Sri. Gouli Mahadevappa, Gangavathi V. ITO, Hospet

ITA 587/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5162 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-12-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 08-06-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V S SREELEKHA
• Assessee Lawyers: V SRINIVSAN
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Income from undisclosed sources; Cost of acquisition; Fair market value; Valuation report; Benefit of exemption; Reason to believe; Capital Gains
• Section: 143(3); 50C; 54F; 142(1); 234B; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE, K. JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER I.T.A NO.587/BANG/2009 ASSESSMENT YEAR : 2005-06 SHRI GOULI MAHADEVAPPA, RAMARATHNA ONI, GANGAVATHI. : APPELLANT VS THE INCOME-TAX OFFICER, WARD-2, HOSPET. : RESPONDENT APPELLANT BY : SHRI V.SRINIVSAN RESPONDENT BY : SMT. V.S.SREELEKHA O R D E R PER SHRI A. MOHAN ALANKAMONY, AM; THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. CIT (A), HUBLI IN ITA NO.61/CIT(A) HBL/08-09 DA TED: 16.2.2009 FOR THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE HAS RAISED FIVE GROUNDS IN HIS APPE AL. THE FIRST GROUND BEING GENERAL AND NO SPECIFIC ISSUE INVOLVED , IT BECOMES NON-CONSEQUENTIAL. IN THE REMAINING GROUNDS, THE CR UXES OF THE ISSUES RAISED ARE REFORMULATED AS UNDER: (1) THE CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE LTCG OF RS.14.06 LAKHS AS WORKED OUT BY THE AO ON SALE OF PROPERTY; ITA NO.587/B/2009 2 - HE HAD FAILED TO APPRECIATE THAT THE ENTIRE CG ARIS ING FROM TRANSFER OF PROPERTY QUALIFY FOR EXEMPTION U/S 54F( 1)(A) OF THE ACT; - WITHOUT PREJUDICE, THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADOPTION OF RS.36 LAKHS AS SALE CONSIDERATION IN TE RMS OF S.50C OF THE ACT AS THE ASSESSEE WAS IN RECEIPT OF RS.20 LAKHS ON THE SALE OF PROPERTY AND CONSEQUENTLY THE ASSESSMENT OF LTCG ON RS.36 LAKHS WAS UNJUSTIFIED; - WITHOUT PREJUDICE, THE TAXABLE OF LONG TERM CAPITAL GAIN DETERMINED BY THE AUTHORITIES BELOW WAS HIGHLY EXCE SSIVE AND LIABLE TO BE REDUCED SUBSTANTIALLY; (2) THE ASSESSEE DENIES HIMSELF LIABLE TO BE CHARGED TO INTEREST U/S 234A AND 234B OF THE ACT; & (3) THE ASSESSEE MAY BE AWARDED COSTS IN PROSECUTING TH E APPEAL AND ALSO ORDER FOR THE REFUND OF INSTITUTION FEES A S PART OF THE COSTS. 3. DURING THE COURSE OF HEARING, THE LD. A.R CAME U P WITH A PLEA FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL, THE GIST OF WHICH IS AS UNDER: (I) THE IMPUGNED ORDER OF THE AO PASSED U/S 143(3) R.W.S 147 OF THE ACT WAS BAD IN LAW IN AS MUCH AS THERE WAS NO INCOME ESCAPING ASSESSMENT, CONSIDERING THE ROI FIL ED BY THE ASSESSEE ON 9.1.2007 AND, THEREFORE, THE IMPUGNED O RDER INVOKING THE PROVISIONS OF S. 147 OF THE ACT DESERV ES TO BE CANCELLED; & - WITHOUT PREJUDICE, THE ORDER OF THE REASSESSMENT WA S BAD IN LAW AND VOID-AB-INITIO FOR WANT OF REQUISITE JUR ISDICTION, ESPECIALLY, THE MANDATORY REQUIREMENTS TO ASSUME JURISDICTION U/S 148 OF THE ACT DID NOT EXIST AND H AVE NOT BEEN COMPLIED WITH AND CONSEQUENTLY, THE REASSESSME NT REQUIRES TO BE CANCELLED. 3.1 AFTER DUE CONSIDERATION OF THE SUBMISSIONS OF THE EITHER PARTY, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE WAS AD MITTED AND THE ITA NO.587/B/2009 3 REGISTRY WAS DIRECTED TO TAKE ON THE APPLICATION FO R ADMISSION OF ADDITIONAL GROUNDS ON RECORD. 4. BRIEFLY STATED, THE ASSESSEE, AN INDIVIDUAL, WHO SE ONLY SOURCE OF INCOME WAS PENSION BEING A FREEDOM FIGHTER. THE AO WAS IN POSSESSION OF INFORMATION FROM CIT (CIB) THAT THE A SSESSEE HAD SOLD A PROPERTY AT BANGALORE ON 5.6.2004 FOR RS.36 LAKHS , AND, ACCORDINGLY, A NOTICE U/S 142(1) WAS SERVED ON THE ASSESSEE REQUIRING HIM TO FURNISH A RETURN OF INCOME. THERE WAS NO RESPONSE FROM THE ASSESSEES SIDE. HOWEVER, THE ASSESSEE F URNISHED CERTAIN DETAILS IN COMPLIANCE TO THE AOS LETTER DT: 18.12. 2007 REQUIRING HIM TO PRODUCE BANK PASS BOOK, SOURCE FOR INVESTMEN T, BOOKS OF ACCOUNT ETC. 4.1 SUBSEQUENTLY, THE ASSESSEE FURNISHED A RETURN OF INCOME ON 9.1.08 INCORPORATING THE SALE PROCEEDS AND ALSO FRE EDOM FIGHTERS PENSION AS THE INCOME CHARGEABLE TO TAX. THE AO HA D REASONED THAT SINCE THE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT WITHIN THE MEANING OF S.147, A NOTICE U/S 148 WAS S ERVED ON THE ASSESSEE. IN COMPLIANCE, THE ASSESSEE VIDE HIS COM MUNICATION REQUESTED THAT THE RETURN OF INCOME ALREADY FURNISH ED BE TREATED AS IN RESPONSE TO NOTICE U/S 148 OF THE ACT. 4.2 IT WAS CONTENTED, BRIEFLY, BY THE ASSESSEE THA T THE SALE CONSIDERATION OF THE SITE SITUATED AT BANG ALORE WAS ONLY FOR RS.20,00,000/- AND THE ENTIRE SALE PROCEED S WAS UTILIZED FOR CONSTRUCTION OF THE HOUSE AT GANGAVATH I AND, ITA NO.587/B/2009 4 HENCE, THE ENTIRE SALE CONSIDERATION WAS ELIGIBLE F OR DEDUCTION U/S 54C OF THE ACT. THE ASSESSEE, A SENIOR CITIZEN AND BEING A FREEDOM FIGHTER RECEIVES FREEDOM FIGHTERS PENSIO N AND, THERE WAS NO OTHER TAXABLE INCOME AND, HENCE, NO RE TURN OF INCOME WAS FURNISHED. THE COST OF CONSTRUCTION WAS ESTIMATED AT RS.24 LAKHS AS PER VALUATION REPORT AN D THE DIFFERENCE OF RS.4 LAKHS UTILIZED FOR CONSTRUCTION WAS FROM THE AGRICULTURAL INCOME AND PAST SAVINGS OF PENSION. 4.3 AFTER GIVING DUE WEIGHT-AGE TO THE ASSESSEES CONTENTION WITH REGARD TO THE APPLICABILITY OF S.50C FOR CALCULATI NG EXEMPTION U/S 54F OF THE ACT, THE AO, BY EXTENSIVELY QUOTING S.50 C WHICH WAS INSERTED BY THE FINANCE ACT 2002 W.E.F. 1.4.2003 [S PECIAL PROVISION FOR FULL VALUE OF CONSIDERATION IN CERTAIN CASES], HAD OBSERVED THUS 9 THE ASSESSEE HAS NOT DISPUTED THE VALUE SO ADOPTED OR ASSESSED BY THE STAMP VALUATION AUTHORIT Y IN ANY COURT OF LAW. THE ASSESSEE IN HIS REPLY ACCEPTS TH AT ENTIRE CAPITAL GAIN CLAIMED AS EXEMPTION U/S 54F AND S.50C IS APPLICABLE FOR ADOPTION OF NET CONSIDERATION FOR TH E PURPOSE OF S.48 I.E., WHILE CALCULATING GROSS TAXABLE GAIN I.E ., CAPITAL GAIN BEFORE CALCULATING EXEMPTION U/S 54A, 54E C AND 54F . 10. THE ASSESSEES REQUEST TO CONSIDER RS.20,00,000 /- AS SALE CONSIDERATION AS AGAINST VALUE OF THE PROPERTY VALUED AT RS.36,00,000/- AS PER THE GOVERNMENT GUIDELINES VAL UE IS NOT ACCEPTABLE AND SEC.50C IS CLEAR REGARDING THE CONSI DERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF CAP ITAL ASSET. I PROCEED TO CONCLUDE THE ASSESSMENT AS UNDER ADOPTIN G THE VALUE AS ADOPTED BY THE VALUATION OFFICER IN THE SA LE DEED AS PER LETTER NO.501/07-08 DATED: 31.12.2007 RECEIVED FROM THE SENIOR SUB-REGISTRAR, BANGALORE. 5. AGGRIEVED, THE ASSESSEE HAD APPROACHED THE LD.CI T(A) FOR RELIEF. AFTER DUE CONSIDERATION OF THE FORCEFUL AR GUMENTS PUT-FORTH BY THE ASSESSEE, THE LD. CIT (A) HAD TAKEN A STAND THAT ITA NO.587/B/2009 5 5.1.THE APPELLANT HAS SOLD A PLOT AT BANGALORE AT RS.20 LAKHS AS PER THE AGREEMENT WITH SRI J.A. EARANNA DT: 5.6.2004 AND IT IS ALSO STATED THE ENTIRE SALE PROCEEDS ARE INVESTED IN THE HOUSE PROP ERTY AT GANGAVATHI, ACCORDINGLY, EXEMPTION U/S 54F OF THE A CT IS BEING CLAIMED. IT IS SEEN BY THE AO THAT THE PROVI SIONS OF SECTION 50C OF THE ACT ARE APPLICABLE IN THE CASE B ECAUSE THE VALUE AS PER STAMP DUTY REGISTRATION IS AT RS.36 LA KHS, THEREFORE THE AO HAS CALCULATED THE CAPITAL GAIN CO NSIDERING THE VALUE AT RS.36 LAKHS. THE LD. AR HAS EXPLAINED THAT THE PROVISIONS OF SECTION 50C ARE NOT APPLICABLE SINCE THE AO HAS NOT ESTABLISHED THE RECEIPT OF RS.36 LAKH AND AS PE R THE AGREEMENT THE SALE PROCEEDS ARE AT RS.20 LAKH ONLY. THEREFORE, AO CANNOT ASSESS THE CAPITAL GAIN ON RS. 36 LAKHS. IT IS SEEN THAT AS PER SECTION 2(47) OF THE ACT THE RE IS A TRANSFER OF PROPERTY LEADING TO LONG TERM CAPITAL G AIN TAX, THIS FACT IS NOT DISPUTED. WHEREAS THE ONLY OBJECTION O F THE AR IS THAT A NOTIONAL AMOUNT OF SALE PROCEEDS CANNOT BE A PPLIED WHEN THE ACTUAL AMOUNT AS PER THE SALE DEED IS DECL ARED BY THE APPELLANT. THE PROVISIONS OF SECTION 50C ARE I NCORPORATED BY THE FINANCE ACT 2002 W.E.F. 1.4.2003. THE INTEN TION OF THE LEGISLATURE WAS TO BRING TO TAX THE TRANSACTIONS OV ER AND ABOVE THE RECORDED TRANSACTIONS AND TO KEEP THE INF IRMITY THE CONCERNED REGISTRATION AUTHORITIES HAVE INTRODUCED CERTAIN FIXED VALUE AREA-WISE AND CITY-WISE AFTER THE PROPE R SURVEY OF THE REAL VALUE WHICH IS GENERALLY NOT SHOWN IN THE REAL ESTATE TRANSACTIONS. THEREFORE, AFTER WELL DECIDED CONSID ERATION BOTH THE REGISTRATION AUTHORITIES AS WELL AS THE PROVISI ONS OF SECTION 50C ARE GOING TO INDICATE THAT THE REAL SAL E PROCEEDS ARE NOT DECLARED. HENCE, THESE OVER-RIDING PROVISI ONS ARE INTRODUCED. THE APEX COURT WHILE DECIDING THE ISSU E OF LEVY OF CONCEALMENT PENALTY IN THE CASE OF DHARMENDRA TE XTILES HAS TAKEN ENOUGH CARE IN RESPECT OF INTERPRETATION OF LEGISLATIVE STATUTES CANNOT BE INTERPRETED IN A WAY OTHER THAN WHAT IS INTENDED BY LEGISLATIVE BODY, RIGHT OR WRON G. IN THIS SITUATION, THE PROVISIONS ARE INTRODUCED AFTER A WE LL THOUGHT SCHEME TO CURB OR TO REDUCE THE TRANSACTIONS OF REA L ESTATE AT A LOWER RATE. IN VIEW OF THE SAME, THE STAMP DUTY R EGISTERED VALUE OF RS.36 LAKHS IS A VALID ONE THOUGH THE AO H AS NOT ESTABLISHED THE ACTUAL RECEIPT OF RS.36 LAKHS AND AFTER READING THE PROVISIONS OF 50C OF THE ACT ALONG WITH THE DECISION OF THE APEX COURT IN THE CASE OF DHARMENDR A TEXTILES IN RESPECT OF INTERPRETATION OF LEGISLATIVE STATUTE S, THERE IS NO NEED FOR THE AO TO ESTABLISH THE RECEIPT OF RS.36 L AKHS. THIS IS OVER RIDING SECTION AND NATURALLY IT HAS TO BE I NTERPRETED FROM THE IMPORTANCE OF THE PROVISION BEING INTRODUC ED. THEREFORE, THE AO HAS RIGHTLY ADOPTED RS.36 LAKHS A T THE SALE PROCEEDS TO COMPUTE THE CAPITAL GAIN TAX IN THE CAS E. ITA NO.587/B/2009 6 6. AGITATED, THE ASSESSEE HAS COME UP WITH THE PRES ENT APPEAL. THE LENGTHY AND ELABORATE ARGUMENTS/SUBMISSIONS MAD E BY THE LD. A R DURING THE COURSE OF HEARING ARE SUMMARIZED AS UNDER: (I) DURING THE YEAR UNDER DISPUTE, THE ASSESSEE HAD SOL D A SITE AT BANGALORE FOR RS.20 LAKHS AND THE ENTIRE SA LE CONSIDERATION RECEIVED ALONG WITH THE CERTAIN OTHER FUNDS AVAILABLE WITH THE ASSESSEE TO THE EXTENT OF RS.4 LAKHS WAS INVESTED IN ACQUISITION OF A NEW RESIDENT IAL HOUSE AT GANGAVATHI FOR RS.24 LAKHS AND, THUS, CLAI MED NIL CAPITAL GAIN AS THE ENTIRE CG WAS EXEMPT BY V IRTUE OF THE PROVISIONS OF S.54F OF THE ACT. (II) DURING THE ASSESSMENT PROCEEDINGS INITIATED U/S 147 OF THE ACT; THE AO FOUND THAT THE SAID PROPERTY WAS REGISTERED BY THE PURCHASER BY PAYING STAMP DUTY ON THE GUIDELINE VALUE OF THE PROPERTY AT RS.36 LAKHS. ACCORDINGLY, THE AO HAD RECOMPUTED THE CG AT RS.1406494/-, ADOPTING RS.36 LAKHS AS THE SALE CONSIDERATION BY VIRTUE OF THE PROVISIONS OF S.50C OF THE ACT; - THE CONTENTION OF THE ASSESSEE THAT THE ENTIRE CG W AS EXEMPT U/S 54F OF THE ACT WAS TURNED DOWN BY THE AO, BUT, ALLOWED EXEMPTION U/S 54F OF THE ACT TO TH E EXTENT OF RS.20 LAKHS BEING THE SALE CONSIDERATION RECEIVED BY THE ASSESSEE AND INVESTED IN THE NEW ASSET. THE STAND OF THE AO WAS CONFIRMED BY THE CIT(A). (III) THE LEVY OF CG IS REGULATED BY THE PROVISIONS OF S. 45. S.45(1) OF THE ACT IS THE GENERAL CHARGING SECTION AND RELEVANT TO THE ISSUE ON HAND IS REPRODUCED AS UNDE R: ANY PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR SHALL, SAVE AS OTHERWISE PROVIDED IN SECTIONS 54, 54B, 54D, 54E, 54EA, 54EV, 54F, 54G AND 54H BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD CAPITAL GAINS AND SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN WH ICH, THE TRANSFER TOOK PLACE. - AS CAN BE SEEN FROM THE AFORESAID CHARGING SECTION ANY PROFITS OR GAINS ARISING FROM THE TRANSFER OF T HE CAPITAL ASSET IS CHARGEABLE TO CAPITAL GAINS AND TH E CAPITAL GAINS SHALL BE DEEMED TO BE THE INCOME OF T HE ITA NO.587/B/2009 7 PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE. HOWEVER, BY VIRTUE OF THE USE OF THE EXPRESSION SA VE AS OTHERWISE PROVIDED AFTER THE COMMA IN S.45(1), THE SAID CHARGING SECTION IS MADE, SUBJECT TO THE PROVISIONS OF SECTIONS 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G AND 54H OF THE ACT THAT FOLLOW THE EXPRESSION SAVE AS OTHERWISE PROVIDED IN. IT MEA NS THAT THE FIRST LIMB OF S.45(1) OF THE ACT ENDING WI TH THE WORD SHALL SHOULD YIELD TO THE FOLLOWING LIMB IN WHICH, THE ABOVE STATED PROVISIONS ARE MENTIONED. IN OTHER WORDS, IN SITUATIONS TO WHICH THE AFORESAID SECTIONS 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G AND 54H OF THE ACT ARE ATTRACTED, THE LEVY OF TAX U /S 45(1) OF THE ACT WILL BE MODIFIED AND SUBJECT TO TH E AFORESAID PROVISIONS. THUS, IN ORDER TO DETERMINE THE CHARGE U/S 45(1) OF THE ACT AND THE TAXABLE CAPITAL GAIN, NECESSARILY, THE PROVISIONS OF SECTIONS 54, 5 4B, 54D, 54E, 54EA, 54EB, 54F, 54G AND 54H OF THE ACT HAVE TO BE APPLIED AND IN THAT SENSE, BOTH S.45(1) AND S.54F ARE PROVISIONS THAT HAVE TO BE APPLIED SIMULTANEOUSLY IN THE FIRST PLACE. - RELIES THE CASE LAW IN THE CASE OF V.V.GEORGE REPO RTED IN 227 ITR 893 (KER) - THUS, THE LEVY OF CAPITAL GAIN UNDER THE PROVISIONS OF S.45(1) OF THE ACT AND THE EXCEPTIONS TO THE LEVY CONTAINED IN THE PROVISIONS OF SECTIONS 54, 54B, 54 D, 54E, 54EA, 54EB, 54F, 54G AND 54H OF THE ACT HAVE TO BE EXAMINED IN ORDER TO DETERMINE THE TAXABLE CAPITAL GAINS; (IV) THE PROVISIONS OF S.48 RELATE TO THE PROCESS OF COM PUTING THE CAPITAL GAIN AND THEY MAY BE CALLED THE COMPUTATIONAL PROVISIONS. THE PROCESS OF COMPUTING THE CAPITAL GAINS IS THE NEXT STEP IN THE PROCESS OF LE VY AND THE SAME IS NOT SOMETHING WHICH IS ANTERIOR TO THE LEVY OF CAPITAL GAINS TAX U/S 45(1) OF THE ACT. SINCE T HE PROVISIONS OF S. 45(1) ARE LINKED TO THE EXEMPTION PROVISIONS, BOTH THE CHARGING SECTION AND THE EXEMP TION PROVISIONS OPERATE SIMULTANEOUSLY. HOWEVER, CERTAI N EXEMPTION PROVISIONS LIKE S.54 ETC., PROVIDE THE CONDITIONS FOR ITS OPERATION BASED ON THE COMPUTATI ON OF CAPITAL GAINS. IN SUCH CASES, THE COMPUTATION PROV ISIONS HAVE TO BE GIVEN EFFECT TO, SIMULTANEOUSLY. HOWEVER , WHERE THE CONDITIONS MENTIONED IN EXEMPTION SECTION S DO NOT REQUIRE THE COMPUTATION OF CAPITAL GAINS TO JUDGE ITS APPLICATION THEN, THE COMPUTATIONAL PROVISIONS OF S.48 COMES SECOND AND NOT SIMULTANEOUS WITH THE LEVY AND ITA NO.587/B/2009 8 EXEMPTION. IN EITHER CASE, THE PROVISIONS OF S.48 ARE NOT SOMETHING THAT ARE TO BE DETERMINED BEFORE THE EXEMPTION PROVISIONS AS THE EXEMPTION PROVISIONS BY VIRTUE OF THE LINK WITH S.45(1) OPERATE SIMULTANEOU SLY WITH THE OPERATION OF S.45(1) OF THE ACT. (V) THE PROVISIONS OF S. 50C DEEMS THE FULL VALUE OF CONSIDERATION TO BE SUBSTITUTED FOR THE PURPOSES OF COMPUTATION OF CAPITAL GAINS IN S.48 OF THE ACT IN CERTAIN CASES; - THE PROVISIONS OF S. 50C OF THE ACT CREATE A LIMITE D FICTION TO THE EFFECT THAT THE FULL VALUE OF CONSID ERATION SHALL BE SUBSTITUTED IN THE PROVISIONS OF S.48 OF T HE ACT BY THE AMOUNT TAKEN BY THE SUB-REGISTRAR FOR REGISTRATION PURPOSES. THUS, THIS FICTION U/S 50C OF THE ACT IS EXTENDED ONLY THE SECOND ASPECT OF COMPUTATION OF CAPITAL GAINS AND THE SAME DOES NOT EXTENT OF THE CHARGING SECTION OR THE EXCEPTIONS TO THE CHARGING SECTION. IT IS WELL SETTLED THAT THE FICT ION CREATED BY THE LEGISLATURE HAS TO BE STRICTLY CONST RUED AND APPLIED ONLY FOR THE PARTICULAR PURPOSE FOR WHI CH THE FICTION HAS BEEN CREATED. IT IS IMPERMISSIBLE TO EXTEND THE OPERATION OF THE FICTION TO SITUATIONS O R CIRCUMSTANCES FOR WHICH, THE SAID FICTION HAS NOT B EEN EXTENDED. THIS IS BECAUSE, THE LEGISLATURE IS FULL Y AWARE OF THE MEANING OF THE TERM FULL VALUE OF CONSIDERATION, WHICH IS EMPLOYED IN SEVERAL SECTIO NS. THE LEGISLATURE CONSCIOUSLY INTENDED TO APPLY THE FICTION U/S 50C OF THE ACT ONLY TO THE EXPRESSION U SED IN S.48 OF THE ACT AND NOT IN ANY OTHER PLACE. THI S IS BECAUSE, THE LEGISLATURE WOULD HAVE USED THE EXPRESSION, FOR THE PURPOSE OF THIS CHAPTER INSTE AD OF FOR THE PURPOSE OF S.48 IN THE PROVISIONS OF S.50 C OF THE ACT, IF IT INTENDED TO APPLY THE FICTION TO THE EXEMPTION PROVISIONS AS WELL. IN OTHER WORDS, THE FICTION CONTAINED IN S.50C OF THE ACT CAN BE APPLIE D ONLY FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN S U/S 48 OF THE ACT AND NOT BEYOND;. (VI) WITH REGARD TO S.54F OF THE ACT, THE PROVISIONS OF THIS SECTION WAS INSERTED BY THE LEGISLATURE AS AN INCEN TIVE PROVISION TO EXEMPT THE LEVY OF CAPITAL GAINS FOR ENCOURAGING PURCHASE OF A NEW RESIDENTIAL HOUSE; - THE PROVISIONS OF S.54F CARVES OUT AN EXCEPTION TO THE LEVY OF CAPITAL GAIN U/S 45(1) OF THE ACT. THE EXCEPTION CRAVED OUT RESULTS EITHER IN THE EXEMPTIO N OF THE ENTIRE CAPITAL GAIN OR IN THE EXEMPTION OF ONLY THE ITA NO.587/B/2009 9 PARTIAL CAPITAL GAIN. IN OTHER WORDS, S.54F OF THE ACT MODIFIES THE EXTENT OF CAPITAL GAINS CHARGEABLE U/S 45(1) OF THE ACT; - THE PROVISIONS OF S.54F CONTAIN A COMPLETE CODE IN ITSELF BY WHICH THE EXTENT OF THE MODIFICATION TO S .45(1) IS SPECIFIED. THE CONDITIONS MENTIONED U/S 45F AND ENQUIRY TO BE MADE TO ASCERTAIN THE APPLICATION OF S.54F REQUIRE THE DETERMINATION OF ONLY THE TWO CRITERIA, NAMELY, (A) THE COST OF THE NEW ASSET; & (B) THE NET CONSIDERATION FOR THE TRANSFER; - RELIES ON THE CASE LAW IN THE CASE OF CIT V. ASSAM PETROLEUM INDUSTRIES (P) LTD REPORTED IN 262 ITR 58 7 (GAU); - THE OBJECT BEHIND THE USE OF NET CONSIDERATION IN S.54F IS TO DETERMINE THE EXTENT OF MONEY AVAILABLE WITH THE ASSESSEE ON THE TRANSFER OF THE ASSET. AN ASSESSEE WOULD HAVE FUNDS FROM THE SALE OF THE ASSE T AFTER INCURRING THE EXPENSES IN CONNECTION WITH THE TRANSFER. IT IS THE EXTENT OF SUCH FUNDS AVAILABLE WITH THE ASSESSEE THAT HE IS EXPECTED TO INVEST TO AVAIL THE EXEMPTION AS HE CANNOT BE EXPECTED TO INVEST FUNDS EXCEEDING THE AMOUNT OF NET CONSIDERATION AS THE EXPENDITURE INCURRED FOR TRANSFER WOULD BE AN OUTGO FROM THE CONSIDERATION RECEIVED. IN OTHER WORDS, S.54F MANDATES THAT THE ENTIRE CONSIDERATION AFTER INCURRING THE EXPENSES WHICH IS UNDOUBTEDLY AVAILABLE WITH THE ASSESSEE MUST BE UTILIZED FOR ACQUIRING THE NEW ASSET. IF THE ENTIRE CONSIDERATIO N IS SO USED THEN THE CAPITAL GAIN IS EXEMPT ENTIRELY. HOWEVER, IN CASE THE ENTIRE CONSIDERATION IS NOT US ED BY THE ASSESSEE FOR ACQUISITION OF NEW ASSET, ONLY PROPORTIONATE EXEMPTION IS ALLOWED. IT IS TO THIS EFFECT THAT THE PROVISIONS OF S.45)1) STAND MODIFIED BY VI RTUE OF THE PROVISIONS OF S.54F AT THE STAGE OF CHARGEAB ILITY ITSELF; - AFTER GIVING ILLUSTRATION OF THE APPLICATION OF S.5 4F IN A CASE WHERE THE PROVISIONS OF S.50C ARE ATTRACTED, T HE CONTENTION WAS THAT THE AFORESAID CONSTRUCTION PLAC ED ON THE PROVISIONS OF S.54F WOULD BE ONLY CONSTRUCTI ON THAT WOULD BE EFFECTUATE THE OBJECT BEHIND THE ENACTMENT OF THE PROVISIONS OF S.54F AND MAKE THE SAME WORKABLE. THE SCOPE AND EFFECT OF S.54F HAS BEEN EXPLAINED IN THE BOARDS CIRCULAR NO.346 DT.30.6.82 [138 ITR (ST)24] AND IN CIRCULAR NO.794 DT. 9.8.2000 [245 ITR (ST) 21] THE EXTENSION OF THE SCO PE ITA NO.587/B/2009 10 OF S.54F WAS EXPLAINED. A CONJOINED READING OF THE AFORESAID TWO CIRCULARS BRINGS OUT THE INTENTION OF THE LEGISLATURE TO TREAT THE CAPITAL GAINS ON THE SALE OF LONG TERM ASSETS IN A CONCESSIONAL MANNER WITH THE OBJECT OF ENCOURAGING HOUSE CONSTRUCTION; - THE PROVISIONS OF S.54F(1)(A) WILL BECOME UNWORKABL E, IF THE CONSTRUCTION PLACED THEREON, WOULD REQUIRE THE CONSIDERATION AS PER S.50C TO BE TAKEN TO WORK OUT THE AMOUNT OF EXEMPTION OF THE CAPITAL GAI NS. THIS WOULD MEAN AND REQUIRE THE ASSESSEE TO INVEST THE ENTIRE DEEMED CO NSIDERATION U/S 50C OF THE ACT TO AVAIL THE BENEFIT OF EXEMPTION IN FULL. AN ASSESSEE WHO DOES NOT HAVE THE RESOURCES BEYOND THE NET CONSIDERATION CANNOT B E EXPECTED TO INVEST AMOUNTS THAT HE NEVER REALIZED IN ORDER TO COME WIT HIN THE AMBIT OF S.54F(1)(A). THIS IS PRECISE REASON THAT THE LEGIS LATURE HAS CONSCIOUSLY RESTRICTED THE OPERATION OF THE LEGAL FICTION U/S 5 0C ONLY FOR THE PURPOSE OF S.48 AND NOT FOR THE ENTIRE CHAPTER IV-E RELATING TO THE TAXATION OF CAPITAL GAINS. - WHEN THE PROVISIONS OF S.54F HAVE BEEN ENACTED TO GIVE AN INCENTIVE TO THE TAX PAYER AND TO ENCOURAGE HOUSE CONSTRUCTION, THEY HAVE TO BE CONSTRUED IN A MANNER TO EFFECTUATE THE OBJECT AND INTENTION OF LEGISLATURE. (VII) THE PROVISIONS OF S.50C WERE INTRODUCED BY THE FINA NCE ACT 2002 W.E.F. 1.4.2003. THE BOARDS CIRCULAR NO. 8 OF 2002 DATED: 27.8.2002 HAS EXPLAINED THE SCOPE OF S.50C, ACCORDING TO WHICH, THE DEEMING FICTION U/S 50C OF THE ACT IS RESTRICTED TO ADOPTING THE FULL VALUE OF THE CONSIDERATION TO THE COMPUTATION OF CAPITAL GAINS U /S 48 OF THE ACT. THERE WAS NOTHING IN THE CIRCULAR TO CO NSTRUE THAT THE PROVISIONS OF S.50C HAVE TO BE RECKONED AN D APPLIED FOR THE COMPUTATION OF THE EXTENT OF EXEMPT ION U/S 54F OF THE ACT; (VIII) THE PROVISIONS OF S.50C WHICH HAVE BEEN ENACTED BY THE FINANCE ACT 2002 TO CURB UNACCOUNTED INCOME IN PROPERTY TRANSACTION CREATE A FICTION AND A PRESUMP TION THAT THE GUIDELINE VALUE FOR REGISTRATION IS THE FU LL VALUE OF THE CONSIDERATION. HOWEVER, THIS PRESUMPTION IS REBUTTABLE HAVING REGARD TO THE PROVISIONS OF S.50C(2)AND (3) OF THE ACT AND A PROCEDURE IS LAID DOWN FOR MAKING A REFERENCE TO THE DVO TO MAKE A VALUATI ON OF THE CAPITAL ASSET. EVEN IN TERMS OF S.50C(2), T HE FULL VALUE OF CONSIDERATION IS TO BE DETERMINED BY THE D VO ON VALUATION ONLY AND NOT OTHERWISE. THE PROVISION S OF S.50C(2) DO NOT MAKE ANY PROVISION TO DETERMINE THE ACTUAL CONSIDERATION BASED ON EVIDENCE OF THE TRANSACTION AS ENTERED INTO BETWEEN THE SELLER AND THE PURCHASER. THE QUESTION OF VALUATION IS ONE OF THE ESTIMATES AND BY VIRTUE OF THE STATUTORY FICTION A N ITA NO.587/B/2009 11 UNREAL AND FICTIONAL CONSIDERATION IS TAKEN AS THE BASIS FOR COMPUTING THE CAPITAL GAIN INSTEAD OF THE ACTUA L AMOUNT RECEIVED. HOWEVER, THE BENEFIT OF EXEMPTION U/S 54F OF THE ACT IS LINKED TO THE NET CONSIDERATION W HICH IS DEFINED TO MEAN THE EXTENT OF AVAILABLE FUNDS, HAVI NG REGARD TO THE RATIONALE BEHIND THE USE OF THE SAID EXPRESSION. THUS, WHERE ANY ASSESSEE COMPLIES WITH THE REQUIREMENTS OF S.54F(1)(A) HAVING REGARD TO TH E PLAIN LANGUAGE EMPLOYED THEREIN, HE CANNOT BE DENIE D THE BENEFIT OF EXEMPTION BY REFERRING TO THE PROVIS IONS OF S.50C WHICH IS APPLICABLE FOR COMPUTATION AND WHICH IS A STEP REMOVED FROM THE LEVY. IN CASES WHERE THE PROVISIONS OF S.54F(1)(B) ARE ATTRACTED, THE PROPOR TIONATE EXEMPTION OF CAPITAL GAIN IS AVAILABLE. IN EITHER CASE, THE EXTENT OF EXEMPTION IS BASED UPON THE FULFILLME NT OF THE CRITERIA MENTIONED U/S 54F OF THE ACT ONLY. (IX) WHEN THE PROVISIONS OF S.54F AND S.50C ARE TO BE CONSTRUED, IT HAS TO BE SO CONSTRUED IN A MANNER TH AT EFFECTUATE AND ADVANCES OF THE OBJECT OF S.54F OF T HE ACT ENTIRELY AND NOT IN A MANNER TO DEFEAT OR RENDER INOPERABLE ANY OF THE SAID PROVISIONS. THIS IS BEC AUSE THE PROVISIONS OF S.54F ARE INCENTIVE PROVISIONS AN D, THEREFORE, ANY CONSTRUCTION THAT SEEKS TO RESTRICT THE BENEFIT GIVEN BY VIRTUE OF S.54F OF THE ACT CANNOT BE ADOPTED AS THE PROVISIONS OF S.50C HAVE NOT BEEN ENACTED TO EXPLAIN AND LIMIT THE BENEFITS GIVEN U/S 54 OF THE ACT. FURTHERMORE, THE ABOVE CONSTRUCTION PLACE D ON S.54F WILL NOT FRUSTRATE THE PROVISIONS OF S.50C, B ECAUSE, THE PROVISIONS OF S.50C ARE INTENDED TO CURB UNACCOUNTED MONEY IN PROPERTY TRANSACTIONS AND THE SAME WOULD APPLY IN CIRCUMSTANCES WHERE THE EXCEPTIONS CONTAINED U/S 54F ARE NOT APPLICABLE; (X) THUS, THE HARMONIOUS CONSTRUCTION OF S. 54F AND S.4 5(1) OF THE ACT ALONG WITH THE COMPUTATIONAL PROVISIONS OF S.48 R.W.S.50C OF THE ACT CAN ONLY BE ACHIEVED, IF THE PROVISIONS OF S.54F ARE GIVEN THE NATURAL AND LITERAL MEANING NOT A STRAINED MEANING BY SUBJECTING IT TO THE PROVISIONS OF S. 50C OF THE ACT. - RELIES ON THE CASE LAWS: (A) CIT V. ACE BUILDERS (P) LTD 281 ITR 210 (BOM) (B) ITO V. SAK SOFT LTD. (2009) 30 SOT 55 7. ON THE OTHER HAND, THE LD. D R WAS VERY VEHEMEN T IN HER ARGUMENT THAT AS PER S.50C OF THE ACT WHICH WAS INS ERTED BY THE ITA NO.587/B/2009 12 FINANCE ACT 2002 W.E.F. 1.4.2003 WAS A SPECIAL PROV ISION FOR FULL VALUE OF CONSIDERATION IN CERTAIN CASES. MOREOVER, THE ASSESSEE HAD NOT DISPUTED THE VALUE ADOPTED BY THE STAMP VALUATI ON AUTHORITY. THE ASSESSEES CLAIM TO ADOPT RS.20 LAKHS AS SALE C ONSIDERATION AS AGAINST VALUE OF THE PROPERTY ADOPTED AT RS.36 LAKH S AS PER THE GOVERNMENT GUIDELINES CANNOT BE ACCEPTED AND S.50C OF THE ACT IS VERY CLEAR WITH REGARD TO THE CONSIDERATION RECEIVE D OR ACCRUING AS A RESULT OF TRANSFER OF CAPITAL ASSET. THE AO, IT WAS ARGUED BY THE LD. DR, HAD IN A JUDICIOUS MANNER ADOPTED THE VALUE DET ERMINED AS PER THE GOVERNMENT GUIDELINES, WHICH REQUIRES TO BE SUS TAINED. THE LD. DR HAD PLACED A STRONG RELIANCE ON THE BOARDS CIRCULAR NO.8 OF 2002, DATED 27 TH AUGUST, 2002 WHEREIN IT HAS BEEN CATEGORICALLY AFFIRMED - 37.1 THE FINANCE ACT, 2002 HAS INSERTED A NEW SECT ION 50C IN THE INCOME-TAX ACT TO MAKE A SPECIAL PROVISION F OR DETERMINING THE FULL VALUE OF CONSIDERATION IN CASE S OF TRANSFER OF IMMOVABLE PROPERTY. 37.2 IT PROVIDES THAT WHERE THE CONSIDERATION DECLA RED 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 PURP OSE OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH TRANSFER, THE VALUE SO ADOPTED OR ASSESSED SHALL BE DEEMED TO BE THE FU LL VALUE OF THE CONSIDERATION, AND CAPITAL GAINS SHALL BE COMPU TED ACCORDINGLY UNDER SECTION 48 OF THE INCOME-TAX ACT. 8. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS, D ILIGENTLY PERUSED THE RELEVANT RECORDS AND ALSO THE CASE LAWS ON WHICH THE EITHER PARTY HAD PLACED THEIR RESPECTIVE RELIANCE. ITA NO.587/B/2009 13 8.1 ON EXAMINING THE GROUND RAISED BY THE ASSESSEE FOR AWARD OF COST IN PROSECUTING THE APPEAL AND TO REFUND OF INS TITUTION FEES, WE DO NOT FIND ANY MERIT SINCE THE ISSUE INVOLVED IS COMP LEX. THEREFORE THIS GROUND IS DISMISSED. 8.2 BEFORE LOOKING INTO THE MAIN ISSUE, LET US NOW ADDRESS TO THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE DURING TH E COURSE OF HEARING. THE ASSESSEES GRIEVANCE WAS THAT THE IMPUGNED ORDER OF THE AO PASSED U/S 143(3) R.W.S 147 OF THE ACT WAS B AD IN LAW IN AS MUCH AS THERE WAS NO INCOME ESCAPING ASSESSMENT, CO NSIDERING THE ROI FILED BY THE ASSESSEE ON 9.1.2007(SIC) 9.1.2008 AND, THEREFORE, THE IMPUGNED ORDER INVOKING THE PROVISIONS OF S. 14 7 OF THE ACT DESERVES TO BE CANCELLED AND THAT [WITHOUT PREJUDIC E] THE ORDER OF THE REASSESSMENT WAS BAD IN LAW AND VOID-AB-INITIO FOR WANT OF REQUISITE JURISDICTION, ESPECIALLY, THE MANDATORY REQUIREMENT S TO ASSUME JURISDICTION U/S 148 OF THE ACT DID NOT EXIST AND H AVE NOT BEEN COMPLIED WITH. 8.3 WE HAVE DULY CONSIDERED THE SUBMISSION OF THE LD. A R AND ALSO PERUSED THE RELEVANT RECORDS. IT IS EVIDENT F ROM THE REASONING OF THE AO THAT HE WAS IN POSSESSION OF INFORMATION THAT THE ASSESSEE HAD SOLD A PROPERTY FOR RS.36 LAKHS IN BAN GALORE WHICH WAS NOT FINDING A PLACE ANYWHERE IN THE EARLIER RET URN OF INCOME WHICH WAS PROCESSED U/S 143(1). 8.4 IN OUR CONSIDERED VIEW, THIS REASONING INDICATES THAT THE AO HAD REASON TO BELIEVE THAT THE INCOME HAD ESCAPED A SSESSMENT. ITA NO.587/B/2009 14 THUS, THE AO WAS WITHIN HIS DOMAIN TO ASSUME JURISD ICTION U/S 147 OF THE ACT. ACCORDINGLY, THE ADDITIONAL GROUND RAI SED ON THIS COUNT IS DISMISSED. 8.5 THE CRUX OF THE ISSUES RAISED ARE TWO-FOLD, N AMELY (I) THE AO WAS NOT JUSTIFIED IN WORKING OUT THE LTCG A T RS.14.06 LAKHS ON SALE OF PROPERTY; & (II) THE LD. CIT (A) HAD FAILED TO APPRECIATE THAT THE E NTIRE CG ARISING FROM TRANSFER OF PROPERTY QUALIFY FOR EXEMP TION U/S 54F(1)(A) OF THE ACT. 8.6 THE ASSESSEES MAIN CONTENTION WAS THAT HE HAD SOLD A PLOT AT BANGALORE FOR RS.20 LAKHS AS PER THE AGREEMENT WITH SRI J.A. ERANNA DATED 5.6.2004 AND THAT THE ENTIRE SALE PROC EEDS WERE INVESTED IN A HOUSE PROPERTY AT GANGAVATHI AND THAT THE ENTIRE SALE PROCEEDS OF THE PROPERTY AT BANGALORE WAS EXEMPT U/ S 54F OF THE ACT. TO DRIVE HOME HIS POINT, THE ASSESSEE HAD PER HAPS FILED AN AFFIDAVIT TO ASSERT THAT THE SALE CONSIDERATION WAS ONLY RS.20 LAKHS WHICH WAS RECEIVED BY WAY OF DD OBTAINED FROM CANAR A BANK, BANGALORE AND SO ON AND SO FORTH. HE HAD STOUTLY C HALLENGED THE STAND OF THE AO IN INVOKING THE PROVISIONS OF S.50C OF THE ACT WHICH ACCORDING TO THE ASSESSEE IS APPLICABLE FOR ADOPTIO N OF NET CONSIDERATION FOR THE PURPOSE OF S.48 OF THE ACT I. E., CAPITAL GAIN BEFORE CALCULATING EXEMPTION U/S 54, 54A, 54EC, 54F OF THE ACT. 8.7 THE FIRM ASSERTION OF THE ASSESSEE WAS THAT HE HAD RECEIVED THE SALE CONSIDERATION OF RS.20 LAKHS ONLY BY MEANS OF A DD, THAT THE ENTIRE SALE CONSIDERATION OF RS.20 LAKHS WAS PU MPED IN ITA NO.587/B/2009 15 (INVESTED) TO THE CONSTRUCTION OF A HOUSE (AT GANGA VATHI) WHICH WAS VALUED AT RS.24 LAKHS, THE BALANCE OF RS.4 LAKHS WA S MET OUT OF AGRICULTURAL INCOME AND PAST SAVINGS. HE HAD PLEADE D BEFORE THE AO ON THE ONE HAND THAT HE DID NOT HAVE ANY SOURCE OF INCOME OTHER THAN THE FREEDOM FIGHTERS PENSION AND ON THE OTHER HAND, WHEN HE HAD TRIED TO EXPLAIN THE BALANCE OF RS.4 LAKHS PURP ORTED TO HAVE BEEN INVESTED IN THE HOUSE PROPERTY AT GANGAVATHI, A PART OF THE AMOUNT FROM AGRICULTURAL INCOME. HOWEVER, NO DOCUM ENTARY EVIDENCE IS FORTH-COMING TO SUGGEST THAT THE ASSESS EE OWNS AGRICULTURAL LANDS. 8.8 REVERTING BACK TO THE MAIN THEME, THE ASSESSEE ASSERTS THAT HE HAD RECEIVED THE SALE CONSIDERATION OF ONLY RS.2 0 LAKHS. HOWEVER, THE STAMP VALUATION AUTHORITY AN AUTHORI TY OF THE STATE GOVERNMENT, ON THE BASIS OF GOVERNMENT GUIDELINE RA TE, HAD ADOPTED THE VALUE OF THE PLOT AT RS.36,00,000/- FOR THE TRANSFER OF THE SAID PROPERTY. THE ASSESSEE HAD, PERHAPS, INAD VERTENTLY, ADMITTED THE VERY FACT THAT THE STAMP DUTY VALUE OF THE PLOT SOLD WAS FOR RS.36,00,000/-, BUT, HIS AFFIRMATION THAT HE RECEIVED CONSIDERATION OF RS.20 LAKHS ONLY DOESNT HOLD WATE R. HIS OTHER CONTENTION THAT HE RECEIVED DD FOR RS.20 LAKHS AS S ALE CONSIDERATION CANNOT IN ANY WAY COME TO HIS RESCUE FOR THE SIMPLE REASON THAT THE PERSON WHO OBTAINED THE DD FOR RS.2 0 LAKHS WOULD HAVE TENDERED THE SAID AMOUNT WHICH, BY ANY STRETCH OF ITA NO.587/B/2009 16 IMAGINATION, WOULD NOT SUFFICE TO CONSTITUTE THE FU LL SALE CONSIDERATION FOR THE SAID PLOT. 8.9 WE HAVE CAREFULLY CONSIDERED THE ELABORATE SUB MISSION MADE BY THE LD. A R WHEREIN HE HAD ELABORATELY DEALT WIT H THE APPLICABILITY OF THE PROVISIONS OF SECTIONS.45, 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G & 54H OF THE ACT. HOWEVER, TH E MOOT QUESTION BEFORE US IS - WHETHER THE PROVISIONS OF S.50C OF THE ACT WHICH IS A DEEMING SECTION CAN BE IMPOSED ON SECTIO N 54F OF THE ACT? 8.10 LET US HAVE A LOOK AT THE PROVISIONS OF S.50C OF THE ACT. [SPECIAL PROVISION FOR FULL VALUE OF CONSIDERATION IN CERTAIN CASES.] 50C. (1) WHERE THE CONSIDERATION RECEIVED OR ACCRUI NG 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 BY ANY AUTHORITY OF A STATE GOVERNMENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE STAMP VALUATION AUTHORI TY) FOR THE PURPOSE OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH TRANSFER, THE VALUE SO ADOPTED OR ASSESSED SHALL, FOR THE PURPOSES OF SECTION 48, BE DEEMED TO BE THE FULL V ALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF S UCH TRANSFER. (2) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SECT ION (1), WHERE- (A) THE ASSESSEE CLAIMS BEFORE ANY ASSESSING O FFICER THAT THE VALUE ADOPTED OR ASSESSED BY THE STAMP VALUATION AU THORITY UNDER SUB-SECTION (1) EXCEEDS THE FAIR MARKET VALUE OF THE PROPERTY AS ON THE DATE OF TRANSFER; (B) THE VALUE SO ADOPTED OR ASSESSED BY THE STAMP V ALUATION AUTHORITY UNDER SUB-SECTION (1)HAS NOT BEEN DISPUTE D IN ANY APPEAL OR REVISION OR NO REFERENCE HAS BEEN MADE BE FORE ANY OTHER AUTHORITY, COURT OR THE HIGH COURT, ASSESSING OFFICER MAY REFER THE VALUATION OF THE CAPITAL ASSET TO A VALUA TION OFFICER AND WHERE ANY SUCH REFERENCE IS MADE, THE PROVISIONS OF SUB- SECTIONS (2), (3), (4), (5) (6)OF SECTION 16A, CLAU SE (I) OF SUB-SECTION ITA NO.587/B/2009 17 (1) AND SUB-SECTIONS (6) AND (7) OF SECTION 23A, SU B-SECTION (5) OF SECTION 24, SECTION 34AA, SECTION 35 AND SECTION 37 OF THE WEALTH-TAX ACT, 1957 (27 OF 1957), SHALL, WITH NECE SSARY MODIFICATIONS APPLY IN RELATION TO SUCH REFERENCE A S THEY APPLY IN RELATION TO A REFERENCE MADE BY THE ASSESSING OFFIC ER UNDER SUB- SECTION (1) OF SECTION 16A OF THAT ACT. EXPLANATION- FOR THE PURPOSES OF THIS SECTION, VALUATION OFFICER SHALL HAVE THE SAME MEANING AS IN CLAUS E (R)OF SECTION 2 OF THE WEALTH-TAX ACT 1957 (27 OF 1957) (3) SUBJECT TO THE PROVISIONS CONTAINED IN SUB-SECT ION (2), WHERE THE VALUE ASCERTAINED UNDER SUB-SECTION (2) EXCEEDS THE VALUE ADOPTED OR ASSESSED BY THE STAMP VALUATION AUTHORIT Y REFERRED TO IN SUB-SECTION (1), THE VALUE SO ADOPTED OR ASSE SSED BY SUCH AUTHORITY SHALL BE TAKEN AS THE FULL VALUE OF THE C ONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER.) AS PER SECTION 50C OF THE ACT [INSERTED BY THE FINA NCE ACT 2002 W.E.F. 1.4.2003] WHICH MAKES ABUNDANTLY CLEAR THAT WHERE THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER BY AN ASSESSEE OF A CAPITAL ASSET 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 TRANSFE R, THE VALUE SO ADOPTED OR ASSESSED SHALL, FOR THE PURPOSES OF SEC TION 48, BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIV ED OR ACCRUING AS A RESULT OF SUCH TRANSFER. THUS, THE VALUE SO ADOPTED [RS.36,00,000] FOR THE PURPOSES OF S.48, B E DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIVED AS A RESUL T OF SUCH TRANSFER. 8.11 NOW, LET US MOVE ON TO HAVE A GLIMPSE OF S.45(1) OF THE ACT WHICH IS THE CHARGING SECTION. ANY PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR SHALL, SAVE AS OTHERWISE PROVIDED IN SECTIONS 54,54B,54D, [ 54EA, 54EB, ] 54 F [54G AND 54H], BE CHARGEABLE TO INCOME TAX UNDER THE HEA D ITA NO.587/B/2009 18 CAPITAL GAINS, AND SHALL BE DEEMED TO BE THE INC OME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE. 8.12 THE CONTENTION OF THE LD. AR IS THAT, BY VIR TUE OF THE SAVING CLAUSE IN THE SECTION, THE FIRST LIMB OF THE SECTIO N WHICH ENDS WITH WORD SHALL SHOULD YIELD TO THE FOLLOWING LIMB OF THE SECTION. IN OTHER WORDS, WHEREIN SECTIONS 54, 54B, 54D, [54EA, 54EB, ] 54F [54G AND 54H], OF THE ACT APPLY, THE CHARGE CREATED BY VIRTUE OF THE FIRST LIMB OF SECTION 45(1) OF THE ACT WILL BE MODI FIED AND SUBJECT TO THE AFORESAID SECTIONS OF THE ACT. THUS, IN ORDER T O DETERMINE THE CHARGE U/S. 45(1) OF THE ACT, ON THE CAPITAL GAIN, NECESSARILY, THE AMOUNT COMPUTED UNDER THE SECTIONS 54,54B,54D, [54E A, 54EB, ] 54F [54G AND 54H], OF THE ACT HAS TO BE SIMULTANEOU SLY EXCLUDED. THE LD. AR PLACED RELIANCE IN THE CASE OF V.V. GEOR GE REPORTED IN 227 ITR 893. THE RELEVANT PORTIONS ARE EXTRACTED H ERE BELOW FOR REFERENCE: THE SUBJECT OF CAPITAL GAINS GETS CODIFIED AS A SE PARATE SITUATION E. CAPITAL GAINS FROM SECTION 45 OF T HE ACT ONWARDS. A PERUSAL OF THE INITIAL SECTION OF THIS CHAPTER WILL SERVE AS A GUIDE TO KNOW THE SCHEME OF THE SUBJECT STATUTORILY DEALT WITH. CAPITAL GAINS BASICALLY RELATE TO A SITUATION OF TRANSFER OF A CAPITAL ASSET, RESULTING INTO EITHER PROFITS OR GAINS AS A RESULT THEREOF. SECTION 45 OF THE ACT ITSELF MAKES IT CLEAR THAT EVEN THOUGH THIS IS THE ORDINARY POSITION, THE STATUTORY PROVISIONS OF SECTION 53, 54, 54B, 54D, 54E, 54F AN D 54G ARE IN THE NATURE OF EXCEPTIONS THERETO. WE ARE CONCERNED WITH SECTION 54E WHICH IS IN THE NATURE OF AN EXCEPTION FROM THE PLAIN LANGUAGE OF THE STATUTE, THUS PROFITS OR GAINS ARIS ING OUT OF A SITUATION OF TRANSFER IS UNDERSTOOD AS CAPITAL GAIN S CHARGEABLE TO INCOME TAX UNDER THE HEAD CAPITAL GAINS AND GETS A DEEMING SITUATION TO BE THE INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE. 8.13 SECTION 45(1) OF THE ACT CAN BE DISSECTED AS UNDER: (1) ANY PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR SHALL; (2) SAVE AS OTHERWISE PROVIDED IN SECTIONS 54,54B, 54D, [ 54EA, 54EB, ] 54F [54G AND 54H], OF THE ACT; & ITA NO.587/B/2009 19 (3) BE CHARGEABLE TO INCOME TAX UNDER THE HEAD CA PITAL GAINS AND SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TRANSFER TOOK PLACE. THE FIRST LIMB OF THE SECTION PINPOINTS AT THE PROF ITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET EFFECTED DURIN G THE PREVIOUS YEAR. THE SECOND LIMB OF THE SECTION PROVIDES FOR THE AMOUNT TO BE EXCLUDED FROM THE PROFITS OR GAINS REFERRED IN THE FIRST LIMB OF THE SECTION. THE RATIO OF THE CASE MENTIONED SUPRA BY THE LD. AR (227 ITR 893) HAD ALSO MADE IT CLEAR THAT THE SECOND LIM B OF SECTION 45(1) IS IN THE NATURE OF EXEMPTION. THEREFORE, IT IS OBVIOUS THAT ONE HAS TO COMPUTE THE PROFITS OR GAINS AS PER TH E PROVISIONS OF THE ACT AND THEREAFTER COMPUTE THE EXEMPTION AS PROVIDED UNDER THE RELEVANT EXEMPTION SECTIONS AND EXCLUDE T HE SAME FROM THE PROFITS AND GAINS SO COMPUTED. NEEDLESS TO MENTION THAT, THE COMPUTATION OF THE CAPITAL GAIN HAS TO BE IN ACCORDANCE WITH SECTION 48 OF THE ACT AND COMPUTATION OF EXEMP TIONS IN ACCORDANCE WITH THE RELEVANT EXEMPTION SECTIONS OF THE ACT I.E., SECTIONS, 54,54B,54D, [54EA, 54EB, ] 54F [54G AND 5 4H] OF THE ACT. SECTION 45(1) IS A CHARGING SECTION THEREFORE WHILE INTERPRETING THE SECTION STRICT CONSTRUCTION PRINCIPLE IS APPLIC ABLE. THE PROVISIONS OF THE CHARGING SECTIONS MUST BE INTERPR ETED AS PER THE LANGUAGE USED THEREIN AND WHEN THE WORDS OF THE STA TUTE ARE IN THEMSELVES PRECISE AND UNAMBIGUOUS, NO MORE EXERCIS E IS NECESSARY THAN TO EXPOUND THOSE WORDS IN THEIR NATU RAL AND ORDINARY SENSE. IT IS ALSO MADE IT CLEAR IN THE CA SE SHRI SAJJAN MILLS LTD. V. CIT 156 ITR 585 THAT THE STRICT CONSTRUCTIO N PRINCIPLE DOES NOT RULE OUT THE APPLICATION OF PRINCIPLE OF REASON ABLE CONSTRUCTION TO GIVE EFFECT TO THE PURPORT AND INTENTION OF ANY PARTICULAR PROVISIONS AS APPARENT FROM THE SCHEME OF THE ACT. THEREFORE, IT IS APPARENT THAT THE SUBMISSIONS OF THE LD. AR THAT T HE PROVISIONS OF SECTION 48 OF THE ACT ARE NOT SOMETHING THAT ARE TO BE DETERMINED BEFORE THE EXEMPTION PROVISIONS, AS THE EXEMPTION P ROVISIONS BY VIRTUE OF THE LINK WITH SECTION 45(1) OF THE ACT OP ERATE ITA NO.587/B/2009 20 SIMULTANEOUSLY WITH THE OPERATION OF SECTION 45(1) OF THE ACT DOES NOT HOLD ANY WATER. 8.14 THE FIRST LIMB OF SECTION 45(1) REFERS TO PROF ITS OR GAINS ARISING FROM THE TRANSFER OF CAPITAL ASSET THE COMPUTATIO N OF THE CAPITAL GAIN IS SAID IN SECTION 48 OF THE ACT THE SECOND LIMB SPECIFIES THE AMOUNT THAT HAS TO BE CARVED OUT OF THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF CAPITAL ASSET THE MANNER IN WHICH THE COMPUTATION OF THE EXEMPTION ARE SPECIFIED WITHIN THE RELEVANT EXEMPTION SECTION I.E., IN SECTIONS 54,54B,54D, [ 54EA, 54EB, ] 54F [ 54G AND 54H], OF THE ACT. THEREFORE THE PROCESS OF ARRIVING AT THE CAPITAL GAINS AND THE EXEMPTIONS ARE DISTINCT AND SEPARATE. ONE DOES NOT OVERRIDE THE OTHER. 8.15 THE NEXT SUBMISSION OF THE LD. AR IS THAT SECTION 5 0C OF THE ACT CREATES A LIMITED FICTION TO THE EFFECT THAT TH E FULL VALUE OF CONSIDERATION SHALL BE SUBSTITUTED FOR THE PURPOSE OF SECTION 48 OF THE ACT BY THE AMOUNT TAKEN BY THE SUB-REGISTRAR FO R REGISTRATION PURPOSE. THUS, THE FICTION U/S. 50C OF THE ACT IS EXTENDED ONLY TO THE SECOND ASPECT OF COMPUTATION OF CAPITAL GAINS A ND THE SAME DOES NOT EXTEND TO THE CHARGING SECTION OR THE EXEM PTIONS TO THE CHARGING SECTION. THE LEGISLATURE CONSCIOUSLY INTEN DED TO APPLY THE FICTION U/S. 50C OF THE ACT ONLY TO THE EXPRESSION USED IN SECTION 48 OF THE ACT AND NOT IN ANY OTHER PLACE. ON THIS SUBM ISSION OF THE LD.AR, WE WOULD LIKE TO CLARIFY THAT, BY VIRTUE OF SECTION 45(1), A CHARGE IS CREATED FOR LEVY OF TAX ON THE PROFIT OR GAINS ARISING OUT OF THE TRANSFER OF CAPITAL ASSET EFFECTED DURING THE P REVIOUS YEAR COUPLED WITH CERTAIN EXEMPTIONS. THE EXEMPTION SECT IONS 54, 54B, 54D, [54EA, 54EB, ] 54F [54G AND 54H], ARE SELF CON TAINED SECTIONS WHICH ALSO INCLUDES THE METHOD OF COMPUTATION OF TH E EXEMPTION. THE MANNER IN WHICH THE PROFITS OR GAINS ARISING OU T OF THE TRANSFER OF THE CAPITAL ASSET ARE TO BE COMPUTED AS MENTIONE D IN SECTION 48 WHICH GOES WITHOUT SAYING THAT THE CHARGE IS ON THE PROFITS OR GAINS ITA NO.587/B/2009 21 SO COMPUTED. WHILE COMPUTING THE PROFITS OR GAINS A S PER SECTION 48, THE DEEMING PROVISION IMBEDDED IN SECTION 50C H AS TO BE GIVEN EFFECT TO. THE CHARGE IS CREATED ON THE ENHANCED PR OFITS OR GAINS ARRIVED AT FROM THE FICTION OF SECTION 50C. THIS AS PECT WAS JUSTIFIED BY THE HON. FINANCE MINISTER IN HIS BUDGET SPEECH T HAT SECTION 50C WILL CURB THE MENACE OF UNACCOUNTED INCOME IN THE P ROPERTY TRANSACTIONS BY PRESUMING THE SALE CONSIDERATION TO BE THE VALUE OF THE GUIDE LINE VALUE FOR REGISTRATION IN CASE IT IS STATED LOWER THAN THAT. 8.16 WITH RESPECT TO SECTION 54F OF THE ACT, THE LD. AR MADE THE FOLLOWING SUBMISSIONS: (I) THE PROVISIONS OF SECTION 54F OF THE ACT IS A COMPL ETE CODE IN ITSELF BY WHICH THE EXTENT OF MODIFICATION TO SECTION 45(1) OF THE ACT IS SPECIFIED. THE CONDITI ONS MENTIONED U/S. 54F OF THE ACT AND THE ENQUIRY TO BE MADE TO ASCERTAIN THE APPLICATION OF SECTION 54F OF THE ACT REQUIRE THE DETERMINATION OF ONLY THE FOLLOWING TWO CRITERIA: (A) THE COST OF THE NEW ASSET & (B) THE NET CONSIDERATION FOR THE TRANSFER. (II) THE NET CONSIDERATION HAS BEEN EXPLAINED IN SECTIO N 54F OF THE ACT ITSELF TO MEAN THE FULL VALUE OF CONSIDE RATION AS REDUCED BY THE COST INCURRED FOR TRANSFER. THE OBJ ECT BEHIND THE USE OF NET CONSIDERATION IS TO DETERMINE THE EXTENT OF MONEY AVAILABLE WITH THE ASSESSEE ON THE TRANSFER OF THE ASSET. (III) THE PROVISIONS OF SECTION 54F(1)(A) OF THE ACT WILL BECOME UNWORKABLE, IF THE CONSTRUCTION PLACED THEREON, WOU LD REQUIRE THE CONSIDERATION AS PER SECTION 50C OF THE ACT TO BE TAKEN TO WORK OUT OF THE AMOUNT OF EXEMPTION OF THE CAPITAL GAINS. THAT IS THE PRECISE REASON THAT THE LEGISLATURE HAS CONSCIOUSLY RESTRICTED THE OPERATIO N OF THE LEGAL FICTION U/S. 50C OF THE ACT ONLY FOR THE PURP OSE OF SECTION 48 OF THE ACT AND NOT FOR THE ENTIRE CHAPTE R IV-E RELATING TO TAXATION OF CAPITAL GAINS. (IV) NO CIRCULAR PROVIDES THAT THE PROVISIONS OF SECTION 50C OF THE ACT HAVE TO BE RECKONED AND APPLIED FOR THE COMPUTATION OF THE EXTENT OF EXEMPTION U/S. 54 OF T HE ACT. (V) WHERE THE ASSESSEE COMPLIES WITH THE REQUIREMENT O F SECTION 54F(1)(A) OF THE ACT, HAVING REGARD TO THE PLAIN ITA NO.587/B/2009 22 LANGUAGE EMPLOYED THEREIN, HE CANNOT BE DENIED THE BENEFIT OF EXEMPTION BY REFERRING TO PROVISIONS OF SECTION 50C OF THE ACT, WHICH IS APPLICABLE FOR COMPUTATION , AND WHICH IS A STEP REMOVED FROM THE LEVY. IN CASE WHE RE THE PROVISIONS OF SECTION 54F(1)(B) ARE ATTRACTED, THE PROPORTIONATE EXEMPTION OF CAPITAL GAIN IS AVAILABL E. IN EITHER CASE, THE EXTENT OF EXEMPTION IS BASED UPON FULFILLMENT OF THE CRITERION MENTIONED U/S. 54 OF T HE ACT ONLY. (VI) THE PROVISIONS OF SECTION 54F OF THE ACT AND SECTI ON 50C OF THE ACT ARE TO BE CONSTRUED, WHICH HAS TO BE CON STRUED IN A MANNER THAT EFFECTUATE AND ADVANCES OF THE OBJ ECTS OF SECTION 54F OF THE ACT ENTIRELY AND NOT IN A MAN NER TO DEFEAT OR RENDER INOPERABLE ANY OF THE SAID PROVISI ONS. (VII) THE HARMONIOUS CONSTRUCTION OF SECTION 54F OF THE ACT AND SECTION 45(1) OF THE ACT ALONG WITH COMPUTATION AL PROVISIONS OF SECTION 48 READ WITH SECTION 50C OF T HE ACT CAN ONLY BE ACHIEVED IF THE PROVISIONS OF SECTION 5 4F ARE GIVEN ITS NATURAL AND LITERAL MEANING AND NOT A STR AINED MEANING BY SUBJECTING IT TO THE PROVISIONS OF SECTI ON 50C OF THE ACT. 8.17 WE DO ACCEPT THAT SECTION 54F OF THE ACT IS AN EXEM PTION PROVISION AND A COMPLETE CODE IN ITSELF. SINCE IT IS A COMPLETE CODE IN ITSELF, THE COMPUTATION OF ELIGIBLE EXEMPTION H AS TO BE WORKED OUT WITHIN ITS FRAMEWORK AS FAR AS POSSIBLE. BEING AN EXEMPTION PROVISION, BENEFICIAL INTERPRETATION HAS TO BE GIVE N. HOWEVER, IN ANY INTERPRETATION, THE MAXIM UT RES MAGIS VALEAT QUAN PAREAT SHOULD BE KEPT IN MIND. THE CONSTRUCTION WHICH WOULD REDU CE THE LEGISLATION TO A FUTILITY SHOULD BE AVOIDED; AND AL TERNATIVE THAT WILL INTRODUCE UNCERTAINTY, FICTION OR CONFUSION INTO TH E WORKING OF THE SYSTEM SHOULD BE REJECTED. AN INTERPRETATION WHIC H LEADS TO UNWORKABLE RESULTS AND ABSURDITY SHOULD BE AVOIDED. 8.18 SECTION 54F OF THE ACT IS REPRODUCED HEREBELOW FOR AN ANALYTICAL UNDERSTANDING: 54F.(1) SUBJECT TO THE PROVISIONS OF SUB-SECTION (4), WHERE, IN THE CASE OF ASSESSEE BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, THE CAPITAL GAIN ARISES FROM THE TRANSFER O F ANY LONG TERM CAPITAL ASSET, NOT BEING A RESIDENTIAL HOUSE ( HEREINAFTER IN ITA NO.587/B/2009 23 THIS SECTION REFERRED TO AS THE ORIGINAL ASSET), AN D THE ASSESSEE HAS, WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO YEAR S AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE PURCHASED, OR HAS WITHIN A PERIOD OF THREE YEARS AFTER THAT DATE CONSTRUCTED , A RESIDENTIAL HOUSE (HEREINAFTER IN THIS SECTION REFE RRED TO AS THE NEW ASSET), THE CAPITAL GAIN SHALL BE DEALT WITH IN ACCORDANCE WITH THE FOLLOWING PROVISIONS OF THIS SECTION, THAT IS TO SAY, (A) IF THE COST OF THE NEW ASSET IS NOT LESS THAN THE NET CONSIDERATION IN RESPECT OF THE ORIGINAL ASSET, THE WHOLE OF SUCH CAPITAL GAIN SHALL NOT BE CHARGED UNDER SEC TION 45; (B) IF THE COST OF THE NEW ASSET IS LESS THAN THE N ET CONSIDERATION IN RESPECT OF THE ORIGINAL ASSET, SO MUCH OF THE CAPITAL GAIN AS BEARS TO THE WHOLE OF THE CAPIT AL GAIN THE SAME PROPORTION AS THE COST OF THE NEW ASSET BE ARS TO THE NET CONSIDERATION, SHALL NOT BE CHARGED UNDER S ECTION 45: PROVIDED THAT NOTHING CONTAINED IN THIS SUB-SECTION SHALL APPLY WHERE (A) .. EXPLANATION. FOR THE PURPOSES OF THIS SECTION, NET CONSIDERATION, IN RELATION TO THE TRANSFER OF AS CAPITAL ASSET, MEANS THE FULL VALUE OF THE CONSIDERATION RE CEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET AS REDUCED BY ANY EXPENDITURE INCURRED WHOLLY AND EXCL USIVELY IN CONNECTION WITH SUCH TRANSFER. 8.19 WE DO AGREE THAT DEEMING FICTION CONTAINED IN ANY O THER PROVISION CANNOT BE BREATH INTO SECTION 54F BEING A N EXEMPTION SECTION. ONLY THE PLAIN MEANING OF THE LANGUAGE HA S TO BE CONSTRUED FOR THE OPERATION OF EXEMPTION PROVISIONS . THE LEGAL FICTION CREATED BY VIRTUE OF SECTION 50C IN DETERMI NING THE CAPITAL GAIN CANNOT BE EXTENDED TO SECTION 54F OF THE ACT. SECTION 54F OF THE ACT HAS TO BE APPLIED ONLY FOR THE DEFINITE AND LIMITED PURPOSE FOR WHICH IT IS CREATED. IN THE CASE OF EXECUTORS AND TRUSTEES OF SIR CAWASJI JEHANGIR V. CIT (1959) 35 ITR 537 (BOM), IT HAS BEEN ITA NO.587/B/2009 24 EXPLAINED THAT UNLESS IT IS CLEARLY AND EXPRESSLY P ROVIDED, IT IS NOT PERMISSIBLE TO IMPOSE A SUPPOSITION ON A SUPPOSITIO N OF LAW. IT IS NOT PERMISSIBLE TO SUBJOIN OR TRACK A FICTION UPON FICTION. IN THE LIGHT OF THE ABOVE FACTS, IT IS APPARENT THAT AS FA R AS ARRIVING AT THE EXEMPTION ALLOWABLE U/S. 54F OF THE ACT, ONE HAS TO STRICTLY FOLLOW THE PROVISIONS OF THE SECTION AND COMPUTE THE EXEMP TION ACCORDINGLY WITHOUT IMPOSING ANY SECTION CREATING A LEGAL FICTION INTO THE SECTION. THE CASE LAW - CIT VS ACE BUILDER S PVT. LTD., BOMBAY HIGH COURT, 281 ITR 210, ON WHICH THE LD. AR HAS PLACED RELIANCE ALSO SUBSCRIBES TO THE AFORESAID VIEW. IT WAS HELD THUS :- THAT THERE WAS NOTHING IN SECTION 50 TO SUGGEST T HAT THE FICTION CREATED IN SECTION 50 IS NOT ONLY APPLI CABLE TO SECTIONS 48 AND 49 BUT ALSO APPLIES TO OTHER PROVISIONS. ON THE CONTRARY, THIS SECTION MAKES IT EXPLICITLY CLEAR THAT THE DEEMING FICTION CREATED I N SUB-SECTIONS(1) AND (2) IS RESTRICTED ONLY TO THE M ODE OF COMPUTATION OF CAPITAL GAINS CONTAINED IN SECTIO NS 48 AND 49. THE LEGAL FICTION IS TO DEEM THE CAPITA L GAIN AS SHORT-TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET AS SHORT TERM CAPITAL ASSET. SECTION 50 DID N OT CONVERT A LONG TERM CAPITAL ASSET INTO A SHORT TERM CAPITAL ASSET. THOUGH SECTION 50 WAS ENACTED WITH THE OBJECT OF DENYING MULTIPLE BENEFITS TO OWNERS O F DEPRECIABLE ASSETS, YET THAT RESTRICTION WAS LIMITE D TO THE COMPUTATION OF CAPITAL GAINS AND NOT THE EXEMPTION PROVISIONS. THUS, THE EXEMPTION UNDER SECTION 54E COULD NOT BE DENIED TO THE ASSESSEE ON ACCOUNT OF THE FICTION CREATED IN SECTION 50. 8.20 IN THE LIGHT OF ABOVE RULING, LET US VIEW SECTION 5 4F OF THE ACT. THE OPERATIONAL PART OF THE SECTION IS DISSECTED HE REBELOW FOR A PROPER UNDERSTANDING. ITA NO.587/B/2009 25 SECTION 54F (1) .., THE CAPITAL GAIN ARISES FROM THE TRANSFER OF ANY LONG TERM CAPITAL ASSET, . ., THE CAPITAL GAIN SHALL BE DEALT WITH IN ACCORDA NCE WITH THE FOLLOWING PROVISIONS OF THIS SECTION, THAT IS TO SA Y, - (A) IF THE COST OF THE NEW ASSET IS NOT LESS THAN THE NET CONSIDERATION IN RESPECT OF THE ORIGINAL ASSET, THE WHOLE OF SUCH CAPITAL GAIN SHALL NOT BE CHARGED UNDER SECTION 45; (B) IF THE COST OF THE NEW ASSET IS LESS THAN THE N ET CONSIDERATION IN RESPECT OF THE ORIGINAL ASSET, SO MUCH OF THE CAPITAL GAIN AS BEARS TO THE WHOLE OF THE CAPITAL GAIN THE SAME PROPORTION AS THE COST OF THE NEW ASS ET BEARS TO THE NET CONSIDERATION, SHALL NOT BE CHARGE D UNDER SECTION 45: EXPLANATION. FOR THE PURPOSES OF THIS SECTION, NET CONSIDERATION, IN RELATION TO THE TRANSFER OF AS CAPITAL ASSET, MEANS THE FULL VALUE OF THE CONSIDERATION RE CEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET AS REDUCED BY ANY EXPENDITURE INCURRED WHOLLY AND EXCL USIVELY IN CONNECTION WITH SUCH TRANSFER. 8.21 THE MAIN INGREDIENTS OF THE STATUTE TO BE DEALT WIT H TO COMPUTE THE EXEMPTION ALLOWABLE UNDER THESE SECTION S ARE, (1) THE CAPITAL GAIN ARISING FROM THE TRANSFER OF ANY LONG TERM CAPITAL ASSET, (2) NET CONSIDERATION IN RESPECT OF THE ORIGINAL ASSET, (3) EXTENT OF THE NET CONSIDERATION INVESTED IN THE NEW ASSET. THE CAPITAL GAINS AND THE NET CONSIDERATION HAVE TO BE WORKED OUT WITHIN THE FRAMEWORK OF SECTION 54F OF THE ACT, WITHOUT IMPOSING ANY FICTION CREATED BY ANY OTHER SECTION. THUS, THE CAPITAL GAINS ARISING FROM THE TRANSFER OF ANY LONG TERM CAPITAL ASSET FOR THE PURPOSE OF SECTION 54F HAS TO BE WORK ED OUT APPLYING SECTION 48 WITHOUT IMPOSING SECTION 50C INTO IT. A S REGARDS TO NET CONSIDERATION , THE SECTION ITSELF HAS MADE IT CLEAR IN THE EXPLANATION THE METHOD IN WHICH IT HAS TO BE ARRIVE D AT. NEEDLESS TO MENTION THAT THE WORDS SUCH CAPITAL GAIN AND CAPITAL GAINS ITA NO.587/B/2009 26 MENTIONED IN SECTION 54F(1)(A) & (B) OF THE ACT REF ERS TO THE CAPITAL GAINS ARISING FROM THE TRANSFER OF ANY LONG TERM C APITAL ASSET WORKED OUT AS MENTIONED IN SECTION 54F(1) OF THE AC T READ WITH SECTION 48 AND NOT WORKED OUT AS MENTIONED IN SECTI ON 45(1) READ WITH SECTION 48 AND 50C OF THE ACT. WHEN THIS INTE RPRETATION IS ADOPTED, EVERY PROVISIONS OF THE CHAPTER WILL FALL IN LINE WITHOUT PRODUCING ANY ABSURD RESULT AND THEREBY GIVING A FR UITFUL PURPOSE FOR THE ENACTMENTS. ALTERNATIVELY, AS CANVASSED BY THE LEARNED AR, IF THE TERM CAPITAL GAIN IN SEC. 54F IS ARRIVED A T BY IMPOSING SECTION 50C OF THE ACT, THEN THE INTENTION FOR INTR ODUCING SECTION 50C OF THE ACT WOULD BE DEFEATED, BECAUSE WHATEVER MAY BE THE CAPITAL GAIN ARRIVED AT BY IMPOSING SECTION 50C OF THE ACT WOULD BE EXEMPT, IF THE NET CONSIDERATION, HOWEVER MEAGRE IT MAY BE, IS INVESTED IN THE NEW ASSET. 8.22 TO MAKE THE CONCEPT CLEAR, WE HERE BELOW DEMONSTRAT E WITH AN ILLUSTRATION MODIFYING THE ILLUSTRATION SUBMITTE D BY THE LD. AR. DATA . SL.NO. PARTICULARS AMOUNT RS. (A) SALE CONSIDERATION ACTUALLY RECEIVED 1,0 0,000 (B) GUIDELINE VALUE TAKEN AS CONSIDERATION U/S. 50C OF THE ACT 10,00,000 (C) EXPENSES ON TRANSFER 10,000 (D) INDEXED COST OF ACQUISITION 30,000 (E) COST OF THE NEW ASSET (SITUATION A) 1,00, 000 (F) COST OF THE NEW ASSET (SITUATION B) 50, 000 (G) NET CONSIDERATION (AS PER 54F) 90,000 (1) WORKING OF CAPITAL GAIN AS PER SECTION 48 OF THE AC T WITHOUT GIVING EFFECT TO SECTION 50C OF THE ACT. SALE CONSIDERATION ACTUALLY RECEIVED 1,00,000 LESS: 1) EXPENSES ON TRANSFER 10,000 2) INDEXED COST OF ACQUISITION 30,000 40,000 CAPITAL GAINS 60,000 ITA NO.587/B/2009 27 (2) WORKING OF CAPITAL GAIN AS PER SECTION 48 OF THE AC T GIVING EFFECT TO SECTION 50C OF THE ACT. SALE CONSIDERATION AS PER THE GUIDELINE VALUE 10,00,000 LESS: 1) EXPENSES ON TRANSFER 10,000 2) INDEXED COST OF ACQUISITION 30,000 40,000 CAPITAL GAINS 9,60,000 (3) NET CONSIDERATION WORKED OUT AS PER SECTION 54F OF THE ACT NET CONSIDERATION AS PER SEC, 54F OF THE ACT 1,00,000 LESS: EXPENSES ON TRANSFER 10,000 90,000 8.23 EXEMPTION U/S. 54F OF THE ACT : THE MAXIMUM EXEMPTION THE ASSESSEE CAN CLAIM IN THI S GIVEN CASE IS RS.60,000 AS WORKED OUT IN PARA 8.22 (1) I.E., W ITHOUT IMPOSING SECTION 50C OF THE ACT WHILE APPLYING SECTION 48 BE CAUSE WHILE ADDRESSING TO CAPITAL GAIN MENTIONED IN SECTION 54F ANY DEEMING FICTION ARISING OUT OF ANY OTHER PROVISIONS OF THE ACT CANNOT BE BREATHED INTO SECTION 54. SITUATION- I : (WHEN THE AMOUNT INVESTED IN THE NEW ASSET IS RS.1,00,000) . IN THIS CASE, THE ENTIRE SALE CONSIDERATION ACTUALL Y RECEIVED BY THE ASSESSEE IS INVESTED IN THE NEW ASSET. HOWEVER, AS PER SECTION 54F, THE MAXIMUM DEDUCTION POSSIBLE WILL BE THE CAPITAL GAIN WORKED OUT AS PER SECTION 48 WITHOUT IMPOSING SECTION 50C. IN THIS CASE THE CAPITAL GAIN WORKED OUT WITH RESPECT TO SECTION 54F OF THE ACT IS RS. 60,000/- AS WORKED OUT IN PARA 8.22(1). THEREFORE T HE ALLOWABLE DEDUCTION SHALL BE RESTRICTED TO RS.60,000 EVEN THO UGH THE ASSESSEE HAS INVESTED THE ENTIRE SALE CONSIDERATION OF RS. 1 ,00,000/- WHICH IS MORE THAN THE NET CONSIDERATION. SITUATION II : (WHEN THE ASSESSEE HAS INVESTED RS.90,000 ) IN THIS SITUATION THE ASSESSEE HAS INVESTED THE ENT IRE NET CONSIDERATION OF RS. 90,000/- AS WORKED OUT IN PARA 8.22(3). ITA NO.587/B/2009 28 HOWEVER THE MAXIMUM DEDUCTION POSSIBLE U/S 54F WILL BE RS.60,000/- BECAUSE THE CAPITAL GAIN RECOGNISED U/S . 54F OF THE ACT IS ONLY RS.60,000/- AS WORKED OUT IN PARA 8.22(1). SITUATION III : (WHEN THE ASSESSEE HAS INVESTED RS. 50,000/-) IN THIS HYPOTHESIS THE ASSESSEE HAS INVESTED ONLY R S. 50,000/- WHICH IS BELOW THE NET CONSIDERATION. THEREFORE THE ASSESSEE CAN CLAIM EXEMPTION, SO MUCH OF THE CAPITAL GAIN AS IT BEARS TO THE WHOLE OF THE CAPITAL GAIN THE SAME PROPORTION AS TH E COST OF THE NEW ASSET BEARS TO THE NET CONSIDERATION. IN OTHER WORD S WHERE PART OF THE NET CONSIDERATION IS INVESTED ON THE NEW ASSET, EXEMPTION CAN BE AVAILED PROPORTIONATELY. THE PROPORTIONATE EXEMP TION WILL BE THAT AMOUNT WHICH BEARS THE SAME PROPORTION WHICH AMOUNT INVESTED IN THE NEW ASSET BEARS TO THE NET CONSIDERATION OF THE TRANSFERRED ASSET. VIZ: CAPITAL GAIN AS PER X AMOUNT INVESTED IN THE NEW ASSET SEC 54F NET CONSIDERATION IN THIS CASE: RS. 60,000/- X 50,000 = RS.33,334/- 9 0,000 SITUATION IV : (WHEN THE ASSESSEE HAS INVESTED RS. 2,00,000/-) IN THIS ILLUSTRATION THE ASSESSEE HAS INVESTED RS. 2,00,000/- WHICH IS MORE THAN THE NET CONSIDERATION OF RS. 90,000/-. HOWEVER THE MAXIMUM ALLOWABLE EXEMPTION WILL BE RESTRICTED TO R S. 60,000/- BEING THE CAPITAL GAIN ARRIVED AT WITHIN THE SCOPE OF SECTION 54F. 8.24. NOW COMING TO THE CASE ON HAND, FOLLOWING T HE RATIO AS DEDUCED ABOVE THE COMPUTATION OF LONG TERM CAPITAL ACCOUNT IS WORKED OUT AS FOLLOWS: (A) SALE VALUE OF THE PROPERTY NO.107 AT RMV 2 ND STAGE BANGALORE, SOLD ON 5.6.2004 AS PER STAMP VALUATION AUTHORITY VALUATION AS PER SECTION 50C OF THE ACT RS.36,00,000 ITA NO.587/B/2009 29 (B) LESS INDEXED COST OF ACQUISITION COST OF THE SITE PURCHASED 89900 INDEXATION : 89900 X 480 1,93,506 223 (C) INCOME CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS 34,06,494 (D) LESS : DEDUCTION U/S. 54(F)(1)(A) (1) CAPITAL GAINS AS INFERRED U/S. 54F BEING THE MAXIMUM DEDUCTION PERMISSIBLE UNDER THE SECTION ACTUAL SALE VALUE 20,00, 000 LESS: INDEXATION AS WORKED ABOVE 1,93,506 CAPITAL GAIN AS U/S.54F 18,06,494 (2) NET CONSIDERATION RECEIVED 20,00,000 (3) AMOUNT INVESTED IN NEW ASSET 24,00,000 DEDUCTION AS PER SEC. 54F(1) AND 54(1)(A) [WHOLE OF SUCH CAPITAL GAIN AS EXEMPTED U/S. 54(1)(A) 18,06,494 ------------------ TAXABLE LONG TERM CAPITAL GAINS AS PER SECTIONS 45, 48, 50C AND 16,00,000 54F OF THE ACT [(C) (D)] ------------------- 8.25 IT APPEARS THAT THE LD. AO HAS ALSO ERRED IN HIS COMPUTATION TO ARRIVE AT THE LONG TERM CAPITAL GAINS. 8.26 TO SUM UP THE REFORMULATED GROUNDS IN PARA 2 ARE DEALT WITH AS FOLLOWS:- (I) GROUND NO.1 IS DISMISSED; (II) GROUND NO.2 IS CONSEQUENTIAL; (III) GROUND NO.3 DOES NOT SURVIVE CONSIDERING THE COMPLICATION OF THE ISSUE; & (IV) THE ADDITIONAL GROUND RAISED BY THE ASSESSE E IS ANSWERED IN FAVOUR OF THE REVENUE. 9. BEFORE PARTING WITH THE CASE, THIS BENCH RECO RDS ITS DEEP APPRECIATION OF THE SPIRITED ARGUMENTS ADVANCED BY THE YOUNG AND ITA NO.587/B/2009 30 ENTHUSIASTIC SHRI. V. SRINIVASAN, THE LD. A.R ON B EHALF OF THE ASSESSEE AND ALSO TO SMT. V.S. SREELEKHA, THE LD. D .R WHO HAD NOBLY COUNTERED THE STAND OF THE LD. A.R IN AN IMPE CCABLE MANNER - KUDOS TO THEM. THE BENCH ALSO RECORDS ITS UNRESERVE D APPRECIATION AND APPLAUDS TO THE ASSESSEES CONTRIBUTION IN HIS YOUNGER DAYS IN DEFENDING THE NATION AGAINST THE IMPERIALISM AS A FREEDOM FIGHTER . 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF JULY, 2010. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE, DATED: 16-7-2010. AM*/DS COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.