30 SOT 534 (COCHIN)
IN THE ITAT COCHIN BENCH
Deputy Commissioner of Income-tax, Circle-2, Range-2, Ernakulam
DR. O.K. NARAYANAN, ACCOUNTANT MEMBER
AND N. VIJAYAKUMARAN, JUDICIAL MEMBER
IT APPEAL NO. 117 (COCH.) OF 2009
[ASSESSMENT YEAR 2006-07]
APRIL 28, 2009
Section 48 of the Income-tax Act, 1961 - Capital gains - Computation of - Assessment year 2006-07 - Assessee had purchased certain agricultural land in year 1975 for Rs. 9,000 - Said land was designated as a capital asset on 6-1-1994 vide Notification No. 5010(E), dated 6-1-1994 issued by Central Government - Assessee had sold said land on 19-1-2006 for Rs. 11,02,71,200 - He estimated fair market value [FMV] of said land at Rs. 1,66,61,500 on basis of FMV available as on date of conversion, i.e., on 6-1-1994, in view of abovesaid notification and computed capital gains under section 48 accordingly - Assessing Officer did not accept value estimated by assessee as per said notification and estimated FMV as per statutory date, i.e., 1-4-1981, embedded in Act - Thus, he estimated FMV at Rs. 1,77,000 at rate of Rs. 1,000 per cent -Whether statutory date for FMV cannot be substituted with a subsequent conversion date determined by Central Government through a notification because notification date is for purpose of deciding nature of asset and statutory date is for purpose of actual computation of quantum of capital gains - Held, yes - Whether, therefore, Assessing Officer had rightly adopted FMV of land as per statutory date, 1-4-1981 for computing capital gains - Held, yes - Whether further, FMV estimated by Assessing Officer at Rs. 1,000 per cent, which was also 10 times of cost of acquisition, was fair and reasonable in view of development which took place on said land during period between 1-4-1981 and 19-1-2006, i.e., year in which land was sold - Held, yes
Circular and Notifications : Notification No. 5010 (E), dated 6-1-1994
The assessee had purchased certain agricultural land in the year 1975 for Rs. 9,000. The said land was designated as a capital asset on 6-1-1994 vide Notification No. 5010(E), dated 6-1-1994 issued by the Central Government. The assessee had sold the said land on 19-1-2006 for a total
consideration of Rs. 11,02,71,200. The assessee had estimated the fair market value [FMV] of the land at Rs. 1,66,61,500 on the basis of the FMV available as on the date of conversion, i.e., on 6-1-1994 and computed the capital gains under section 48 accordingly. The Assessing Officer did not accept the value estimated by the assessee and made his own enquiries and also compared an available case and finally estimated the FMV as on 1-4-1981 at Rs. 1,77,000 at the rate of Rs. 1,000 per cent. Consequently, the Assessing Officer, computed the long-term capital gains at Rs. 7,35,05,097 and assessed the same in the hands of the assessee. On appeal, the Commissioner (Appeals) upheld the action of the Assessing Officer.
On second appeal :
The assessee purchased the property in 1975. The notification declaring the said property in the category of ‘capital asset’ was made in 1994. The property was sold in 2006. The case of the assessee was that for the purpose of computing the long-term capital gains, FMV of the property should be adopted as it stood on the conversion date; i.e., on 6-1-1994 and not the FMV as on 1-4-1981. The law relating to the computation of long-term capital gains (LTCG) provides that in respect of every asset so acquired prior to 1 -4-1981, the FMV of the property has to be adopted as it stood on 1-4-1981. It is not possible to ignore the statutory date embedded in the Act and adopt the conversion date as the benchmark date for finding out the FMV.
The notification dated 6-1-1994 issued by the Central Government is not for changing the date on which the FMV has to be adopted; but, on the other hand, the notification is for the purpose of changing the character of the asset. [Para 19]
The nature of the property is relevant for deciding at the first instance whether the asset is a capital asset or not, so that the proceedings for the purpose of levy of capital gains tax is lawful or not. The nature of the property has to be examined as on the date of transfer of the asset. In the instant case, the transfer of the asset was made on 19-1-2006. Therefore, the nature of the property, whether it was a capital asset or not had to be examined as on 19-1-2006. The aforesaid notification had already been made on 6-1-1994 holding the property as a capital asset. Further, whether an asset is liable for capital gains tax and the question as to what would be the amount of capital gains are two different things. The date of notification is relevant only in deciding the nature of the property. It is necessary to complete the first stage and not necessary to be carried over to the second stage. On the date of transfer once it is found that the asset is a capital asset exigible for capital gains tax, the relevance of the notification issued by the Central Government is complete. That part of exercise is over. It is the second stage to decide what should be the quantum of capital gains to be assessed. It is for the purpose of computation that the FMV is relevant. The FMV date is not relevant in deciding the character of the property. [Para 20]
Once the property is found to be a capital asset on the date of transfer, the transaction becomes liable for capital gains taxation and the date of notification cannot be used for any other purpose. The statutory date for FMV cannot be substituted with a subsequent conversion date determined by the Central Government through a notification. The notification date cannot overtake the date embedded in the statute itself. [Para 21]
Therefore, the function and purpose of the notification date is different from the function and purpose of the FMV date. The notification date is for the purpose of deciding the nature of the asset and the statutory date is for the purpose of actual computation of the quantum of the capital gains. [Para 22]
Therefore, the Assessing Officer had rightly adopted the FMV as it stood on 1-4-1981. [Para 27]
In the instant case, the value of the land adopted by the assessee was Rs. 94,132 per cent. The actual cost of acquisition as explained by the Commissioner (Appeals) in his order was Rs. 102 per cent. The property was acquired in 1975. Therefore, the question would arise as to whether the acquisition cost of Rs. 102 per cent in 1975 would grow into a value of Rs. 94,132 on 1-4-1981, i.e., within a period of 6 years or not. The Assessing Officer had pointed out that the value claimed by the assessee worked out at 922 times of the acquisition cost within a period of 6 years. The value adopted by the Assessing Officer was Rs. 1,000 per cent. This was almost 10 times more than the acquisition cost within a period of six years. [Para 28]
The assessee for the first time had placed before the Tribunal a valuation report of an approved valuer in order to ascertain the FMV as on 1-4-1981. It was the case of the assessee that the Assessing Officer should have referred the question of valuation to the Departmental Valuation Officer so as to ascertain the FMV of the capital asset. This ground was not raised by the assessee either before the Assessing Officer or before the Commissioner (Appeals). Therefore, that was in the nature of an additional evidence. [Para 29]
By reading of the provisions of rule 29 of the Income-tax Appellate Tribunal, Rules, 1963, it is clear that there is no right to the assessee to produce the additional evidence before the Tribunal unless leave is granted by the Tribunal for valid reasons. In the instant appeal, the assessee had no case that the lower authorities had decided the case without giving sufficient opportunity to the assessee to adduce evidences. [Para 31]
Further, section 55A provides that if necessary in certain circumstances the Assessing Officer may refer the question of valuation to the Departmental Valuation Officer. It is, therefore, not mandatory. As far as the Tribunal is concerned, again it is not mandatory. At the instant stage, it was not necessary to go through the valuation report of the approved valuer, which was not produced before the lower authorities, nor there was any such
prayer by the assessee before the Assessing Officer. Therefore, the additional evidence report of the registered valuer, placed by the assessee before the Tribunal did not require to be entertained. [Para 32]
Now the question for consideration arises as to whether the FMV fixed by the assessing authority was fair or not. One of the main grounds raised by the assessee in this regard was that when the property was purchased in 1975, it was marshy land with no market attraction. By 1980 the alignment for the National High Way 17 was made and tenders for the construction of roads and bridges were invited and the area became the center for potential development and in such circumstances the FMV would have been higher than the nominal value adopted by the Assessing Officer at Rs. 1,000 per cent. The stand of the Assessing Officer was that developments had not actually taken place as on 1-4-1981 and there was contemplation of the development of roads and bridges and in such circumstances was it in conceivable that the property had increased its value by 922 times within a period of six years. [Para 33]
It was true that the area in which the property was situated had recently developed in a wonderful manner. But one has to see the FMV as on 1-4-1981. The sale of the property was made in 2006. One has to go back by 25 years. Of course, development was contemplated because of the pronouncement of the authorities for constructing wide roads and connecting bridges. Naturally, these developments would have boosted the market value of the area. But at that point of time there was no development either commercially or residentially. The plot remained marshy land even in 1981, though there was contemplation of over all developments. It was long after 1981, that the actual development had taken place in this area. In such circumstances, the FMV estimated by the Assessing Officer at Rs. 1,000 per cent which was also 10 times of the cost of acquisition was fair and reasonable and, therefore, deserved to be upheld. [Para 34]
The assessee had also contended that it was not given the full deduction available under section 54EC. This issue was settled at the time of hearing itself, as the assessee agreed with the observation of the Bench that he had not invested the entire capital gains in the eligible bonds and the Assessing Officer had already granted proportionate relief as prescribed in section 54EC(1)(b). [Para 35]
Therefore, the appeal of the assessee was liable to be dismissed. [Para 36]
CIT v. Didar Singh  179 ITR 208 (Punj. & Har.) (para 23); CIT v. Smt. M. Subhaida Beevi  160 ITR 557/ 30 Taxman 50 (Ker.) (para 24); M. Nachiappan v. CIT  230 ITR 98/96 Taxman 478 (Mad.) (para 25) and Keshavi Karsondas v. CIT  207 ITR 737/73 Taxman 571 (Bom.) (para 25) followed.
CIT v. Gurcharan Singh  292 ITR 387/160 Taxman 211 (Punj. & Har.) and CIT v. S. Hoshnak Singh (HUF)  292 ITR 390 (Punj. & Har.) (para 25) distinguished.
CASES REFERRED TO
Geotze (India) Ltd. v. CIT  284 ITR 323/157 Taxman 1 (SC) (para 5A), CIT v. Gurcharan Singh  292 ITR 387/160 Taxman 211 (Punj. & Har.) (para 6), CIT v. S. Hoshnak Singh (HUF)  292 ITR 390 (Punj. & Har.) (para 6), CIT v. Bai Shirinbai K. Kooka  46 ITR 86 (SC) (para 8), Keshavi Karsondas v. CIT  207 ITR 737/73 Taxman 571 (Bom.) (para 10), CIT v. M. Ramaiah Reddy  158 ITR 611/24 Taxman 764 (Kar.) (para 10), M. Nachiappan v. CIT  230 ITR 98/96 Taxman 478 (Mad.) (para 11), CIT v. Didar Singh  179 ITR 208 (Punj. & Har.) (para 12), CIT v. Smt. M. Subaida Beevi  160 ITR 557/ 30 Taxman 50 (Ker.) (para 13), Herrington v. British Railways Board  1 All ER 749 (HL) (para 17), Shepherd Homes Ltd. v. Sandham  2 All ER 1267 (para 17), Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT  227 ITR 172/93 Taxman 502 (SC) (para 17), CIT v. Bokaro Steel Ltd.  236 ITR 315/102 Taxman 94 (SC) (para 17), CIT v. Karnal Co-op. Sugar Mills Ltd.  243 ITR 2/ 118 Taxman 489 (SC) (para 17), Dilip N. Shroff v. Jt. CIT  291 ITR 519/161 Taxman 218 (SC) (para 17) and Union of India v. Dharmendra Textiles  306 ITR 277/174 Taxman 571 (SC) (para 17).
Vedanga R. Prabhu for the Appellant. C. Karthikeyan Nair for the Respondent.