Section 50C – Section 50C cannot be applied to sale agreements entered into before the introduction of the said provisions i.e. before 01-04-2003 specially when delay in execution and registration of conveyance is sufficiently explained and there is no allegation of suppression of actual consideration.
Facts:
The assessee, an administrator to the Estate of Late Mr. E. F. Dinshaw held landed properties and other tenanted properties with EF Dinshaw Trust & EF Dinshaw Charities jointly. During the previous year relevant to the assessment year 2005-06, two properties of the estate whose stamp duty value was Rs. 5,95,78,500 were sold for Rs. 42,55,045 and profit arising from the sale was computed by considering the consideration as per sale deed to be full value of consideration. The profit so computed was declared under the head `long term capital gain’. The assessee had not disputed the stamp duty value adopted by the stamp valuation authorities.
In the course of assessment proceedings, the assessee was asked to explain the vast difference between the sale consideration and the stamp duty value of the properties sold. The assessee explained that the properties were agreed to be sold in the year 1997 and 1999 and the completion of sale was delayed due to delay in obtaining the requisite permissions from the Charity Commissioner and RBI and under UL(C&R) Act. The difference in value had arisen because of a long time gap between the date when the properties were agreed to be sold and the date of actual sale. The explanation offered by the assessee was substantiated with requisite evidence in the form of correspondence, permissions, etc. The AO worked out the profit by considering the stamp duty value to be consideration and following the past practice assessed the income under the head `profits and gains of business or profession’.
Aggrieved, the assessee preferred an appeal to CIT(A) who held that profit on sale was to be charged to tax under the head `Capital Gains’ and section 50C applied to the transaction under consideration. He rejected the contention that the agreement was entered into before the date of section 50C becoming effective. He held that section 50C applied to transactions after 01-04-2003.
Aggrieved, the assessee preferred an appeal to the Tribunal where it was contended that in the facts and circumstances involved in the case of the assessee, provisions of section 50C have to be read with reference to the date of agreement instead of date of transfer and accordingly the value of the properties made for the purpose of stamp duty as on date of agreement should be taken and not as on the date of execution of conveyance deed.
Held:
The Tribunal noted that (i) for a property agreed to be sold to Avadh Narayan Singh & Ors on 12-03-1999 for Rs. 25 lakh the entire consideration was received upto 03-05-1999 and assessee had moved an application to the Charity Commissioner for sale on 05-04-1999; and (ii) the delay in executing the final conveyance of the property was because of delay in getting the required clearances from the concerned authorities, which was beyond the control of the assessee. It also noted that in respect of the other property the agreement was executed on 07-02- 1997 and the consideration of Rs 10 lakhs was partly received by the assessee on the date of agreement itself. The Tribunal mentioned that the delay in execution of conveyance was satisfactorily explained with reference to sequence of events that occurred with the supporting evidence which was beyond the control of the assessee.
The Tribunal noted that in the case of M. Siva Parvathi & Ors vs. ITO (37 DTR 124)(Vishakapatnam)(ITAT) similar issue arose. In the said case both the parties confirmed having entered into a sale agreement in August 2001 and the vendors had received part payment of total consideration in August 2001 itself. The delay in registering the sale deed was on account of the fact that vendors were under an obligation to obtain urban land clearance permission and were also under an obligation to settle certain disputes and the explanation offered by the assessee was supported by documentary evidence. There was no material brought on record by revenue to show that there was any suppression of actual sale consideration. In these facts, the Tribunal held that the provisions of section 50C could not be applied to the sale agreement as the section was not available in the statute at the time when the transaction was initially entered into. The Tribunal held that the final registration of the sale agreement was only in fulfillment of the contractual obligation and the provisions, which did not apply at the time of entering into the transaction initially could not be applied at the time the transaction was completed. It held that section 50C cannot be applied to sales agreement entered into before the introduction of the said section especially when delay in registration of sale deed was sufficiently explained and there was no suppression of actual consideration.
Following the above mentioned decision, the Tribunal held that section 50C cannot be applied to the sale agreement entered into before the introduction of the said section especially when delay in registration of sale deed was sufficiently explained and there was no suppression of actual consideration. The addition made by the AO and confirmed by CIT(A) was deleted. The appeal filed by the assessee was allowed.
