G. Manjunatha, Accountant Member - This appeal filed by the revenue is directed against order of Commissioner of Income Tax (Appeals), Vijayawada dated 1.1.2013 and it pertains to the assessment year 2007-08.
2. The brief facts of the case are that the assessee is a Doctor by profession, running a hospital under the name and style of M/s. Vennela Talli Pillala Vaidyasala. The assessee had filed his return of income for the assessment year 2007-08 on 29.7.2007 declaring total income of Rs. 5,12,727/-. The assessment for the year has been completed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter called as 'the Act') on 5.5.2009 determining total income at Rs. 5,64,340/-. Subsequently, the assessment has been re-opened u/s. 147 of the Act, for the reasons recorded by issuing notice u/s. 148 of the Act on 8.3.2011. The case has been selected for scrutiny and accordingly, notice u/s. 142(1) and 143(2) of the Act were issued. In response to notices, the authorized representative of the assessee appeared from time to time and furnished books of accounts and other details called for.
3. During the course of assessment proceedings, the A.O. noticed that the assessee has sold a residential house property at Dr.No.32-7- 3A, P.S. Nagar, Vijayawada for a consideration of Rs. 60 lakhs by way of registered un-possessory sale-cum-GPA vide document no.52/2007. As per the said document, the market value of the property for the purpose of payment of stamp duty has been fixed at Rs. 82,04,000/-. The assessee has computed capital gains by adopting sale consideration of Rs. 60 lakhs and claimed exemption u/s. 54 of the Act towards construction of another residential house property. During the course of assessment proceedings, in order to verify the applicability of provisions of section 50C of the Act and to ascertain the correctness of exemption claimed u/s. 54 of the Act, the A.O. issued a show cause notice and asked to furnish details of sale and computation of long term capital gains along with proof of investments in construction of residential house property. In response to show cause notice, the assessee submitted that the provisions of section 50C of the Act has no application, as the assessee has transferred property by way of registered un-possessory sale-cum- GPA. The provisions of section 50C of the Act are applicable, where the property has been transferred by way of registered sale deed. As regards the exemption u/s. 54 of the Act, the assessee has submitted that he has invested sale consideration towards construction of residential house property and has invested an amount of Rs. 62,74,701/-. The assessee further submitted that the construction of house was started in the month of November, 2004 and completed in the month of March, 2007, to this effect, furnished a copy of valuation report obtained from the registered valuer.
4. The A.O. after considering the explanations of the assessee, held that there is no merit in the contention of the assessee that the provisions of section 50C of the Act are not applicable when the property is transferred by un-possessory sale-cum-GPA. The A.O. further observed that it is abundantly clear from the document that the said document has been registered in the Office of the Sub Registrar and the Sub Registrar has determined stamp duty value of Rs. 82,04,000/- and also collected stamp duty of Rs. 50,000/-. It was further observed that the assessee himself admitted capital gains in the return of income which clearly indicates the transfer of property. It is illogical and improper on the part of the assessee to say that transfer has taken place for the purpose of computation of capital gain, but the provisions of section 50C of the Act has no application. The moment the transfer took place within the meaning of section 2(47)(v) of the Act, the deeming fiction provided under the provisions of section 50C of the Act are applicable when the consideration shown in the sale deed is less than the market value determined for the purpose of payment of stamp duty. As regards the exemption u/s. 54 of the Act, the A.O. observed that the assessee has made a claim of exemption u/s. 54F of the Act towards transfer of a residential house property. The provisions of section 54F of the Act are applicable to the transfer of any capital asset other than residential house property. However, the assessee has transferred a residential house property, therefore, the provisions of section 54F of the Act are not applicable. The A.O. further observed that the assessee had invested the sale proceeds of the residential property before the date of transfer of the property. In order to claim deduction u/s. 54 or 54F of the Act, the assessee has to invest sale proceeds for construction of residential house within 3 years from the date of such transfer. Since, the construction of property was commenced before transfer of asset, the assessee is not eligible for exemption u/s. 54 or 54F of the Act.
5. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT (A). Before the CIT (A), the assessee reiterated the submissions made before the A.O. The CIT (A) after considering the explanations of the assessee held that the provisions of section 50C of the Act has no application when the property has been transferred by way of un-possessory sale-cum-GPA. The CIT (A) further held that the provisions of section 50C of the Act are applicable when the property has been transferred for a consideration which is less than to that of the guidelines value payable as per SRO, then the value as per the SRO has to be adopted on which stamp duty is payable by the transferor. Since, the impugned property was not registered, value as per SRO is not applicable and hence the A.O. was on a wrong footing. Thus, the fair market value as adopted by the A.O. is not sanctified and as such the same is not sustainable. As regards exemption u/s. 54 of the Act, the CIT (A) held that the assessee is eligible to claim exemption towards investment in construction of residential house property, whether or not the said property construction was commenced before the date of transfer of asset. The CIT (A) further held that it was immaterial that the construction of the new house was started before the sale for the purpose of deduction u/s. 54 of the Act. Aggrieved by the CIT (A) order, the revenue is in appeal before us.
6. The first issue that came up for our consideration is on the facts and circumstances of the case the provisions of section 50C of the Act are applicable when the property has been transferred by un-possessory sale-cum-GPA. The A.O. was of the opinion that the transfer took place within the meaning of section 2(47)(v) of the Act, as the assessee has transferred the asset by way of un-possessory sale-cum-GPA registered in the Office of SRO. The A.O. further was of the opinion that the assessee has shown a consideration of Rs. 60 lakhs, whereas the stamp duty authority has determined the market value of the property at Rs. 82,04,000/-. The provisions of section 50C of the Act are applicable, the moment the sale consideration shown in the sale deed is less than the market value of the property determined by the stamp duty authority. It is the contention of the assessee that the provision of section 50C of the Act has no application as the property is not transferred by registered sale deed. The assessee further contended that he had transferred property by way of un-possessory sale-cum-GPA and the market value determined by the stamp duty authority is not final. The assessee further contended that though the sale-cum-GPA is registered in the office of the Sub-Registrar, the assessee has not accepted the value determined by the SRO and unless the sale deed is registered the value determined by the SRO is not final. Therefore, the A.O. was not correct in applying the provisions of section 50C of the Act.
7. Having heard both the parties and considered the materials available on record, we find no merit in the arguments of the assessee for the reason that it is illogical and improper on the part of the assessee to say that the transfer within the meaning of section 2(47)(v) of the Act takes place, but no application of provisions of section 50C of the Act, when the property has been transferred by way of un- possessory sale-cum-GPA. It is an admitted fact that the assessee has transferred property by way of registered sale-cum-GPA. The assessee has computed long term capital gain by adopting sale consideration of Rs. 60 lakhs shown in the sale deed. The only dispute is that whether the provisions of section 50C of the Act are applicable or not when the property is transferred by sale-cum-GPA. In this case, admittedly, the assessee himself has admitted long term capital gain on transfer of asset. The moment transfer took place within the meaning of section 2(47)(v) of the Act, the deeming fiction provided u/s. 50C of the Act are applicable, when the sale consideration shown in the sale deed is less than the market value determined by the stamp duty authority for the purpose of payment of stamp duty.
8. In the present case on hand, on perusal of the facts available on record, we find that the sale-cum-GPA is registered in the office of the SRO. The stamp duty authority has determined the market value of the property at Rs. 82,04,000/- and has collected adhoc stamp duty of Rs. 50,000/-. It is also an admitted fact that the assessee himself has admitted long term capital gain. This clearly shows that the transfer took place within the meaning of section 2(47)(v) of the Act. The moment transfer took place, the deeming provisions provided in section 50C of the Act are applicable when the sale consideration shown in the sale deed is less than the value determined by the stamp duty authority for the purpose of payment of stamp duty. Since, there is a difference between consideration shown in the sale deed and the value determined by the SRO, the deeming provisions of section 50C of the Act are clearly applicable. The CIT (A) without appreciating the facts simply observed that there is no application of the provisions of section 50C of the Act. Therefore, we reverse the order of the CIT (A) and uphold the action of the A.O. in adopting value as per section 50C of the Act for the purpose of computation of capital gains.
9. The next issue that came up for our consideration is whether on facts and circumstances of the case, the assessee is eligible for claiming exemption u/s. 54 of the Act. The A.O. observed that the assessee is not eligible to claim exemption u/s. 54 of the Act, for the reason that the construction of the new residential house was commenced before the date of transfer of asset. The A.O. further observed that the assessee has commenced the construction of new house before the transfer of asset and also has invested amount out of borrowed fund, therefore not eligible for exemption u/s. 54F of the Act. It is the contention of the assessee that the date of commencement of construction is immaterial, but it is only the date of completion of construction. As per the provisions of section 54 of the Act, the construction of new residential house should be completed within 3 years from the date of transfer of original asset, however, the section does not prescribe any condition as to date of commencement of construction.
10. We find force in the argument of the assessee for the reason that the Act does not prescribe any condition as to the date of commencement of construction of new house property. The only condition is that construction of the house property should be completed within 3 years from the date of transfer. The date of commencement of construction is irrelevant and the construction may be commenced even before the transfer of asset as held by the Hon'ble High Court of Delhi, in the case of CIT v. Bharti Mishra [2014] 222 Taxman 2/41 taxmann.com 50. A similar view was expressed by the Hon'ble High Court of Karnataka, in the case of CIT v. J.R. Subramanya Bhat [1987] 165 ITR 571/[1986] 28 Taxman 578, which was in turn followed by the Hon'ble High Court of Allahabad in the case of CIT v. H.K. Kapoor [1998] 234 ITR 753. Therefore, we are of the considered view that the assessee is eligible to claim exemption u/s. 54 of the Act, even though the construction of the new residential house was commenced prior to the date of transfer of original asset. In the present case on hand, on perusal of the facts available on record, we find that the assessee has commenced construction of new house property in the month of November, 2004 and completed construction in the month of March, 2007. The transfer of asset has been taken place in the month of January, 2007. The construction of new house property has been completed within 3 years from the date of transfer of asset. Therefore, the assessee is eligible for exemption u/s. 54 of the Act.
11. Having said that let us examine, for the purpose of exemption u/s. 54 of the Act, the full value of consideration as defined under the provisions of section 50C of the Act is applicable or actual consideration received as a result of transfer of asset. Section 54 of the Act provides for exemption where the assessee invests net sale consideration for the purpose of acquiring new house, then the cost of new house shall be allowed as deduction in computing the capital gains. The term net sale consideration has been defined to mean the full value of the consideration received or accrued as a result of the transfer of the capital asset after deduction of any expenditure incurred, wholly and exclusively in connection with transfer. Similarly, the provisions of section 50C of the Act, comes into operation when the sale consideration is less than value adopted by any authority of the State Government for the purpose of payment of stamp duty in respect of transfer of assets.
12. The question is whether the assessee needs to invest the net sale consideration as a result of transfer or the full value of consideration as defined u/s. 50C of the Act. The full value of consideration as defined u/s. 50C of the Act is a deeming consideration which is applicable for the purpose of computation of capital gain under the provisions of section 48 of the Act. The net sale consideration as a result of transfer of capital asset is a consideration received or accrued as a result of transfer. There is difference between net sale consideration and full value consideration. In our considered view, if the assessee invests net sale consideration for the purpose of purchase/construction of new residential house property, then he is eligible for exemption u/s. 54 of the Act, even though the full value of consideration is more than the net sale consideration as a result of transfer. Deeming fiction as provided u/s. 50C of the Act in respect of the words full value of consideration is to be applied only to section 48 of the Act and therefore meaning of full value of consideration as referred to in explanation to section 54F(1) of the Act is not governed by the meaning of the words full value of consideration as mentioned in section 50C of the Act as held by the coordinate bench of ITAT Jaipur in the case of Gyan Chand Batra v. ITO [2010] 8 taxmann.com 22 . The relevant portion of the order is extracted below:
"From sub-s. (1) of s. 50C, it is clear that in case the consideration received is less than the value adopted by stamp valuation authority then the value so adopted is to be taken as full value of the consideration for the purposes of 5. 48. Sec. 50C provides a deeming provision for considering the full value of consideration as the value adopted for stamp duty. In modern statutes, the expression 'deem' is used a great deal and for many purposes. It is at times used to introduce artificial conceptions which are intended to go beyond legal principles or to give an artificial construction of a word for phrase, Thus the artificial meaning of full value of the consideration has been given in s. 50C for the purpose of s, 48. One is entitled to ascertain the purpose for creating a statutory fiction. After ascertaining the purpose, full effect must be to the statutory fiction and it should be carried to its logical conclusion and to that end, it be proper and even necessary to assume all those facts on which alone fiction can operate legislature in its wisdom has referred to s. 48 in s. 50C for adopting the same value market value. Hence, the deeming fiction as provided in s. 50C in respect of the word value of consideration' is to be applied only for s. 48. The words 'full value of consideration mentioned in other provisions of the Act are not governed by the meaning of full value consideration as contained in s. 50C. The natural meaning of full value of consideration refers to consideration specified in the sale deed. Hence, for the meaning of full value of consideration mentioned in different provisions of the Act except in s. 48, one will have to consider it value of consideration as specified in sale deed. —CIT v. Smt. Nilofer I. Singh (2009) 22 (Del) 277: (2008) 14 DTR (Del) 108: (2009) 309 ITR 233 (Del)relied on. (Para 7.1)
In Explanation to s. 54F(1), it is mentioned that net consideration means the full value a consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. The meaning of full value of consideration in Explanation to s. 54F(1) will not be governed by meaning o words 'full value of consideration' as mentioned in s. 50C. The value adopted for stamp duty is to be considered as full value of consideration for the purpose of computing the capital gains under s. 48. Sec. 54F(1) says that capital gains is to be dealt with in accordance with the provisions of sub-cls. (a) and (b) of s. 54F(1). In the instant case, the cost of new asset is not less than the net consideration thus the whole of the capital gains will not be charged even if the capital gains has been computed by adopting the value adopted by stamp registration authority. It is clearly mentioned in s. 54F(4) also that net consideration which is not appropriated towards the purchase of new asset the same is to be taxed in case such net consideration not appropriated is not deposited in the capital gain account. It is not necessary that the new asset should be got registered before filing of the return. The requirement of law is that net consideration is required to be appropriated towards the purchase of the new asset. Thus deduction under s. 54F is clearly applicable. Deeming provisions as mentioned in s. 5OC will not be applicable to s. 54F so far as the meaning of full value of consideration is concerned as deeming provision mentioned in s. 50C is for specific asset and for the purpose of s. 48. Hence the assessee is entitled for deduction under s. 54F.—CIT v. Ace Builders (P.) Ltd. (2005) 195 CTR (Bom) 1 . (2006) 281 ITR 210 (Bom) and CIT v. Assam Petroleum Industries (P.) Ltd. (2003) 185 CTR (Gau) 71 : (2003) 262 ITR 587 (Gau)applied. (Paras 7.3 to 7.5)"
13. Considering the facts and circumstances of the case and also applying the ratio of the case laws discussed above, we are of the view that the assessee is eligible for exemption u/s. 54 of the Act, if the net sale consideration is invested in construction or purchase of new residential house. In the present case on hand, the assessee has invested net sale consideration for construction of new residential house property. Though, the full value of consideration as defined u/s. 50C of the Act is more than the net sale consideration as referred in section 54F(1) of the Act, once the net sale consideration has been fully applied under the provisions of section 54 of the Act, then the deeming consideration as defined u/s. 50C of the Act cannot be brought into the provisions of section 54F of the Act. Therefore, we are of the view that the assessee is eligible for exemption u/s. 54 of the Act, therefore, the whole of the capital gain is not chargeable to tax even if the capital gain is computed by taking the value as per the provision of section 50C of the Act. Therefore, we direct the A.O. to allow the exemption u/s. 54 of the Act.
14. In the result, the appeal filed by the revenue is partly allowed.