May 2021
Section 56(2)(vii) r.w.s. 2(14) – The term ‘property’ has been defined to mean capital asset, namely, immovable property being land or building or both and hence where immovable property does not fall in the definition of capital asset, it will not be subject to the provisions of section 56(2)(vii)
By Jagdish T. Punjabi | Prachi Parekh
Chartered Accountants | Devendra Jain
Advocate
13 [2020] 82 ITR (T) 522 (Jai) Prem Chand Jain vs. Asst. CIT ITA No.: 98 (JP) of 2019 A.Y.: 2014-15 Date of order: 8th June, 2020
Section 56(2)(vii) r.w.s. 2(14) – The term ‘property’ has been defined to mean capital asset, namely, immovable property being land or building or both and hence where immovable property does not fall in the definition of capital asset, it will not be subject to the provisions of section 56(2)(vii)
FACTS
The assessee had purchased two plots of land during the year claiming these to be agricultural land. The sale consideration as per the respective sale deeds was Rs. 5,50,000 and their stamp duty value [SDV] as determined by the Stamp Duty Authority amounted to Rs. 8,53,636; therefore, there was a difference to the tune of Rs. 3,03,636. The A.O. invoked the provisions of section 56(2)(vii)(b) and held that agricultural land falls within the definition of property and, thus, added the differential amount under the head other sources. The CIT(A) upheld the addition. Consequently, the assessee filed an appeal before the ITAT.
HELD
The dispute in this case was whether agricultural land was to be included in the definition of immovable property and whether it was covered by the provisions of section 56(2)(vii)(b). It was the contention of the Department that there was no express exclusion provided for agricultural land from the operation of section 56(2)(vii). But it was submitted on behalf of the assessee that vide the Finance Act, 2010 in clause (d) in the Explanation, in the opening portion, for the word ‘means—‘ the words ‘means the following capital asset of the assessee, namely:—’ were substituted with retrospective effect from 1st October, 2009. It was further submitted that the substitution of the words ‘means’ for the words ‘means the following capital asset of the assessee, namely’ made the intention of the Legislature very clear, that henceforth the deeming provision of 56(2)(vii)(b) would apply in case of those nine specified assets, if and only if they were capital assets.
The ITAT referred to the provisions of clause (d) of the Explanation to section 56(2)(vii) where the term ‘property’ was defined to mean capital asset of the assessee, namely, immovable property being land or building or both. Hence, the ITAT held that if the agricultural land purchased by the assessee did not fall in the definition of capital asset u/s 2(14), they cannot be considered as property for the purpose of section 56(2)(vii)(b). The ITAT remanded the matter to the A.O. to determine whether or not the agriculture land so acquired falls in the definition of capital asset. It was further concluded that where it is determined by the A.O. that the agricultural land so acquired doesn’t fall in the definition of capital asset, the difference in the SDV and the sales consideration cannot be brought to tax under the provisions of section 56(2)(vii)(b) and relief should be granted to the assessee.
Further, it was also held that where the assessee had objected to the adoption of SDV as against the sale consideration, the matter should be referred by the A.O. to the Departmental Valuation Officer [DVO] for determination of fair market value.
Editorial Note:
In ITO vs. Trilok Chand Sain [2019] 101 taxmann.com 391/174 ITD 729 (Jaipur-Trib), the Tribunal had upheld the applicability of section 56(2)(vii) to the purchase of agricultural land. The decision in Trilok Chand Sain was not referred to by the ITAT in the above case. However, in another decision in Yogesh Maheshwari vs. DCIT [2021] 125 taxmann.com 273 (Jaipur-Trib), the ITAT, after considering the decision of co-ordinate benches at Pune in Mubarak Gafur Korabu vs. ITO [2020] 117 taxmann.com 828 (Pune-Trib) and at Jaipur in ITO vs. Trilok Chand Sain (Supra) and this decision held that if the agricultural land purchased by the assessee is not a capital asset, the provisions of section 56(2)(vii)(b) are not applicable.
