CIT-III. LUDHIANA V. DHARAM PAL AGGARWAL

ITA/463/2010

AI Insights

The case involves an appeal by the Commissioner of Income Tax III, Ludhiana against Shri Dharam Pal Aggarwal concerning the assessment of long-term capital gains on the sale of immovable property in Delhi. The Assessing Officer had made a reference to the Departmental Valuation Officer (DVO) under Section 55A of the Income Tax Act to determine the fair market value of the property, which was found to be significantly higher than the declared sale price. The Tribunal and the lower appellate authority had dismissed the revenue's appeal, leading to the present appeal in the High Court. The main legal contention was whether the DVO's reference was necessary and justified under the circumstances, particularly in the absence of prevailing circle rates at the time of sale.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 690729 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 05-03-2014
• Assessment Year: misc
• Other Referred Cases: CIT and another v. George Henderson & Co. Limited, CIT v. Gillanders Arbuthnot & Co., CIT vs. Smt. Nilofer I.Singh, Dev Kumar Jain v. Income Tax Officer and another
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: RADHIKA SURI
• Assessee Lawyers: RAJESH KATOCH
• Keywords: Capital Gains; Departmental Valuation Officer; Fair market value; Long Term Capital Gain; Valuation Officer
• Section: 48; 55A; 54EC; 260A; 45

Judgement Text

"ITA No.463 of 2010 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.463 of 2010 (O&M) Date of decision: 05.03.2014 Commissioner of Income Tax III, Ludhiana ……Appellant Vs. Shri Dharam Pal Aggarwal Prop. Shakti International, K-59, Sarabha Nagar, Ludhiana …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MS. JUSTICE ANITA CHAUDHRY Present: Mr. Rajesh Katoch, Advocate for the revenue. Ms.Radhika Suri, Advocate for the assessee. Ajay Kumar Mittal,J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 14.10.2009, Annexure 3 passed by the Income Tax Appellate Tribunal, Chandigarh Bench ‘B’ Chandigarh (in short, “the Tribunal”) in ITA No.498/CHD/2009. The appeal was admitted on 2.12.2010 for determination of following substantial 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 I.T.Act which specifically empower the Assessing Officer to ascertain the fair market value of capital asset for the purposes of computation of capital Gains? Singh Gurbax 2014.05.21 17:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.463 of 2010 (O&M) 2 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 the Delhi Government and hence reference to the DVO was necessary in the circumstances? 2. A few facts relevant for the decision of the controversy involved, as narrated in the appeal may be noticed. The assessee is an individual. He is deriving income from business, house property and capital gain. Return declaring an income of ` 62,45,110/- was filed by the assessee on 14.10.2006. During the course of assessment proceedings, the Assessing Officer found that the assessee had sold the immovable property at Delhi in two sale deeds and declared long term capital gain amounting to `1,15,37,918/- and out of sale proceeds, the assessee invested a sum of `1,16,00,000/- in National Housing bank Bonds eligible for deduction under Section 54EC of the Act. The Assessing Officer made reference to the Departmental Valuation Officer, New Delhi (DVO) under Section 55A of the Act who determined the fair market value of the said sold property at ` 2,40,00,400/- as against sale price shown at ` 1,60,00,000/-. The Assessing officer held that long term capital gain of ` 79,38,318/- had been suppressed. Accordingly, assessment was completed at net taxable income of `1,42,28,400/- after making addition of ` 79,38,318/- on account of long term capital gain vide assessment order dated 31.12.2008, Annexure 1. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals)-II, Ludhiana [CIT(A)].Vide order dated 25.2.2009, Annexure 2, the CIT(A) allowed the appeal. Not satisfied with the order, the revenue filed appeal before the Tribunal. Vide order dated 14.10.2009, Singh Gurbax 2014.05.21 17:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.463 of 2010 (O&M) 3 Annexure 3, the Tribunal dismissed the appeal. Hence the instant appeal by the revenue. 3. Learned counsel for the revenue submitted that since there was no collector rate which was prevalent, therefore,it was necessary to refer the matter to the DVO under Section 55A of the Act. 4. On the other hand, learned counsel for the respondent assessee submitted that reference under section 55A of the Act could only be made in respect of cases covered by provisions under Sections 45(IA), Section 45(2) and 45(4) of the Act. Sections 45 and 48 refer to full value of consideration. Unless there was a provision specifically providing that the fair market value will be treated to be full value of consideration, the fair market value cannot be taken as the full value of consideration as per Section 45 read with section 48 of the Act. Reliance was placed on judgments in CIT and another v. George Henderson & Co. Limited, (1967) 66 ITR 622 (SC) and CIT v. Gillanders Arbuthnot & Co. (1973) 87 ITR 407 (SC) and Delhi High Court judgment in CIT vs. Smt. Nilofer I.Singh, (2009) 309 ITR 233. 5. After hearing learned counsel for the parties, we do not find any merit in the appeal. The primary question that arises for consideration in the appeal is whether the Assessing Officer was justified in making a reference to the DVO under Section 55A of the Act for ascertaining the fair market value of the capital asset which was transferred. 6. Section 55A of the Act appears in Chapter IV, Part E which deals with 'Capital gains'. It reads thus:- \"55A.With a view to ascertaining the fair market value of a capital asset for the purposes of this chapter, the assessing Singh Gurbax 2014.05.21 17:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.463 of 2010 (O&M) 4 officer may refer the valuation of the 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 apply in relation to a reference made by the assessing officer under subsection (1) of section 16Aof that Act. Explanation.—in this section, ‘valuation officer’ has the same meaning, as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).\" 7. Section 55A was introduced in the Act by the Taxation Laws (Amendment) Act, 1972. According to clause (a) of Section 55A of the Act, an Assessing Officer is empowered to make a reference to the Valuation Officer for ascertaining the fair market value of any capital asset where the valuation claimed by the assessee based on the report of the registered valuer is at variance. Further, the Assessing Officer can also make reference Singh Gurbax 2014.05.21 17:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.463 of 2010 (O&M) 5 to the DVO in certain other cases enumerated in clause (b) thereof. According to plain reading of the provision, the scope of Section 55A of the Act is to ascertain the fair market value of the capital asset which is the subject matter of transfer. 8. Under sub section (1) of Section 45 of the Act, capital gains are subjected to tax which provides that any profits and gains arising from the transfer of a capital asset affected in the previous year shall be exigible to income tax under the head capital gains. For purposes of mode of computation under Section 48 of the Act, it shall be computed by deducting from the 'Full Value of consideration' received or accruing as a result of the transfer of the capital asset, the amount of expenditure incurred wholly and exclusively in connection with such transfer as also the cost of acquisition of the asset and the cost of any improvement thereto. In other words, on a combined reading of section 45(1) and Section 48 of the said Act,it is apparent that when a sale of property takes place, the capital gains arising out of such a transfer have to be computed by looking at the full value of the consideration received or accruing as a result of such transfer after deducting the amount of expenditure incurred wholly and exclusively in connection with such transfer as also the cost of acquisition of the asset and the cost of any improvement thereto. 9. Section 48 of the Act envisages 'Full value of consideration'. The expression “Full value of consideration' cannot be read to mean 'Fair Market value' as held by the Hon'ble Apex Court in CIT v. George Hewnderson & Co. Limited, (1967) 66 ITR 622. While considering the expression 'Full value of Consideration', it was held as under:- Singh Gurbax 2014.05.21 17:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.463 of 2010 (O&M) 6 “....It is manifest that the consideration for the transfer of capital asset is what the transferor receives in lieu of the asset he parts with, namely, money or money's worth and, therefore, the very asset transferred or parted with cannot be the consideration for the transfer. It follows that the expression \"full consideration\" in the main part of section 12B(2) cannot be construed as having a reference to the market value of the asset transferred but the expression only named the full value of the thing received by the transferor in exchange for the capital asset transferred by him. The consideration for the transfer is the thing received by the transferor in exchange for the asset transferred and it is not right to say that the asset transferred an parted with is itself the consideration for the transfer. The main part of section 12B(2) provides that the amount of a capital gain shall be computed after making certain deductions from the \"full value of the consideration for which the sale, exchange or transfer of the capital asset is made\". In case of a sale, the full value of the consideration is the full sale price actually paid. The legislature had to use the words \"full value of the consideration\" because it was dealing not merely with sale but with other types of transfer, such as exchange, where the consideration would be other than money. If it is therefore held in the present case that the actual price received by the respondent was at the rate of Rs. 136 per share the full value of the consideration must be taken at the rate of Rs. 136 per share. The view that we have expressed as to the interpretation of the main part of section 12B(2) is borne out by the fact that in the first proviso to section 12B(2) the expression \"full value of the consideration\" is used in contradistinction with \"fair market value of the capital asset\" and there is an express power granted to the Income-tax Officer to \"take the fair market value of the capital asset transferred\" as \"the full value of the consideration\" and \"fair market value of the capital asset transferred\" and it is provided Singh Gurbax 2014.05.21 17:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.463 of 2010 (O&M) 7 that if certain conditions are satisfied as mentioned in the first proviso to section 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...” It was concluded that the expression 'full value of consideration' for sale used in Section 12B(2) of the Income Tax Act, 1922 (in short, 'the 1922 Act') cannot be construed as the market value but as the price decided upon by the parties to the transaction. It needs to be mentioned that the provisions of Section 12B of the 1922 Act pertained to capital gains and sub section (1) was pari materia to Section 45(1) of the Act whereas sub section (2) of Section 12B of 1922 Act was corresponding to section 48 of the Act. 10. The Hon'ble Supreme Court reiterated the aforesaid view in CIT v. Gillanders Arbuthnot & Co. (1973) 87 ITR 407. Thus, it emerges that the expression 'Full value of consideration' appearing in section 48 of the Act does not have any reference to the fair market value but to the consideration referred to in the sale deeds as the sale price of the assets which have been transferred. 11. The Delhi High Court interpreting the provisions of 45, 48 and 55A of the Act in Smt.Nilofer I.Singh's case (supra) had opined as under:- “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 Singh Gurbax 2014.05.21 17:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.463 of 2010 (O&M) 8 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 asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals are to be computed is in question. In such a situation, the provision itself makes it clear that for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. In a situation, as one obtaining under section 45(4) of the Act, since there is no apparent consideration for the transfer of the asset, the full value of the consideration has to be determined in an indirect manner and that indirect manner has been indicated to be the fair market value of the asset. Thus, when the fair market value of the asset under section 45(4) is to be determined, it is obvious that section 55A of the Act would get triggered and a reference to the Valuation Officer would be necessary. 10. Another instance where the fair market value would have to be determined is provided in section 45(1A) of the Act. Under this provision, where the assessee receives an amount from the insurer on account of damage or destruction to any capital asset as a result of natural calamities such as floods or fires, explosions, etc., the question of determining the capital gains is also connected with the determination of the fair market value of the asset on the date of receipt of such amounts from the insurer. In section 45(1-A) of the said Act also, it is indicated that for the purposes of section 48 of the said Act, that is for computation of capital gains, the value of any money or the fair market value of the asset on the date of such receipts shall be deemed to be the full value of the consideration received or Singh Gurbax 2014.05.21 17:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.463 of 2010 (O&M) 9 accruing as a result of such transfer of capital asset. In this situation also the Assessing Officer would be required to compute the fair market value of the asset and, therefore, a reference to the Valuation Officer under Section 55A of the said Act would be necessary.” 12. Following the said judgment, similar view was expressed by the Delhi High Court in Dev Kumar Jain v. Income Tax Officer and another, (2009) 309 ITR 240. 13. In view of the above, it is concluded that reference under Section 55A of the Act to the Valuation Officer for ascertaining the Fair market value of the capital asset was unjustified. Accordingly, the substantial questions of law are answered against the revenue and in favour of the assessee. Consequently, the appeal is dismissed. (Ajay Kumar Mittal) Judge March 05, 2014 (Anita Chaudhry) ‘gs’ Judge Singh Gurbax 2014.05.21 17:32 I attest to the accuracy and integrity of this document High Court Chandigarh "