When sale consideration of immovable property is shown more than DLC, there is no justification for making any addition u/s 50C: Jaipur ITAT
Jaipur ITAT in the case of Om Prakash Agarwal Vs DCIT, ITA No.1393/JP/2019 has held that When sale consideration of immovable property is shown more than DLC (District Level Committee), there is no justification for making any addition u/s 50C.
Short overview of the case is as under:
- The assessee an individual deriving his income from business, interest from parties, interest on FDR.
- The assessee was jointly owner of an agricultural land 2.09 Hectare wherein the assessee had 1/4th share.
- During the year under consideration, the assessee and his co-owners sold 2.09 Hectare (8.26 Bigha) agricultural land.
- The DLC rate of the land was Rs. 44,35,410/- per bigha. Accordingly the value of the land as per the DLC rate comes to Rs.3,66,36,487/-. The value declared by the assessee was @ Rs.59,56,416/- per bigha which comes to Rs.4,92,00,000/-. The stamp duty authority levied the stamp duty by assessing the value @ 150% of sale value declared in the sale deed valued by stamp duty authority at Rs.7,38,00,000/-.
- On the basis of declared sale consideration, the assessee offered the gain earned on sales of this land as long term capital gain and part of the same claimed exempted u/s 54B.
- The assessment of the assessee was completed u/s 143(3) by making addition of Rs.61,50,000/- by applying the deeming provisions of Section 50C being the difference of sales consideration and value assessed by stamp duty authority for levy of stamp duty (Rs.7,38,00,000 minus Rs.4,92,00,000) – 1/4th of Rs.2,46,00,000/-. On appeal, CIT(A) confirmed the addition.
On appeal, Jaipur ITAT on the issue as to whether when sale consideration of immovable property is shown more than DLC, there is no justification for making any addition u/s 50C has held as under:
- Higher rate applied by the stamp duty authority only because of the fact that the land was sold to company. The DLC rates are indicative of market rate of the property sold. The market rate depends on market condition and not depends whether the buyer is a company or individual.
- The 1.5 times of the normal rate of the property was assessed just to levy stamp duty but the deemed sale consideration for the purpose of section 50C can be taken as DLC rate and in the case of the assessee sale value declared in the sale deed is much more than DLC rates.
- As per our considered view, the deeming provision of Section 50C cannot be extended beyond the four corner of the law for which it is meant. Under Section 50C, the Fair Market Value which is in the form of DLC is to be adopted if the sale consideration is lower than DLC Rate.
- The letter issued by the Director General, Registration & Stamps for levying stamp duty at 1.5 time of DLC Rate in case the sale is affected to a company does not override the provisions of Section 50C. This letter is only meant for collecting higher stamp duty in case of sale to a company, firm or institution. In the instant case, the sale consideration declared by the assessee was more than DLC rate, therefore, the AO was not justified in substituting the DLC rate by taking 1.5 of the sale consideration of the land so sold by the assessee.
- Section 50C was introduced in the Income-tax Act, 1961 by the Finance Act, 2002 with effect from 1-4-2003 for substituting valuation done for Stamp Valuation purposes as full value of consideration in place of apparent consideration shown by the transferor of capital asset, being land or building.
- Earlier there used to be a provision in Section 52 of the Income-tax Act, 1961 which enabled the Assessing Officer to refer the property under transfer to the Valuation Officer for determining market value. However, in K.P. Varghese v.ITO, 2002-TIOL-128-SC-IT, it was held that Section 52(2) cannot be applied to genuine transaction unless there are evidences to show that consideration declared in the sale deed is understated.
- In other words unless the Revenue was able to show that something over and above the sale consideration had passed hands between the transferee and the transferor, Section 52(2) could not be invoked.
- It became almost a herculean task for the Assessing Officer to collect evidence to show the exchange of additional money for consideration was other than apparent sale consideration.
- Accordingly, it was considered to insert a deeming provision by way of Section 50C for substituting apparent sale consideration by valuation done by SVA subject to certain conditions, calculating capital gains under Section 48.
- For the purpose of levy of stamp duty, local committee prescribes circle rate or DLC rate.
- The DLC rates are considered as indicative of fair market value of the property. The real spirit behind the insertion of deeming section 50C to apply a common value for all the property situated in that particular area.
- Sometimes the State Governments prescribes certain formula based on DLC rates to levy more stamp duty. In the case of the assessee the land was sold to a company and according to the circular F7(39) JAN/2013/Part-1/2845-3385 dated 14.07.2014 the valuation of the agricultural land would be 1.5 time of normal value in case the purchaser is a company, firm or institution.
- The multiplication by 1.5 time of normal rate ‘has been prescribed by State Govt. for the purpose of levy of more stamp duty from Company/Firms/or Institution who buys the land. This Circular is no way going to affect the fair market value of land i.e. DLC The DLC rate prescribed for the land was Rs. 44,35,410/- per bigha accordingly the normal value of the land as per the DLC rate comes to Rs. 3,66,36,487/-.
- The sale value declared by the assessee was Rs. 4,92,00,000/- which comes to Rs. 59,56,416/- per bigha. The sale value declared by the assessee was more than the DLC rate which is indicative of fair market value prevailing in that area.
- The fair market value cannot vary according to the status of the buyer person. If buyer is an individual then the fair market value would be Rs. 3,66,36,487/- and if the buyer is a company or firm or institution then the fair market value of the property would be 1.5 time of the normal value, this cannot be intention of Section 50C which require substitution of fair market value i.e. DLC in place of sale consideration mentioned in the sale deed, if it is found to be lower than DLC.
- Furthermore, the stamp duty authority levied the stamp duty arbitrary by assessing the value @ 1.5 time of value declared in the sale deed valued for stamp duty purpose at Rs. 7,38,00,000/- for stamp duty purpose as against 1.5 time of normal DLC. Furthermore as per provisions of Income Tax Act if the AO does not agree with the explanation of the assessee with regard to consideration disclosed by him then he should refer the matter to DVO for getting its market rate estimated as on date of the sale.
- In case AO is not satisfied with the explanation of the assessee, he ‘should’ refer the matter to the DVO for the valuation purpose.
- Thus as per provisions of this section if the assessee raise any sort of objection regarding the value adopted by the registrar authority and if the AO is not satisfied on that then the AO should refer the matter to DVO. This is a legal requirement which must be complied with by the AO. In the result, the appeal of the assessee is allowed.
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