TMI Blog2017 (1) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... t it then is a distinction between undervaluation and understatement of the value. The Assessing Officer did not find the consideration to have been understated. He, therefore, was not entitled to determine the fair market value. Applicability of Section 50C - Held that:- The reliance upon Section 50C is of no assistance to the Revenue either. Mrs. Dugga’s submission that the Assessing Officer’s can be supported under section 50C is not well founded. Even assuming that the Assessing Officer was entitled to invoke Section 50C to have the fair market value determined, it would make no difference. In view of sub section (3) the rate adopted, assessed or assessable by the Stamp authority would prevail. It is common ground that in this case the consideration stated in the sale document is even higher than the valuation by the Stamp authority. The judgment of the Supreme Court in Ms. McDowell & Co. Ltd. v. Commercial Tax Officer, (1985 (4) TMI 64 - SUPREME Court) does not warrant a different view of the matter. The view that we have taken in respect of question (ii) cannot be altered in view of the judgment in McDowell’s case (supra). The ratio of the judgment of the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd No.2 which is regarding passing of appellate order by the learned CIT(A) without affording an opportunity of being heard to the Assessing Officer which was specifically requested for in the ITNS-51 submitted to the CIT(A)? However, only questions-2 and 3 were argued before us. The appeal is accordingly admitted in respect of questions No.2 and 3. 3. The respondent-assessee filed its return of income declaring income from other sources at ₹ 37,13,113/- after claiming exemptions in the sum of about ₹ 13.50 crores under section 10-B of the Income Tax Act, 1961 (hereinafter referred to as the Act ). The case was selected for compulsory scrutiny pursuant to which notices under section 143(2) and 142(1) of the Act were issued. A reference was made to the Transfer Pricing Officer (TPO) in view of an international transaction between the assessee and one of its associate enterprises which exceeded ₹ 5 crores. During the course of the assessment proceedings the Assessing Officer noticed that M/s Quark Media House (India) Pvt. Ltd. i.e. the assessee by a sale deed dated 29.04.2005 transferred to M/s Quark City India Pvt. Ltd. land admeasuring 24000 sq. yards in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y arrived at by the Assessing Officer. The answer to this question also requires a consideration as to whether the Assessing Officer rightly made a reference to the D.V.O. under section 55A to ascertain the fair market value of the property. 6. The Assessing Officer after noting the contentions on behalf of the assessee observed that a good case had been made out on behalf of the assessee that the full consideration received by the assessee for the sale of the property is the value stated in the sale deed. He, however, observed that the assessee had failed to address the real issue that because the assessee and the purchaser are related parties with common Directors and management, the sale transaction was not carried out at the market price. In other words according to him the price mentioned in the sale deed was not the market value and this was in view of the relationship between the parties. He disbelieved the assessee s contention that the transaction was a bona fide one having been entered into as per the bargain negotiated keeping in view all the market circumstances prevalent at the relevant time. According to him, this is a case where the business substance of the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be construed as having a reference to the market value of the asset/property transferred. What is to be determined is the consideration bargained for and not the market value in the case of sale while computing the capital gains. The Assessing Officer has no authority to substitute the fair market value of consideration actually paid unless it is demonstrated that the assessee had received more than what was declared by him. In the present case it was not the case of the Assessing Officer that the assessee had received any consideration more than what was mentioned in the sale deed. Therefore, there was no necessity for computing the fair market value and the Assessing Officer accordingly could not have referred the matter to the D.V.O. 9. Ms. Dugga, the learned counsel appearing on behalf of the appellant-revenue, contended that for the purpose of computing the capital gains the Assessing Officer is entitled to ignore the consideration stated in the sale deed if he is satisfied that the same is far less than the fair value or the market value thereof. She further submitted that for the purpose of determining the actual consideration it was always open to the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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. Following provisos shall be inserted to sub-section (1) of section 50C by the Finance Act, 2016, w.e.f. 1-4-2017 : Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer: Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of elec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of a capital asset for the purposes of this Chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer- (a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so claimed is less than its fair market value; (b) in any other case, if the Assessing Officer is of opinion- (i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do, and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of sub-section (1) and sub-sections (3A) and (4) of section 23, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall with the necessary modifications, apply in relation to such reference as they ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, 9, 10 and 12. Provided that where a person who acquires a capital asset from the assessee, whether by sale, exchange or transfer, is a person with whom the assessee is directly or indirectly connected, and the Income Tax Officer has reason to believe that the sale exchange or transfer was effected with the object of avoidance or reduction of the liability of the assessee under this section, the full value of the consideration for which the sale, exchange or transfer is made shall with the prior approval of the Inspecting Assistant Commissioner of Income Tax, be taken to be the fair market value of the capital asset on the date on which the sale, exchange or transfer took place: * * * Provided further that where the capital asset became the property of the assessee or of the previous owner where the cost of the capital asset to the previous owner is to be taken in accordance with sub-section (3) before the 1st day of January, 1939, he may, on proof of the fair market value thereof on the said date to the satisfaction of the Income Tax Officer, substitute for the actual cost such fair market value which shall be deemed to be the actual cost to him of the asset, and which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. A majority of the Judges of the High Court answered in favour of the assessee-respondent. The Supreme Court held as under:- 5. The question therefore arises in the present case as to what is precisely the finding of fact arrived at by the Tribunal as regards the full value of the consideration. It is necessary to state at the outset that the Income Tax Officer and the Appellate Assistant Commissioner assessed the tax on the footing that the first proviso to Section 12-B(2) applied and therefore the market value of the shares must be taken to be the full value of the consideration for the transfer. The Appellate Tribunal, however, rejected the contention of the appellants that the first proviso to Section 12-B(2) applied to the case, but nevertheless proceeded to affirm the order of the Appellate Assistant Commissioner. In para 7 of the order dated August 23, 1951 the Appellate Tribunal stated that these shares were transferred by the assessee company to one Giridharilal Mehta on 1st April, 1946 at the book value of ₹ 136 per share, though the market value of those shares on that date was admittedly ₹ 620 per share . In para 8 of the order the Appellate Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of ₹ 620 per share and that the respondent received that market price of the shares as consideration for the transfer. Reference was made to para 7 of the order of the Appellate Tribunal wherein there is an express finding that the shares were transferred by the respondent to Giridharilal Mehta on April 1, 1946 at the book value of ₹ 136 per share, though the market value on that date was ₹ 620 per share. Mr Asoke Sen further submitted that it could not be argued from paras 8 to 11 of the order of the Appellate Tribunal that there was an inferential finding that the shares were actually sold at ₹ 620 per share by the respondent. On behalf of the appellants Mr Narsaraju pointed out that in the statement of the case dated July 29, 1952 the Appellate Tribunal has said that by the previous order dated August 23, 1951 the Appellate Tribunal had come to the conclusion that the sale had been effected at ₹ 620 per share and that the market price of the shares must have been paid. It was, however, pointed out on behalf of the respondent that the statement of the case was not an agreed statement and that it was drawn up by the Appellate Tribunal whose consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 15. The judgment undoubtedly holds that the expression full value of the consideration cannot be construed as the market value but as the price bargained for by the parties to the sale. It is necessary for the Assessing Officer to ascertain as to what was the price bargained for by the parties to the sale. 16. The judgment, however, does not support Mrs. Suri s further submission that the price stated in the sale-deed must irrespective of anything also be considered to be the sale price for the purpose of computing the capital gain. In our view this absolute proposition is not well founded. The Assessing Officer must determine whether the price stated in the agreement for sale is infact the price bargained for by the parties thereto. In other words, the full value of the consideration is neither the market value nor necessarily the price stated in the document for sale but the price actually arrived at between the parties to the transaction. If therefore it is found that the price actually arrived upon between the parties is not the price reflected in the document, it is the price bargained for by the parties to sale that must be considered for determining the capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid or is it the market value of the consideration? In the case of sale for a price, there is no question of any market value unlike in the case of an exchange. Therefore in cases of sales to which the first proviso to sub-section (2) of Section 12-B is not attracted, all that we have to see is what is the consideration bargained for. As mentioned earlier to the facts of the present case, the first proviso is not attracted. As seen earlier, the price bargained for the sale of the shares and securities was only rupees seventyfive lakhs. The facts of this case squarely fall within the Rule laid down by this Court in C.I.T. v. George Henderson Co. Ltd . . It may be noted that in that case the market value of the shares which were allotted at ₹ 136 per share was ₹ 620 per share. Our observations with respect to CIT v. George Henderson Co. Ltd. (1967)66 ITR 622 , apply equally to this judgment. 19. Mrs. Suri relied upon a judgment of the Delhi High Court in Commissioner of Income Tax v. Smt. Nilofer I.Singh 2008 SCC (Delhi) 1522. This was a case under the 1961 Act. In that case the assessee sold two properties, one being a residential flat in Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to see was-What was the consideration bargained for? 8. These decisions make it more than clear that the expression full value of consideration that is used in section 48 of the present Act does not have any reference to the market value but only to the consideration referred to in the sale deeds as the sale price of the assets which have been transferred.. 9. With regard to the arguments of the learned counsel for the appellant based on the provision of section 55A of the said Act, it is immediately to be noticed that the said provision begins with the expression with a view to ascertaining the fair market value of a capital asset . In other words, the reference to a Valuation Officer under section 55A is for the object of ascertaining the fair market value of a capital asset. It is only when the Assessing Officer is required to ascertain the fair market value of a capital asset that the provisions of section 55A can be invoked. There may be certain situations where the Assessing Officer is required to determine the fair market value. One of the situations is indicated in section 45(4) of the said Act where the profits or gains arising from the transfer of a capital asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the Assessing Officer could not have referred the matter to the Valuation Officers. We are entirely in agreement with the observations of the Division Bench in so far as they pertain to the issue under consideration. The reliance upon the judgment of the Supreme Court in George Henderson Co. Ltd. case (supra) is also well founded. The language of Section 12B(2) of the 1922 Act is similar to that of Section 48 of the 1961 Act. The issue is, therefore, covered by the judgment of the Supreme Court. 20. We do not read the observations in paragraph-7 to mean that the consideration referred to in the sale deed cannot be questioned at all. The judgment if read as a whole does not indicate such an absolute or blanket rule. There is nothing in the judgment to indicate that the revenue had contended that the full value of consideration received or accruing was other than what was mentioned in the sale deed. It is probably in that view of the matter that the Division Bench held that the expression full value of consideration refers only to the consideration referred to in the sale deed. If, however, that is what was meant, we respectfully disagree. The full value of consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer having valued the market price at ten times the amount stated in the document. Inferences on that basis were not even suggested. We do not read the judgment as having held that the amount mentioned in the sale document is sacrosanct and is the only basis on which the capital gain is to be computed. 22. A Division Bench of this Court by a judgment dated 05.03.2014 in Commissioner of Income Tax-III, Ludhiana v. Shri Dharam Pal Aggarwal ITA NO. 462 of 2010 framed the following questions of law:- i) Whether on the facts and in the circumstances of the case, the Hon ble ITAT is right in ignoring the provisions contained in Section 55A of the IT Act which specifically empower the Assessing Officer to ascertain the fair market value of capital asset for the purposes of computation of capital gains? ii) Whether on the facts and in the circumstances of the case, the Hon ble ITAT is right in law in ignoring the findings of the Assessing Officer that at the time of sale of capital asset in question there was no notification of circle rates of Delhi Government and hence, reference to the DVO was necessary in the circumstances? The assessee had sold the immovable property b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to avoid capital gains merely by stating that an incorrect price as having been received by it or accruing to it. 23. The matter, however, does not end there. In view of the facts of this case the assessee must succeed. Mrs. Suri submitted that there was no finding that the assessee received any consideration other than that shown in the sale agreement. This is correct. The assessment order does not proceed on the basis that the assessee received any amount in addition to what is stated in the sale deed. It proceeds only on the basis that the assessee and the purchaser being related parties, the property was sold at a very low price. The CIT(A) also noted that the Assessing Officer had not shown that the assessee had received any consideration other than the consideration mentioned in the sale agreement. The CIT(A) further noted that the Assessing Officer had unnecessarily emphasized that the assessee and the purchaser were related parties and therefore, the vendee was in a position to exercise influence in the decision of the assessee and hence the assessee sold the property at the price below the market price. The Tribunal also noted this aspect in paragraph-9. The Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a Valuation Officer, there is no question of the Assessing Officer invoking the general powers of enquiry to make a reference in different circumstances and for other purposes. (See Padam Sen v. State of U.P. [AIR 1961 SC 218 : (1961) 1 Cri LJ 322], AIR para 8, Arjun Singh v. Mohindra Kumar [AIR 1964 SC 993] , AIR para 19.) It is noteworthy that Section 55-A was introduced in the Act by the Taxation Laws (Amendment) Act, 1972 when Sections 131(1), 133(6) and 142(2) were already on the statute-book. Learned counsel for the appellant has correctly submitted that if the power to refer any dispute to a Valuation Officer was already available in Sections 131(1), 133(6) and 142(2), there was no need to specifically empower the Assessing Officer to do so in certain circumstances under Section 55-A. 18. We may also note Section 269-L of the Act which enables the competent authority appointed under Section 269-B: 269-L. (1)( a ) for the purpose of initiating proceedings for the acquisition of any immovable property under Section 269-C or for the purpose of making an order under Section 269-F in respect of any immovable property, require a Valuation Officer to determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax, Madras v. Shivakami Co. P. Ltd. (1986) 159 ITR 71, the Supreme Court held that the assessee s sold the shares to two persons who were directly or indirectly connected with them at prices considerably less than their break-up value. The Supreme Court then held as follows:- 13. It may be mentioned that Section 52 of Income Tax Act, 1961 (hereinafter referred to as 1961 Act ) corresponds to the first proviso of Section 12-B(2) of 1922 Act. The first proviso to Section 12-B(2) read as follows: Provided that where a person who acquires a capital asset from the assessee, whether by sale, exchange, relinquishment or transfer, is a person with whom the assessee is directly or indirectly connected, and the Income Tax Officer has reason to believe that the sale, exchange, relinquishment or transfer was effected with the object of avoidance or reduction of the liability of the assessee under this section, the full value of the consideration for which the sale, exchange, relinquishment or transfer is made shall, with the prior approval of the Inspecting Assistant Commissioner of Income Tax, be taken to be the fair market value of the capital asset on the date on which the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il and should be read broadly and should be so read that the object is fulfilled, yet the onus of establishing a condition of taxability must be fulfilled by the revenue. There is no evidence direct or inferential that the consideration actually received by the assessee was more than what was disclosed or declared by him. The relationship between the parties has been established. The desire to defeat the claims of the revenue has also been established but the fact that for this the assessee had stated a false fact in the document is not established. What appears from the Tribunal's order was that the real and main object was to safeguard these shares from being taken over by the Government in settlement of tax dues, and also that the buyer and seller were indirectly connected with each other. 17. The first proviso to Section 12-B(2) of 1922 Act provides full value of the consideration for which the sale, exchange, relinquishment or transfer is made to be taken as the basis for the computation of the capital gains. Therefore, unless there is evidence that more than what was stated was received, no higher price can be taken to be the basis for computation of capital gains. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of section 55A or even otherwise to determine the fair market value. As held by the Supreme Court it then is a distinction between undervaluation and understatement of the value. The Assessing Officer did not find the consideration to have been understated. He, therefore, was not entitled to determine the fair market value. 29. The judgment relied upon in Commissioner of Income Tax, Bangalore v. B.C.Srinivasa Setty AIR 1981 Supreme Court 972 , is of no assistance in the determination of the issues that fall for our consideration as they were neither raised before us nor decided by the Supreme Court. The question, therefore, essentially was whether the goodwill falls within Section 48 of the Act. The Supreme Court held that the character of the computation provisions in each case bears a relationship to the nature of the charge. Thus the charging section and the computation provisions together constitute an integrated code. It was held that when there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. The Supreme Court observed that the goodwill generated in a newly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th great vehemence that this power could be exercised vis-a-vis the ascertainment of the value of a capital asset in relation to capital gains only and nothing else. We apprehend, we are not persuaded to accede to this submission as it would be causing violence to the very explicit language used in the very section apart from the contextual interpretation. The mere residence of the section within the sub-chapter capital gains cannot be a guidance to hold that it pertains to that sub-chapter alone inasmuch as, as pointed out earlier, the word Chapter occurring in the section, is crucial in coming to this conclusion. The word employed is Chapter and not Capital gains , which amply and unambiguously demonstrates the intention of the Legislature. 12. Hence, we have no hesitation in holding that section 55A of the Act empowers the Income-tax Officer to have the fair market value of a capital asset determined by referring the same to a Valuation Officer. On such reference, the provisions, inter alia, of sub-sections (2) to (6) of section 16A and sub-sections (3) and (4) of section 23 of the Wealth-tax Act, 1957, are ipso facto applicable by extension, as laid down under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir market value determined, it would make no difference. In view of sub section (3) the rate adopted, assessed or assessable by the Stamp authority would prevail. It is common ground that in this case the consideration stated in the sale document is even higher than the valuation by the Stamp authority. 33. In the circumstances, question (ii) is answered in the affirmative in favour of the assessee. Re: Question (iii) 34. The judgment of the Supreme Court in Ms. McDowell Co. Ltd. v. Commercial Tax Officer, (1985) 154 ITR 148 does not warrant a different view of the matter. The view that we have taken in respect of question (ii) cannot be altered in view of the judgment in McDowell s case (supra). The ratio of the judgment of the Supreme Court referred to earlier is that for the purpose of Section 48, the full value of the consideration received by or accruing to the assessee must be taken into consideration for the purpose of computing the capital gain and that the market price of the property is not relevant for this purpose. The authorities under the Act cannot possibly take a different view of the matter. 35. In Commissioner of Income Tax v. Walfort Share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it follows that Parliament has not treated the dividend stripping transaction as sham or bogus. It has not treated the entire loss as fictitious or only a fiscal loss. After 1-4-2002, losses over and above the dividend received will not be ignored under Section 94(7). If the argument of the Department is to be accepted, it would mean that before 1-4-2002 the entire loss would be disallowed as not genuine but, after 1-4-2002, a part of it would be allowable under Section 94(7) which cannot be the object of Section 94(7) which is inserted to curb tax avoidance by certain types of transactions in securities. There is one more way of answering this point. Sections 14-A and 94(7) were simultaneously inserted by the same Finance Act, 2001. As stated above, Section 14-A was inserted w.e.f. 1-4-1962 whereas Section 94(7) was inserted w.e.f. 1-4-2002. The reason is obvious. Parliament realised that several public sector undertakings and public sector enterprises had invested huge amounts over a last couple of years in the impugned dividend stripping transactions so also declaration of dividends by mutual fund are being vetted and regulated by SEBI for last couple of years. If Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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