I.T.A. No.1237/Ahd/2013 Assessment Year: 2008-09 Page 1 of 7 IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH, AHMEDABAD [Coram: Pramod Kumar AM] I.T.A. No.1237/Ahd/2013 Assessment Year: 2008-09 Dharamshibhai Sonani, .................... Appellant 22, Kamalpark Row House, Kapodara, Varachha Road, Surat 395 006. [PAN: BAOPS 8772 A] Vs. Asstt. Commissioner of Income Tax, Circle 9, Surat. ........... .Respondent Appearances by: Manoj N. Makhania, for appellant Satish Solanki, for respondent Date of concluding hearing: 26.07.2016 Date of pronouncing order: 30.09.2016 O R D E R [1] By way of this appeal, assessee appellant has challenged correctness of order dated 21st January, 2013, passed by learned CIT(A), in matter of assessment under section 143(3) r.w.s. 147 of Income Tax Act 1961, for assessment year 2008-09. Grievance of assessee, in substance, is that learned CIT(A) erred in upholding impugned addition of Rs.15,60,900 to sale consideration, for purpose of computing capital gains, under section 50C of Act. [2] It is case of reopened assessment. During course of reopened assessment proceedings, Assessing Officer took note of fact that assessee, along with co- owner, had sold certain land at Village Behstan, Surat, on 24.04.2007 at stated consideration of Rs.45,00,000/- whereas on that day, according to stamp duty valuation authority, this land was valued at Rs.76,21,800/-. It was in this backdrop that Assessing Officer sought to add Rs.15,60,900/- to value of sale consideration, for purpose of computing capital gains, received by assessee. It was explained by assessee that though registered agreement to sell was executed on 29.06.2005, sale deed of land could finally be executed only on 24.04.2007 since land was agricultural land, since buyer was private limited company, which could have purchased only non-agricultural land, and since land was required to be converted into non-agricultural land before execution of sale deed. stamp duty valuation as on 24.04.2007 was therefore, according to assessee, not relevant for ascertaining I.T.A. No.1237/Ahd/2013 Assessment Year: 2008-09 Page 2 of 7 whether sale consideration was suppressed which is what is relevant for purpose of section 50C. This explanation was, however, rejected. What, according to Assessing Officer, was relevant was date on which sale deed is executed. Assessing Officer proceeded to adopt sale consideration, under section 50C, at stamp duty valuation rate. Aggrieved, assessee carried matter in appeal before learned CIT(A) but without any success. assessee is not satisfied and is in further appeal before me. [3] I have heard rival contentions, perused material on record and duly considered facts of case in light of applicable legal position. [4] fundamental purpose of introducing section 50C was to counter suppression of sale consideration on sale of immovable properties, and this section was introduced in light of widespread belief that sale transactions of land and building are often undervalued resulting in leakage of legitimate tax revenues. This Section provides for presumption, rebuttable presumption though-something with which I am not concerned for time being, that value, for purpose of computing stamp duty, adopted by stamp duty valuation authority represents fair indication of market price of property sold. Section 50C(1) provides that, Where consideration received or accruing as result of transfer by assessee of capital asset, being land or building or both, is less than value adopted or assessed or assessable by any authority of State Government (hereafter in this section referred to as "stamp valuation authority") for purpose of payment of stamp duty in respect of such transfer, value so adopted or assessed or assessable shall, for purposes of section 48, be deemed to be full value of consideration received or accruing as result of such transfer . trouble, however, is that while sale consideration is fixed at point of time when agreement to sell is entered into, there is sometimes considerable gap in parties agreeing to transaction (i.e. agreement to sell) and actual execution of transaction (i.e. sale deed), and yet, it is value as on date of execution of sale deed which is recognized by Section 50C for purpose of computing capital gain because that is what is relevant for purpose of computing stamp duty for registration of sale deed. very comparison between value as per sale deed and value as per stamp duty valuation, accordingly, ceases to be devoid of rational basis because these two values represent values at two different points of time. In situation in which there is significant difference between point of time when agreement to sell is executed and when sale deed is executed, therefore, should ideally be between sale consideration as per registered sale deed, which is fixed by way of agreement to sell, vis- -vis stamp duty valuation as at point of time when agreement to sell, whereby sale consideration was infact fixed, because, if at all any suppression of sale consideration should be assumed, it should be on basis of stamp duty valuation as at point of time when sale consideration was fixed. Income Tax Simplification Committee set up in 2015, headed by Justice R V Easwar- former judge of Delhi High Court and one of most illustrious former Presidents of this Tribunal, took note of this incongruity and, in its very first report (http://taxsimplification.in/REPORT.pdf), observed as follows: 6.1 RATIONALISATION OF SECTION 50C TO PROVIDE RELIEF WHERE SALE CONSIDERATION FIXED UNDER AGREEMENT TO SELL Section 50C makes special provision for determining full value of consideration in cases of transfer of immovable property. It provides that where consideration declared to be received or I.T.A. No.1237/Ahd/2013 Assessment Year: 2008-09 Page 3 of 7 accruing as result of transfer of land or building or both, is less than value adopted or assessed or assessable by any authority of State Government (i.e. stamp valuation authority ) for purpose of payment of stamp duty in respect of such transfer, value so adopted or assessed or assessable shall be deemed to be full value of consideration, and capital gains shall be computed on basis of such consideration under section 48 of Income-tax Act. scope of section 50C was extended w.e.f. A.Y. 2010-11 to transaction which were executed through agreement to sell or power of attorney by inserting word assessable alongwith words value so adopted or assessed . Hence, section 50C is now also applicable in case of such transfers. present provisions of section 50C do not provide any relief where seller has entered into agreement to sell asset much before actual date of transfer of immovable property and sale consideration has been fixed in such agreement. later similar provision inserted by way of section 43CA does take care of such situation. 6.2 It is therefore proposed to insert following provisions in section 50C: (4) Where date of agreement fixing value of consideration for transfer of asset and date of registration of transfer of asset are not same, value referred to in sub- section (1) may be taken as value assessable by any authority of State Government for purpose of payment of stamp duty in respect of such transfer on date of agreement. (5) provisions of sub-section (4) shall apply only in case where amount of consideration or part thereof has been received by any mode other than cash on or before date of agreement for transfer of asset. [5] True to work ethos of current Government, it was first time that within four months of Tax Simplification Committee being notified, not only first report of Committee was submitted, but Government also walked talk by ensuring that several statutory amendments, based on recommendations of this report, were introduced in Parliament. So far as Section 50 C is concerned, Finance Act 2016, with effect from 1st April 2017, inserted following provisos to Section 50C: Provided that where date of agreement fixing amount of consideration and date of registration for transfer of capital asset are not same, value adopted or assessed or assessable by stamp valuation authority on date of agreement may be taken for purposes of computing full value of consideration for such transfer: Provided further that first proviso shall apply only in case where amount of consideration, or part thereof, has been received by way of account payee cheque or account payee bank draft or by use of electronic clearing system through bank account, on or before date of agreement for transfer. [6] This amendment was explained, in Memorandum Explaining Provisions of Finance Bill 2016 (http://indiabudget.nic.in/ub2016-17/memo/mem1.pdf), as follows: Rationalization of Section 50C in case sale consideration is fixed under agreement executed prior to date of registration of immovable property Under existing provisions contained in Section 50C, in case of transfer of capital asset being land or building on both, value adopted or assessed by stamp valuation authority for purpose of payment of stamp duty shall be taken as full value of consideration for purposes of computation of capital gains. Income Tax Simplification Committee (Easwar Committee) has I.T.A. No.1237/Ahd/2013 Assessment Year: 2008-09 Page 4 of 7 in its first report, pointed out that this provision does not provide any relief where seller has entered into agreement to sell property much before actual date of transfer of immovable property and sale consideration is fixed in such agreement, whereas similar provision exists in section 43CA of Act i.e. when immovable property is sold as stock-in- trade. It is proposed to amend provisions of section 50C so as to provide that where date of agreement fixing amount of consideration for transfer of immovable property and date of registration are not same, stamp duty value on date of agreement may be taken for purposes of computing full value of consideration. It is further proposed to provide that this provision shall apply only in case where amount of consideration referred to therein, or part thereof, has been paid by way of account payee cheque or account payee bank draft or use of electronic clearing system through bank account, on or before date of agreement for transfer of such immovable property. 30 These amendments are proposed to be made effective from 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years. [7] While Government has thus recognized genuine and intended hardship in cases in which date of agreement to sell is prior to date of sale, and introduced welcome amendments to statue to take remedial measures, this brings no relief to assessee before me as amendment is introduced only with prospective effect from 1st April 2017. There cannot be any dispute that this amendment in scheme of Section 50C has been made to remove incongruity, resulting in undue hardship to assessee, as is evident from observation in Easwar Committee report to effect that (then prevailing) provisions of section 50C do not provide any relief where seller has entered into agreement to sell asset much before actual date of transfer of immovable property and sale consideration has been fixed in such agreement recognizing incongruity that date agreement of sell has been ignored in statute even though it was crucial as it was at this point of time that sale consideration is finalized. incongruity in statute was glaring and undue hardship not in dispute. Once it is not in dispute that statutory amendment is being made to remove undue hardship to assessee or to remove apparent incongruity, such amendment has to be treated as effective from date on which law, containing such undue hardship or incongruity, was introduced. In support of this proposition, I find support from Hon ble Delhi High Court s judgment in case of CIT Vs Ansal Landmark Township Pvt Ltd [(2015) 377 ITR 635 (Del)], wherein approving reasoning adopted order authored by me during my tenure at Agra bench [i..e Rajeev Kumar Agarwal Vs ACIT (2014) 149 ITD 363 (Agra)] which centred on principle that when legislature is reasonable and compassionate enough to undo undue hardship caused by statute such amendment in law, in view of well settled legal position to effect that curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically . In this case, it was specifically observed, and it was this observation which was reproduced with approval by Their Lordships, as follows: Now that legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate unintended hardships, such amendment in law, in view of well settled legal position to effect that curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, insertion of second proviso must be given retrospective effect from point of time when related legal provision was introduced. In view of these discussions, as also for detailed reasons set out earlier, we cannot subscribe to view that it could have been "intended consequence" to punish assessees for non-deduction of tax at source by declining deduction in respect of related payments, even when I.T.A. No.1237/Ahd/2013 Assessment Year: 2008-09 Page 5 of 7 corresponding income is duly brought to tax. That will be going much beyond obvious intention of section. Accordingly, we hold that insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being date from which sub clause (ia) of section 40(a) was inserted by Finance (No. 2) Act, 2004 [8] Their Lordships were pleased to hold that this reasoning and rationale of this decision merits acceptance . same principle, when applied in present context, leads to conclusion that present amendment, being amendment to remove apparent incongruity which resulted in undue hardships to taxpayers, should be treated as retrospective in effect. Quite clearly therefore, even when statute does not specifically state so, such amendments, in light of detailed discussions above, can only be treated as retrospective and effective from date related statutory provisions was introduced. Viewed thus, proviso to Section 50 C should also be treated as curative in nature and with retrospective effect from 1st April 2003, i.e. date effective from which Section 50C was introduced. While Government must be complimented for unparalleled swiftness with which Easwar Committee recommendations, as accepted by Government, were implemented, I, as judicial officer, would think this was still one step short of what ought to have been done inasmuch as amendment, in tune with judge made law, ought to have been effective from date on which related legal provisions were introduced. As I say so, in addition to reasoning given earlier in this order, I may also refer to observations of Hon ble Supreme Court, case of CIT Vs Alom Extrusion Ltd [(2009) 319 ITR 306 SC)], to following effect: Once this uniformity is brought about in first proviso, then, in our view, Finance Act, 2003, which is made applicable by Parliament only w.e.f. 1st April, 2004, would become curative in nature, hence, it would apply retrospectively w.e.f. 1st April, 1988 (i.e. date on which related legal provision was introduced). Secondly, it may be noted that, in case of Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364: (1997) 224 ITR 677 (SC), scheme of s. 43B of Act came to be examined. In that case, question which arose for determination was, whether sales-tax collected by assessee and paid after end of relevant previous year but within time allowed under relevant sales-tax law should be disallowed under s. 43B of Act while computing business income of previous year? That was case which related to asst. yr. 1984-85. relevant accounting period ended on 30th June, 1983. ITO disallowed deduction claimed by assessee which was on account of sales-tax collected by assessee for last quarter of relevant accounting year. deduction was disallowed under s. 43B which, as stated above, was inserted w.e.f. 1st April, 1984. It is also relevant to note that first proviso which came into force w.e.f. 1st April, 1988 was not on statute book when assessments were made in case of Allied Motors (P) Ltd. Etc. (supra). However, assessee contended that even though first proviso came to be inserted w.e.f. 1st April, 1988, it was entitled to benefit of that proviso because it operated retrospectively from 1st April, 1984, when s. 43B stood inserted. This is how question of retrospectivity arose in Allied Motors (P) Ltd. Etc. (supra). This Court, in Allied Motors (P) Ltd. Etc. (supra) held that when proviso is inserted to remedy unintended consequences and to make section workable, proviso which supplies obvious omission in section and which proviso is required to be read into section to give section reasonable interpretation, it could be read retrospective in operation, particularly to give effect to section as whole. Accordingly, this Court, in Allied Motors (P) Ltd. Etc. (supra), held that first proviso was curative in nature, hence, retrospective in operation w.e.f. 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only second proviso is deleted but even first proviso is sought to be I.T.A. No.1237/Ahd/2013 Assessment Year: 2008-09 Page 6 of 7 amended by bringing about uniformity in tax, duty, cess and fee on one hand vis-a-vis contributions to welfare funds of employee(s) on other. This is one more reason why we hold that Finance Act, 2003, is retrospective in operation. Moreover, judgment in Allied Motors (P) Ltd. Etc. (supra) is delivered by Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (when first proviso stood inserted). Lastly, we may point out hardship and invidious discrimination which would be caused to assessee(s) if contention of Department is to be accepted that Finance Act, 2003, to above extent, operated prospectively. Take example in present case, respondents have deposited contributions with R.P.F.C. after 31st March (end of accounting year) but before filing of Returns under IT Act and date of payment falls after due date under Employees' Provident Fund Act, they will be denied deduction for all times. In view of second proviso, which stood on statute book at relevant time, each of such assessee(s) would not be entitled to deduction under s. 43B of Act for all times. They would lose benefit of deduction even in year of account in which they pay contributions to welfare funds, whereas defaulter, who fails to pay contribution to welfare fund right upto 1st April, 2004, and who pays contribution after 1st April, 2004, would get benefit of deduction under s. 43B of Act. In our view, therefore, Finance Act, 2003, to extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when first proviso was introduced. It is true that Parliament has explicitly stated that Finance Act, 2003, will operate w.e.f. 1st April, 2004. However, matter before us involves principle of construction to be placed on provisions of Finance Act, 2003. [9] So far as amendment to Section 50C being retrospective in effect is concerned, there is no doubt about legal position. I hold provisos to Section 50C being effective from 1st April 2003. This is precisely what learned counsel has prayed for. In his detailed written submissions, he has made out of strong case for amendment to Section 50C being treated as retrospective and with effect from 1 st April 2003. plea of assessee is indeed well taken and deserves acceptance. What follows is this. matter will now go back to Assessing Officer. In case he finds that registered agreement to sell, as claimed by assessee, was actually executed on 29.6.2005 and partial sale consideration was received through banking channels, Assessing Officer, so far as computation of capital gains is concerned, will adopt stamp duty valuation, as on 29.6.2005, of property sold as it existed at that point of time. In case assessee is not content with this value being adopted under section 50C, he will be at liberty to seek matter being referred to DVO for valuation, again as on 29.6.2005, of said property. As corollary thereto, subsequent developments in respect of property sold (e.g. conversion of use of land) are to be ignored. It is on this basis that capital gains will be recomputed. With these directions, matter stands restored to file of Assessing Officer for adjudication de novo, after giving opportunity of hearing to assessee and by way of speaking order. I order so. [10] As I part with matter, I may make one more observation. amendment in Section 50C was brought in to provide relief to assessee in situation in which stamp duty valuation of property has risen between date of execution of agreement to sell and execution of sale deed, as is norm rather than exception, but real estate market is now traversing through difficult phase and there can be situations in which there is fall in stamp duty valuation rates with passage of time. Such situation has actually arisen in many places in country, such as in Gurgaon (http://www.hindustantimes.com/gurgaon/for-the-first-time-circle-rates-reduced-in-gurgaon/story- cjp6e72TeGS9H5jJIALAGP.html), New Delhi (http://www.delhismartcities.com/blogs/high-circle- rates-causing-slump-realty-reduce-delhi-government/), and even in Dehradun (Uttarakhand) I.T.A. No.1237/Ahd/2013 Assessment Year: 2008-09 Page 7 of 7 (http://www.tribuneindia.com/news/uttarakhand/relief-to-property-buyers-as-circle-rates- cut-50-pc/247805.html) and some other places. It is therefore possible that, at first sight, first proviso to Section 50C may seem to work to disadvantage of assessee in certain situation in event of word may being construed as mandatory in application, but then one cannot be oblivious to fact that this proviso states that value adopted or assessed or assessable by stamp valuation authority on date of agreement may be taken for purposes of computing full value of consideration for such transfer (emphasis supplied) making it clearly optional to assessee, and that, in any event, what has been brought by lawmakers as measure of relief to taxpayers cannot be construed as resulting in higher tax burden on taxpayers. Of course, assuming that my understanding of this statutory provision is in harmony with legislative intention, insertion of words at option of assessee between stamp valuation authority on date of agreement may and be taken for purposes of computing full value of consideration for such transfer , in first provisio to Section 50C(1), could have made legal provision even more unambiguous. [11] In result, appeal is allowed in terms indicated above. Pronounced in open court today on 30th day of September, 2016. Sd/- Pramod Kumar (Accountant Member) Ahmedabad, dated 30 th day of September, 2016. Copies to: (1) appellant (2) respondent (3) CIT (4) CIT(A) (5) DR (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad Dharamshibhai Sonani v. Asstt. Commissioner of Income Tax, Circle – 9, Surat