) of the Act is specified. The conditions mentioned under section 54F of the Act and the enquiry to be made to ascertain the application of section 54F of the Act require the determination of only the following two criteria: (a) the cost of the new asset and (b) the net consideration for the transfer. (ii) The net consideration has been explained in section 54F of the Act itself to mean the full value of consideration as reduced by the cost incurred for transfer. The object behind the use of net consideration is to determine the extent of money available with the assessee on the transfer of the asset. (iii) The provisions of section 54F(1)(a) of the Act will become unworkable, if the construction placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto 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 of assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long term capital asset, not being a residential house (hereinafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereinafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 computation of capital gains and not the exemption provisions. Thus, the exemption under section 54E could not be denied to the assessee on account of the fiction created in section 50". 8.20 In the light of above ruling, let us view section 54F of the Act. The operational part of the section is dissected herebelow for a proper understanding. "Section 54F (1) ................., the capital gain arises from the transfer of any long term capital asset,........................ .............................., the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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) Guideline value taken as consideration under section 50C of the Act 10,00,000 (c) Expenses on transfer 10,000 (d) Indexed cost of acquisition 30,000 (e) Cost of the new asset (situation A) 1,00,000 (f) Cost of the new asset (situation B) 50,000 (g) Net consideration (as per 54F) 90,000 (1) Working of capital gain as per section 48 of the Act without giving effect to section 50C of the Act. Saleconsideration actually received 1,00,000 Less: (1) Expenses on transfer 10,000 (2) Indexed cost of acquisition 30,000 40,000 Capital gains 60,000 (2) Working of capital gain as per section 48 of the Act giving effect to section 50C of the Act. Saleconsideration as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame proportion which amount invested in the new asset bears to the net consideration of the transferred asset. Viz: Capital gain as per Sec 54F x Amount Invested in the new asset Net Consideration In this case: Rs. 60,000 x 50,000 = Rs. 33,334 90,000 Situation IV: (when the assessee has invested Rs. 2,00,000) In this illustration the assessee has invested Rs. 2,00,000 which is more than the net consideration of Rs. 90,000. However the maximum allowable exemption will be restricted to Rs. 60,000 being the capital gain arrived at within the scope of section 54F. 8.24. Now coming to the case on hand, following the ratio as deduced above the computation of long term capital account is worked out as follows: (A)Salevalue of the property No. 107 at RMV2nd Stage Bangalore, sold on 5-6-2004 as per Stamp Valuation Authority Valuation as per section 50C of the Act Rs. 36,00,000 (B) Less Indexed cost of acquisition Cost of the site purchased - 89900 Indexation : 89900 x 480 1,93,506 223 (C) Income chargeable to tax under the head Capital gains 34,06,494 (D) Less: ..... 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