TMI Blog2011 (8) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... Appropriate Authority - Tribunal adopted the value of Rs.576/- per sq.ft. as taken by the Appropriate Authority - Held that:- order of the Tribunal set aside and allow the assessee's appeal - 92 of 2005 - - - Dated:- 1-8-2011 - Mrs.Justice CHITRA VENKATARAMAN, Mr.Justice M.JAICHANDREN, JJ. For Appellants : Mr.C.V.Rajan for, M/s.Subbaraya Aiyar For respondent : Mr.J.Naresh Kumar JUDGMENT CHITRA VENKATARAMAN, J. The following substantial questions of law are raised in the above Tax Case Appeal filed by the assessee for the assessment year 1988-89. 1. Whether on the facts and in the circumstances of the case, the ITAT had jurisdiction to decide on the quantum of cost of construction, especially when such a ground was not before the ITAT? 2. Whether on the facts and in the circumstances of the case, the ITAT was justified in adopting the rate of Rs.576/- sq.ft. estimated as consideration in Form 37-I filed before the Appropriate Authority as against the cost of construction of Rs.240/- per sq.ft. adopted in form No. 34A, Application for Certificate under Section 230A(1) of the Income Tax Act, 1961? 3. Whether on the facts and circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share in the Wellington property or to be given cash was, however, left to the assessee's choice and that the said decision shall not be questioned by the assessee's sisters and mother. Thus, in terms of the Will, the assessee, his mother and sisters entered into an agreement on 18.5.1986 as to the distribution of Assets in the Estate of the late Mr.J.D.Italia. Thus, apart from cash payment, instead of 10% share in the immovable property, the assessee paid a sum of Rs.6,00,000/- to each of his sisters. It is seen from the facts herein that along with his two sons, the assessee entered into a development agreement with M/s.Kalyani Constructions Private Limited (hereinafter referred to as construction company) on 27.9.1987, whereunder, the assessee and the construction company had two options viz., outright sale of the entire property for a consideration of Rs.4,80,00,000/- or cash payment of Rs.66,00,000/- and constructed area of 36,000 sq.ft. to be built for the assessee and his two sons. In terms of provisions of Chapter XX-C, the assessee and the construction company filed an application under Form No. 37-I, wherein they gave total apparent consideration for the transfer of the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows:- Rs. (i) Cash Consideration 66,00,000 (ii) Cost of construction of 28,302 sq.ft., at the rate of Rs.240/- per sq.ft. 67,92,480 (iii) Cost of two flats 14,65,356 (iv) Cost of providing rented accommodation 1,42,164 ---------------- Total Consideration 1,50,00,000 ---------------- 5. For the purpose of working out the capital gains, as per Clause Nos. 8, 9 and 18 of the development agreement dated 27.9.1987, the assessee took the cost of construction of 28759 sq.ft. at Rs.248/- per sq.ft. The assessee also claimed deduction of the amount paid to the sisters in terms of the Will. In computing the capital gains, the Assessing Officer held that the developers had constructed a total extent of 1,20,773 sq.ft. Since the assessee had gone in for clearance under Chapter XX-C, the cost of construction was to be on the lines of what the Appropriate Authority held as apparent consideration. In these circumstances, the Assessing Officer viewed that the full value of the consideration for the purpose of computation of capital gains under Section 48 of the Income Tax Act was to be taken at Rs.3,38,96,489/-. The assessee took the plea that the computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relief, taking Rs.6,00,000/- each rounded off to Rs.18,00,000/-. Thus, the first Appellate Authority allowed the appeal. Aggrieved by this, the Revenue went on appeal before the Income Tax Appellate Tribunal. 9. As far as the order of the Commissioner of Income Tax (Appeals) in adopting the value of Rs.240/- per sq.ft. is concerned, the Tribunal adopted the value of Rs.576/- per sq.ft. as taken by the Appropriate Authority. Thus, while setting aside the order of the Commissioner of Income Tax (Appeals), it modified the order of the Assessing Officer, taking the extent of constructed property given to the assessee at 28,302 sq.ft. and directed the Assessing Officer to adopt the value of Rs.576/- per sq.ft. 10. As far as the payments made to three sisters are concerned, the Tribunal held that it was only an application of money and hence, it could not be given deduction. Accordingly, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals). Thus, the Department's appeal was allowed in part. Aggrieved by the same, the present appeal have been filed by the assessee. 11. Learned counsel for the assessee took us through the provisions of Sections 45 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue as declared under Form 37-I as approved by the authority for the purpose of computing the capital gains. Hence, there is no error in the order of the Tribunal. In the circumstances, he prayed for dismissal of the Tax Case Appeal. 15. Heard learned counsel for the assessee as well as learned Standing Counsel for the Revenue and also perused the records placed before us. 16. Before going into the various aspects of the claim of the assessee, the provisions given under Chapter XX-C of the Income Tax Act defining 'Apparent Consideration', has to be noted. Section 269UA Chapter XX-C gives the definition of Apparent Consideration. The said provision under Section 269UA(b) reads as follows:- "Apparent Consideration - In relation to any immovable property in respect of which an agreement for transfer is made, being immovable property of the nature referred to in sub clause (i) of clause (d) means - (i) if the immovable property is to be transferred by way of sale, the consideration for such transfer as specified in the agreement for transfer; (ii) if the immovable property is to be transferred by way of exchange- (A) in a case where the consideration for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a reading of the provisions shows that it enables the Government to step in only where the consideration for sale is not truly stated in the instrument of transfer and this has been done with a view to escape tax on the assessable income arising from the transfer or to help the transferee conceal his income, etc. 18. The entire concept on pre-emptive purchase rests on what is apparent consideration. Section 269UA(b) gives the definition of "Apparent Consideration" as follows: Section 269UA(b) in The Income- Tax Act, 1995 (b) " apparent consideration",- (1) in relation to any immovable property in respect of which an agreement for transfer is made, being immovable property of the nature referred to in sub- clause (i) of clause (d), means,- (i) if the immovable property is to be transferred by way of sale, the consideration for such transfer as specified in the agreement for transfer; (ii) if the immovable property is to be transferred by way of exchange,- (A) in a case where the consideration for the transfer consists of a thing or things only, the price that such thing or things would ordinarily fetch on sale in the open market on the date on which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for such transfer is payable on any date or dates falling after the date of such agreement for transfer, the value of the consideration payable after such date shall be deemed to be the discounted value' of such consideration, as on the date of such agreement for transfer, determined by adopting such rate of interest as may be prescribed in this behalf; " 19. Thus a reading of the above provision shows that in the case of outright sale of an immovable property, apparent consideration is the consideration stated in the agreement. In the case of transfer of immovable property by way of exchange, sub clause (A) states that the apparent consideration would be market price that such thing or things would ordinarily fetch on sale in the open market on the date of the agreement for transfer. In a case where immovable property is to be transferred for some money and thing or things as in this case herein by way of construction of flat or built up area to be given to the owner, namely assessee, the apparent consideration would be the open market price which the built up area would fetch, if ordinarily sold. In other words, in a case of joint development, the apparent consideration he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter, the Assessing Officer has to look at a value beyond what is given as full value of the consideration for the purpose of any comparative analysis to arrive at the capital gains. Section 52 "Consideration for transfer in cases of under-statement", which was there in the statute book to deal with cases of under-statement of consideration for transfer, which enabled the Income Tax Officer to ignore the sale price and adopt the market value of the property for the purpose of computing the capital gains and hence operated as an exception to Section 48, was omitted from the statute book under the Finance Act, 1987 (Act 11 of 1987) with effect from 1.4.1988. Thus, after the deletion of Section 52 with effect from 1988-89, it is not possible for the Assessing Officer to adopt the market value or any value other than the consideration received or accrued for computing the capital gains. 23. It may be of relevance to note that Section 50C "Special Provision for full value of consideration in certain cases" was inserted by the Finance Act, 2002 only to operate prospectively with effect from 2003-04 to tackle the unaccounted income by the practice of under-statement of consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject matter of consideration under Chapter XX-C particularly with reference to the apparent consideration, does not, in any manner, justify the adoption of market price concept in the working of capital gains under Section 48. 24. Chapter XX-C essentially is a measure to check evasion of tax caused by under-quoting of the sale consideration. When the State made a provision under Chapter XX-C that every transfer of property above the value of Rs.10 lakhs at the relevant point of time at Rs.5 lakhs had to go before the Appropriate Authority for clearance, it provided for market value as the touchstone for passing an order on the instrument of transfer. Thus going by the conceptional difference between Section 48 and Chapter XX-C, going by the wordings under Section 269UA(b) and Section 269UD on the one hand and Section 49 on the other, in the absence of any provision available therein to adopt the market value in computing the capital gains under Section 48, we have no hesitation in holding that the concept available for Chapter XX-C can have no application at all, while working out the computation under section 48 of the Act. 25. In this connection, the reliance placed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ull value of the consideration" and "fair market value of the capital asset transferred" and it is provided that if certain conditions are satisfied as mentioned in the first proviso to s. 12B(2), the market value of the asset transferred, though not equivalent to the full value of the consideration for the transfer, may be deemed to be the full value of the consideration. " 26. Thus in the context of the judicial interpretation of the phrase 'full value of consideration' a phrase retained in Section 48 of 1961 Act too, it is difficult to accept the argument of the Revenue that the apparent consideration, meaning thereby the market value, as given under Form 37-I for the purpose of clearance under Chapter XX-C alone could be treated as the full value of the consideration. 27. Given the fact that the apparent consideration defined as market value as defined in Section 269UA is of limited relevance only for the purpose of proceedings under Chapter XX-C and it has no relevance for computing the capital gains as given under Section 48 of the Act and in the absence of any provision to adopt the value as given under Form 37-I for the purpose of computing the capital gains under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the full consideration received by the assessee as provided under Section 48 only. Consequently, we set aside the order of the Tribunal as far as the computation of capital gains is concerned. 30. As regards the cost of construction as fixed by the Commissioner of Income Tax (Appeals) is concerned, the same is based on the evaluation given by the assessee. The parties to the agreement originally agreed that the contractor would put up construction of 36,000 sq.ft for the assessee. Subsequently, the said area got reduced to 28302 sq.ft. by reason of FSI reduction to 2 from 2.5. In Form 37-I, the assessee showed the rate for construction at Rs.1000 per sq.ft. Thus deducting the value of six grounds pro rata to the built up area at Rs.1,52,54,510/-, the net figure includible was Rs.1,30,47,490/-. The Tribunal held that the value at Rs.200/- as given under Clause 32 of the agreement would be inapplicable to the assessee on account of the approval given by the Assessing Authority. However, considering the reduction in the area and rejecting the value adopted by the Commissioner of Income Tax, the Tribunal fixed it at Rs.576 per sq.ft. It is a matter of relevance to note that ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the property known as 'Wellington Talkies' situated at Mount Road, Madras or Rs.1,00,000/- (Rupees one lakh only) each at the discretion of the Fourth party. The Fourth party after examining the possibilities of development of the property has decided to give Rs.6,00,000/- (Rupees six lakhs only) to each of the Second, Third and Fifth parties in the event of development. The Fourth party further agrees to pay a sum of Rs.1,00,000/- (Rupees one lakh only) each if the Second, Third and Fifth parties to these presents want immediate payment if they are unwilling to wait until the development of the property. The option on this matter is left to the discretion of the Second, Third and Fifth parties of these presents. 8. The Second, Third and Fifth Parties hereby declare that they have no claim whatsoever on the property known as 'Wellington Talkies' situated at Mount Road, Madras in view of the Clause 7 Supra. It is hereby mutually agreed that until such time the amount is paid pursuant to the provisions contained in Clause 7 Supra, 30 percent of the net property income of the late Mr.J.D. Italia's share in the property would be equally distributed amongst the Second, Third and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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