Section 50C in the Income –tax Act, 1961 was inserted in the Act by the Finance Act, 2002 w.e.f. 1.4.2003. The scope and effect of such insertion have been elaborated in the following portion of the department Circular No.8 of 2002, dated 27th August, 2002, as under:-
a. Computation of capital gains in real estate transaction –The Finance Act, 2002, has inserted a new section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property.
b.It provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value of the consideration, and capital gains shall be computed accordingly under section 45 of the Income-tax Act.
c.It is further provided that where the assessee claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer, and he has not disputed the value so adopted or assessed in any appeal or revisions or reference before any authority or Court, the assessing officer may refer the valuation of the relevant asset to a Valuation officer in accordance with section 55A of the Income-tax Act. If the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purposes, the assessing officer may take such fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation officer is more than the value adopted or assessed for stamp duty purpose, the assessing officer shall not adopt such fair market value and shall take the full value of consideration to be the value adopted or assessed for stamp duty purpose.
2. Amendment to Section 50C
Some changes in the section by the Finance (No.2) Act, 2009 after the amendment provides that 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
[ (w.e.f. 1.10.2009) or assessable] by any authority of a State Government (Hereinafter in section 50C referred to as the ‘stamp valuation authority’) for the purpose of payment of stamp duty in respect of such transfer.
In such a situation, the value so adopted or assess [(w.e.f.1.10.2009) or assessable] shall for the purpose of section48 be deemed to be the full value of the consideration received or accruing as a result of such transfer
The object and purpose of section 50C is to see that the undisclosed income of Capital gains received by the assessee is taxed and the law should not encourage and permit the assessee to peg down the market value to avoid tax. – Vide Gouli Mohadevappa v. ITO (2013) 356 ITR 90 (Karn).
3. Whether value adopted for stamp duty purposes under section 50C shall apply for other heads of income also
The reply to this has to be in the negative. In Inderlok Hotels (P) Ltd.v.ITO (2009) 318 ITR 234 (Mum-Trib), it was held that on analyzing language used by legislature in section 50C, it appears that the said section specifically deals with transfer of ‘capital asset’ being land or building or both, and it provided for replacing value adopted or assessed for the purpose of stamp duty more particularly under section 48 in place of value or sale consideration shown by assessee. It is abundantly clear from Explanation given in CBDT Circular No.8, dated 27.08.2002 that basis intention to insert section 50C is for purpose of determining full value of sale consideration for purpose of computation of capital gains under section 48.
4. Applicability of section 50C to exemptions provided by sections 54 to 54G
These sections provide for exemption from capital gain in respect of long term capital gains arising from the transfer of prescribed conditions. The issue is whether the ‘full value of consideration’ referred in section 54F would be the full value as received by the assessee or as determined under section 50C of the Act. The legal position is that full value of consideration shall be as consideration received by the assessee and not as determined by the assessing officer for the purpose of application of section 50C of the Act. This view is supported by the Tribunal’s decision in the case of ITAT’s Lucknow Bench’s decision in the case of Anant Chetan Agarwal v.Dy.CIT, Circule-I, Bareilly (2018) 172 ITD 525 (Luck-Trib)
5. Tribunal’s Decision
The assessee sold an agricultural land (capital asset being situated within 9 kms from the municipal limit of Bareilly) for a consideration of Rs.27.46 lakh, Value of which as per circle rate was Rs.58.06 lakh. The assessee claimed deduction under section 54F amounting to Rs.27.46 lakh, i.e. entire net sale consideration. The investment made in the house property as claimed under section 54F was examined by the Assessing Officer and the assessee was required to explain as to why the capital gain on entire consideration of Rs.58.06 lakh (as per provision of section 50C) may not be charged. The assessee submitted that whatever sale consideration was received by him, has been invested under section 54F and therefore provision of section, 45, 48 and 50C applies to the case of the assessee and deduction under section 54F is not applicable. The assessing officer was of the opinion that section 45 and 48 are charging sections and provisions of section 50C were applicable as per the fair market value determined by the DVO. The matter was referred to the DVO by the assessing officer and DVO determined the fair market value of the property at Rs.40.61 lakh as against value of circle rate amounting to Rs.58.06 lakh. On appeal the Commissioner (Appeals) Confirm the order of the assessing officer.
(ii) Tribunal’s order
The Tribunal has decided that section50C specially mentions that for the purpose of section 48 value adopted as assessed for the purpose of stamp duty shall be deemed to be full value of consideration received or accruing as a result of transfer, meaning thereby, deeming fiction created in section 50C is limited only to the extent and for the purpose of section 48 and this deeming fiction cannot be extended or interpreted as meant for the purpose of other provision of the Act including section 54F. There is a doctrine of impossibility of performance wherein it is only to the extent of funds available with the assessee that he can be expected to invest. On perusal of section 54F, what is, therefore, relevant is the investment of the net consideration in respect of original asset which has been transferred and whether net consideration is fully invested in the new asset. The net consideration as determined under section 50C based on the stamp duty authority valuation is not a consideration which has been received by or has accrued to the assessee. Where the entire consideration received has been invested in the new asset, the provisions of section 54F(1)(a) have been complied with by the asessee and therefore, assessee become eligible for deduction in respect of whole of the capital gains to be computed under section 45, read with section 48 and 54F (1) (a)
In view of the provision of law as explained (supra), the Tribunal set aside the order of Commissioner (Appeals) and decided the appeal in favour of the assessee.