By TIOL News Service

NEW DELHI, OCT 18, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether section 50C can be invoked, when there is mere transfer of shares of a company and no stamp duty has been paid towards plot of land. NO is the answer.

Facts of the case:

The Assessee, an individual, had filed his return declaring income of Rs.19,18,630/-. Consequent to the same, a search was conducted, whereby the assessee surrendered an amount of Rs.2,50,00,000/- as his additional income on account of cash receivables. The AO observed that assessee had included the surrendered amount as undisclosed income. The AO on perusing the I.T. return of assessee, observed that no capital gain was declared by assessee in A.Y 2008-09 on transfer of immovable properties. However, in the next A.Y 2009-10, the assessee declared a long term capital loss of Rs. 5,58,792/- on transfer of Shares of M/s Raj Refullers and Fire Safety Equipment Private Limited. Since no capital gain was shown by assessee, summons were issued to purchaser, who informed that the said deal did not mature and the payment were returned back. It was further observed that another "Share Purchase Agreement" was entered for transferring the entire Shareholding to purchasers for a consideration of Rs.2,18,00,000/-. This time the deal matured and capital loss on transfer of shares have been declared by assessee in A.Y 2009-10. However, the sequence of events suggested that the purpose of transfer of entire share holding was only for transferring the land belonging to M/s Raj Refullers and Fire Safety Equipment Private Limited. The transfer of shares of Raj Refullers and Fire Safety Equipment Private Limited was merely the mode or vehicle to transfer the land. Accordingly, assessee was show caused as to why his claim of capital loss computed on basis of sale consideration of shares, should not be rejected and why capital gains should not be computed by adopting fair market value of Land & building.

In response, it was submitted that assessee was only a shareholder and not the owner of property owned by the company. Therefore, it could not be said that assessee had transferred the land. The AO further observed that the transaction was actually for transferring the land and shares were only means of controlling the ownership of the land. He further noted that corporate veil could be lifted if it was used for avoiding the payment of due taxes. It was held by AO that Capital gains shall be chargeable as if the land was transferred and not shares. Accordingly, matter was referred to DVO, which had not been received. Hence, the AO decided the sale consideration as per the circle rate prevailing at the time. Thus, fair market value of the said plot was computed to minimum of Rs. 6,60,19,200/-. The assessee had the ownership of 50% of this land, therefore, the sale consideration for the purpose of computation of capital gain in the case of assessee came to Rs.3,30,09,600/-. Since, assessee had already shown an amount of Rs. 1,09,00,000/- on account of this transaction, therefore, the difference amount i.e. Rs. 2,21,09,600/- was being added in the hands of the assessee as long term capital gain, subjective to report of DVO and assessed the income of assessee at Rs.2,40,28,230/-.

Tribunal held that,

++ we find that during the course of the search, a "share purchase agreement" was found. The sale consideration accounted by the assessee in his R/I, is same as that was mentioned in the said agreement. No evidences have been found either during the search, or thereafter, about any extra amount changing hands. In the absence of any such evidence, the AO has attempted to bring to tax capital gain on the basis of the fair market value of the plot of land as per section 50C. We find that section 50C cannot be invoked in the instant case. On perusing Section 50C, it is observed that this section is applicable for transfer of land or building which is registered with the registering authority by paying stamp duty. Section 50C could be invoked only if the sale consideration received is less than the value adopted by Stamp Valuation Authority of the State Government for the purpose of payment of stamp duty. However, there is no evidence that any stamp duty has been paid towards transfer of the plot of land as held by the AO and that the Stamp Valuation Authority adopted any particular value as sale consideration for payment of stamp duty in the present transaction. In fact, in this case there, is a mere transfer of shares of a company and no stamp duty appears to be payable towards plot of land. In the assessment order also, it is nowhere stated that any state government authority has adopted a particular value at the time of payment of stamp duty by the parties to the said share purchase agreement;

++ we further find that Section 50C has undergone amendment with effect from 01/10/2009. The word 'assessed or assessable' has been inserted in place of 'assessed' appearing before that date. If the transaction were to have taken place after 01/10/2009, it would have been possible to take the value which could have been assessable by the stamp valuation authority even in cases where such value has not be assessed or adopted. Since the transaction has taken place on 06/11/2008, the said amendment is not applicable for the current assessment year and therefore the AO cannot adopt on his own the circle rates. The procedure adopted by the AO in determining the capital gain from the said transaction is not tenable under the law as it stood applicable for the current assessment year. We are of the view that section 2(47)(vi) is applicable in the cases where the asset in question is like a group of houses owned by a company and each shareholder is allotted a house for his personal enjoyment similar to what is prevalent in housing cooperative societies. However, there is no necessity to adjudicate on this issue as even if it is assumed that transfer of shares of the said company amounted to transfer of plot of land, in the absence of any evidence of extra amount having been exchanged, no addition can be made invoking section 50C. Therefore, addition made by the AO was rightly deleted by CIT(A).

(See 2017-TIOL-1430-ITAT-DEL)