Sri T Ramachandran, Visakhapatnam v. The Addl. CIT, Range-1, Visakhapatnam

ITA 528/VIZ/2009 | 2006-2007
Pronouncement Date: 24-12-2010 | Result: Allowed

Appeal Details

RSA Number 52825314 RSA 2009
Assessee PAN ABJPT6159K
Bench Visakhapatnam
Appeal Number ITA 528/VIZ/2009
Duration Of Justice 1 year(s) 1 month(s) 1 day(s)
Appellant Sri T Ramachandran, Visakhapatnam
Respondent The Addl. CIT, Range-1, Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 24-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 24-12-2010
Date Of Final Hearing 20-12-2010
Next Hearing Date 20-12-2010
Assessment Year 2006-2007
Appeal Filed On 23-11-2009
Judgment Text
ITA NO.528 OF 09 T.RAMACHANDRAN VISAKHAPATNAM PAGE 1 OF 10 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 528/VIZAG/2009 ASSESSMENT YEAR: 2006 - 07 T. RAMACHANDRAN VISAKHAPATNAM VS. ADD. CIT RANGE-1 VISAKHAPATNAM (APPELLANT) PAN NO: ABJPT 6159 K (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI CA RESPONDENT BY: SHRI D.S. SUNDER SINGH DR ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 31.8.2009 PASSED BY LEARNED CIT(A) VISAKHAPATNAM AND IT RELA TES TO THE ASSESSMENT YEAR 2006-07. THE APPEAL IS BARRED BY LIMITATION BY FOU R DAYS AND THE ASSESSEE HAS EXPLAINED THE REASONS FOR THE DELAY. HAVING REGARD TO THE SUBMISSIONS MADE IN THIS REGARD WE CONDONE THE DELAY AND ADMIT THE APP EAL. 2. THE SOLITARY ISSUE URGED IN THESE TWO APPEA LS IS THAT WHETHER THE LEARNED CIT(A) IS RIGHT IN LAW IN PARTLY CONFIRMING THE ACT ION OF THE ASSESSING OFFICER IN ENHANCING THE CAPITAL GAINS BY INVOKING THE PROVISI ONS OF SECTION 50C. 3. THE FACTS RELATING TO THE ISSUE ARE STATED I N BRIEF. THE ASSESSEE HEREIN SOLD A PROPERTY HAVING AN EXTENT OF 1500 SQ. YARDS SITUATE D IN VISAKHAPATNAM IN THE MONTH OF JULY 2005 TO THREE PERSONS BY WAY OF THRE E SEPARATE CONVEYANCE DEEDS FOR AN AGGREGATE VALUE OF RS.1.02 CRORES. THE ASSE SSEE COMPUTED THE CAPITAL GAIN ON SALE OF SAID PROPERTY BY ADOPTING THE SALE VALUE CITED ABOVE. HOWEVER THE ASSESSING OFFICER RE-COMPUTED THE CAPITAL GAIN BY A DOPTING A SALE VALUE OF RS.1.74 CRORES BY INVOKING THE PROVISIONS OF SEC. 50C OF T HE ACT. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A). THE FI RST APPELLATE AUTHORITY GOT THE ITA NO.528 OF 09 T.RAMACHANDRAN VISAKHAPATNAM PAGE 2 OF 10 PROPERTY VALUED BY THE DVO WHO VALUED THE PROPERTY AT RS.1 30 82 400/-. ACCORDINGLY THE LEARNED CIT(A) DIRECTED THE ASSESSI NG OFFICER TO DETERMINE THE CAPITAL GAIN BY ADOPTING THE SALE CONSIDERATION AS DETERMINED BY THE DVO. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE SUBMISSIONS OF THE LEARNED. AUTHORISED R EPRESENTATIVE IS THAT:- (A) THE ASSESSEE ENTERED INTO AN ORAL AGREEMENT WI TH THE VENDEES IN THE MONTH OF APRIL 2005 AND OBTAINED ADVANCE AMOUNT OF RS.5.00 LAKHS AND RS.4.00 LAKHS FROM TWO PERSONS AND AS PER THE RATE AGREED U PON AT THAT TIME THE ASSESSEE HAS EXECUTED THE IMPUGNED THREE SALE DEEDS TO THE V ENDEES IN THE MONTH OF JULY 2005. (B) THE AVERAGE VALUE AT WHICH THE PROPERTY WAS SO LD WORKS OUT TO RS.6 800/- PER SQ. YARD WHERE AS THE MARKET VALUE FOR THE PURPOSES OF CALCULATING THE STAMP DUTY AS PER RECORD OF THE SUB-REGISTRAR OFFICE (SRO) IN THE MONTH OF APRIL STOOD ONLY AT RS.4 980/- PER SQ. YARD. THUS THE SELLING VALUE AGREED TO BY THE ASSESSEE IS MORE THAN THE SRO RATES AS ON THE D ATE OF AGREEMENT. (C) HOWEVER WHEN THE CONVEYANCE DEED WAS ACTUALL Y REGISTERED IN THE MONTH OF JULY 2005 THE SRO RATES WERE REVISED UPW ARDS. THE SRO RATES IN THAT MONTH AS PER THE CERTIFICATE PRODUCED BEFORE THE LE ARNED CIT(A) WAS RS.7 800/- PER SQ. YARD. HOWEVER AS PER THE ASSESSING OFFICE R IT WAS RS.11 250/-. (D) THE CONVEYANCE DEEDS HAVE BEEN REGISTERED IN ACCORDANCE WITH THE ORAL AGREEMENT WHICH IS EVIDENCED BY THE RECEIPT O F ADVANCE AMOUNTS BY WAY OF CHEQUES. FURTHER THE SALE VALUE IS MORE THAN THE SR O RATES AS ON THE DATE OF AGREEMENT. HENCE THE PROVISIONS OF SECTION 50C SHOU LD BE APPLIED ONLY ON THE DATE OF SALE AGREEMENT AND NOT ON THE DATE OF ACTUAL REG ISTRATION OF CONVEYANCE DEED AS PER THE DECISION OF THIS BENCH DATED 22.06.2010 IN THE CASE OF M/S LAHIRI PROMOTERS IN ITA NO.12/VIZAG/2009. 5. WE HAVE GONE THROUGH THE ORDER RENDERED IN T HE CASE OF M/S LAHIRI PROMOTERS (SUPRA). THE RELEVANT PORTIONS OF THE SA ID DECISION ARE EXTRACTED BELOW:- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAR EFULLY PERUSED THE RECORD. THE ISSUE AGITATED BEFORE US REVOLVES AROUND SECTION 50C OF T HE ACT. FOR THE SAKE OF CONVENIENCE WE EXTRACT THE SECTION 50C(1) BELOW: ITA NO.528 OF 09 T.RAMACHANDRAN VISAKHAPATNAM PAGE 3 OF 10 50C (1) WHERE THE CONSIDERATION RECEIVED OR ACCRUI NG AS A RESULT OF THE TRANSFER BY AN ASSESSEE OF A CAPITAL ASSET BEING L AND OR BUILDING OR BOTH IS LESS THAN THE VALUE ADOPTED OR ASSESSED BY ANY A UTHORITY OF A STATE GOVERNMENT (HEREAFTER IN THIS SECTION REFERRED TO A S THE STAMP VALUATION AUTHORITY) FOR THE PURPOSE OF PAYMENT OF STAMP DUT Y IN RESPECT OF SUCH TRANSFER THE VALUE SO ADOPTED OR ASSESSED SHALL F OR THE PURPOSES OF SECTION 48 BE DEEMED TO BE THE FULL VALUE OF THE C ONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER. THIS SECTION PROVIDES FOR ADOPTION OF VALUE ASSESSE D/DETERMINED BY THE STAMP VALUATION AUTHORITY FOR THE PURPOSE OF PAYMENT OF STAMP DUTY ( HEREINAFTER STAMP DUTY VALUE) IF THE SALE CONSIDERATION DISCLOSED IN THE SALE DEED I S LESS THAN THE STAMP DUTY VALUE. SECTION 50C WAS INSERTED BY THE FINANCE ACT 2002 W. E.F. 1.4.2003. 9. IN THE INSTANT CASE THERE IS NO DISPUTE THA T THE ASSESSEE HEREIN ENTERED INTO A SEPARATE SALE AGREEMENT WITH THE TWO VENDEES RESPEC TIVELY ON 27.3.2003. THE ASSESSEE HAS CITED CERTAIN REASONS FOR NOT EXECUTING THE SAL E DEED IMMEDIATELY WHICH WERE NOT FOUND TO BE FALSE. THEREAFTER THE SALE DEEDS WERE EXECUTED ON 30.6.2005 BY COMPLYING WITH THE TERMS OF THE SALE AGREEMENT. HENCE THE SA LE DEED WAS EXECUTED FOR THE CONSIDERATION AS AGREED BETWEEN THE PARTIES AS PER THE SALE AGREEMENT. IF WE APPLY THE PROVISIONS OF SECTION 50C LITERALLY THE TAX AUTHOR ITIES ARE RIGHT IN ADOPTING THE VALUE ASSESSED BY THE STAMP AUTHORITY FOR THE PURPOSES OF COMPUTATION OF CAPITAL GAINS. HOWEVER LD AR HAS HEAVILY PLACED RELIANCE ON THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF K.P.VERGHESE VS. ITO REFERRED SUPRA W ITH REGARD TO THE PROPER INTERPRETATION OF SECTION 50C IN THE FACTS AND CIRC UMSTANCES OF THE CASE. 10. THE HONBLE SUPREME COURT IN THE CASE OF SHRI K.P. VARGHESE VS. ITO SUPRA HAS OBSERVED THAT WHILE INTERPRETING A PROVISION STRIC TLY LITERAL READING OF SECTION SHOULD NOT BE ADOPTED IF IT LEADS TO MANIFESTLY UNREASONABLE A ND ABSURD CONSEQUENCES. HOWEVER ATTEMPT SHOULD BE MADE TO DISCOVER THE INTENT OF TH E LEGISLATURE FROM THE LANGUAGE USED BY IT. THE HONBLE APEX COURT RENDERED THE SAID DE CISION IN THE CONTEXT OF THEN EXISTING SEC 52(2) OF THE ACT WHICH PROVIDED THAT WHERE A C APITAL ASSET IS TRANSFERRED AND IF IN THE OPINION OF THE ITO THE FAIR MARKET VALUE OF TH AT ASSET EXCEEDS THE FULL VALUE OF THE CONSIDERATION DECLARED BY THE ASSESSEE BY AN AMOUNT OF NOT LESS THAN 15% OF THE VALUE SO DECLARED THEN THE FULL VALUE OF THE CONSIDERATI ON SHALL BE TAKEN TO BE ITS FAIR MARKET VALUE ON THE DATE OF ITS TRANSFER. THE REVENUE TOO K THE STAND THAT IN ORDER TO INVOKE THE PROVISIONS OF SECTION 52(2) IT IS ENOUGH IF IT IS SHOWN THAT THE FAIR MARKET VALUE EXCEEDED THE DISCLOSED VALUE BY 15%. HOWEVER THE HONBLE SUPREME COURT HELD THAT A FAIR AND REASONABLE CONSTRUCTION OF SEC 52(2) WOULD BE TO READ INTO IT A CONDITION THAT IT WOULD APPLY ONLY WHERE THE CONSIDERATION FOR THE TR ANSFER IS UNDER- STATED AND HENCE IT WOULD HAVE NO APPLICATION IN THE CASE OF A BONAFIDE TRANSACTION WHERE THE FULL VALUE OF THE CONSIDERATION FOR THE TRANSFER IS CORRECTLY DEC LARED BY THE ASSESSEE. FOR THE SAKE OF CONVENIENCE WE EXTRACT BELOW THE RELEVANT OBSERVAT IONS OF THE HONBLE APEX COURT ON THE RULE OF INTERPRETATION AND THE LOGICAL CONCLUSI ON: ITA NO.528 OF 09 T.RAMACHANDRAN VISAKHAPATNAM PAGE 4 OF 10 5. NOW ON THESE PROVISIONS THE QUESTION ARISES A S TO WHAT IS THE TRUE INTERPRETATION OF S.52 SUB-S.(2). THE ARGUMEN T OF THE REVENUE WAS AND THIS ARGUMENT FOUND FAVOUR WITH THE MAJORI TY JUDGES OF THE FULL BENCH THAT ON A PLAIN AND NATURAL CONSTRU CTION OF THE LANGUAGE OF S.52 SUB-S.(2) THE ONLY CONDITION FOR ATTRACTING THE APPLICABILITY OF THAT PROVISION WAS THAT THE FAIR M ARKET VALUE OF THE CAPITAL ASSET TRANSFERRED BY THE ASSESSEE AS ON THE DATE OF THE TRANSFER EXCEEDED THE FULL VALUE OF THE CONSIDERATI ON DECLARED BY THE ASSESSEE IN RESPECT OF THE TRANSFER BY AN AMOUN T OF NOT LESS THAN 15% OF THE VALUE SO DECLARED. ONCE THE ITO IS SATISFIED THAT THIS CONDITION EXISTS HE CAN PROCEED TO INVOKE THE PROVISION IN S.52 SUB-S.(2) AND TAKE THE FAIR MARKET VALUE OF THE CA PITAL ASSET TRANSFERRED BY THE ASSESSEE AS ON THE DATE OF THE T RANSFER AS REPRESENTING THE FULL VALUE OF THE CONSIDERATION FO R THE TRANSFER OF THE CAPITAL ASSET AND COMPUTE THE CAPITAL GAINS ON THAT BASIS. NO MORE IS NECESSARY TO BE PROVED CONTENDED THE REVEN UE. TO INTRODUCE ANY FURTHER CONDITION SUCH AS UNDER-STATE MENT OF CONSIDERATION IN RESPECT OF THE TRANSFER WOULD BE T O READ INTO THE STATUTORY PROVISION SOMETHING WHICH IS NOT THERE; I NDEED IT WOULD AMOUNT TO RE-WRITING THE SECTION. THIS ARGUMENT WAS BASED ON A STRICTLY LITERAL READING OF S.52 SUB-S. (2) BUT W E DO NOT THINK SUCH A CONSTRUCTION CAN BE ACCEPTED. IT IGNORES SEVERAL VI TAL CONSIDERATIONS WHICH MUST ALWAYS BE BORNE IN MIND WHEN WE ARE INTE RPRETING A STATUTORY PROVISION. THE TASK OF INTERPRETATION OF A STATUTORY ENACTMENT IS NOT A MECHANICAL TASK. IT IS MORE THAN A MERE READING OF MATHEMATICAL FORMULAE BECAUSE FEW WORDS POSSESS THE PRECISION OF MATHEMATICAL SYMBOLS. IT IS AN ATTEMPT TO DISCOV ER THE INTENT OF THE LEGISLATURE FROM THE LANGUAGE USED BY IT AND IT MUST ALWAYS BE REMEMBERED THAT LANGUAGE IS AT BEST AN IMPERFECT IN STRUMENT FOR THE EXPRESSION OF HUMAN THOUGHT AND AS POINTED OUT BY LORD DENNING IT WOULD BE IDLE TO EXPECT EVERY STATUTORY PROVISION TO BE DRAFTED WITH DIVINE PRESCIENCE AND PERFECT CLARITY . WE CAN DO NO BETTER THAN REPEAT THE FAMOUS WORDS OF JUDGE LEARNE D HAND WHEN HE SAID: IT IS TRUE THAT THE WORDS USED EVEN IN THEIR LITE RAL SENSE ARE THE PRIMARY AND ORDINARILY THE MOST RELIABLE SOURCE OF INTERPRETING THE MEANING OF ANY WRITING: BE IT A STATUTE A CONTRACT OR ANYTHING ELSE. BUT IT IS ONE OF THE SUREST INDEXES OF A MATURE AND DEVELOPED JURISPRUDENCE NOT TO MAKE A FORTRESS OUT OF THE DIC TIONARY: BUT TO REMEMBER THAT STATUTES ALWAYS HAVE SOME PURPOSE OR OBJECT TO ACCOMPLISH WHOSE SYMPATHETIC AND IMAGINATIVE DISCO VERY IS THE SUREST GUIDE TO THEIR MEANING. WE MUST NOT ADOPT A STRICTLY LITERAL INTERPRETATION OF S.52 SUB-S. (2) BUT WE MUST CONSTRUE ITS LANGUAGE HAVING REGAR D TO THE OBJECT AND PURPOSE WHICH THE LEGISLATURE HAD IN VIEW IN EN ACTING THAT PROVISION AND IN THE CONTEXT OF THE SETTING IN WHIC H IT OCCURS. WE CANNOT IGNORE THE CONTEXT AND THE COLLOCATION OF TH E PROVISIONS IN WHICH S.52 SUB-S (2) APPEARS BECAUSE AS POINTED OUT BY JUDGE LEARNED HAND IN THE MOST FELICITOUS LANGUAGE: ITA NO.528 OF 09 T.RAMACHANDRAN VISAKHAPATNAM PAGE 5 OF 10 THE MEANING OF A SENTENCE MAY BE MORE THAN THAT OF THE SEPARATE WORDS AS A MELODY IS MORE THAN THE NOTES AND NO DEGREE OF PARTICULARITY CAN EVER OBVIATE RECOURSE T O THE SETTING IN WHICH ALL APPEAR AND WHICH ALL COLLECTIVELY CREATE . KEEPING THESE OBSERVATIONS IN MIND WE MAY NOW APPRO ACH THE CONSTRUCTION OF S.52 SUB-S. (2). 6. THE PRIMARY OBJECTION AGAINST THE LITERAL CONST RUCTION OF S.52 SUBS (2) IS THAT IT LEADS TO MANIFESTLY UNREASONAB LE AND ABSURD CONSEQUENCES. IT IS TRUE THAT THE CONSEQUENCES OF A SUGGESTED CONSTRUCTION CANNOT ALTER THE MEANING OF A STATUTOR Y PROVISION BUT IT CAN CERTAINLY HELP TO FIX ITS MEANING. IT IS A WELL RECOGNIZED RULE OF CONSTRUCTION THAT A STATUTORY PROVISION MUST BE SO CONSTRUED IF POSSIBLE THAT ABSURDITY AND MISCHIEF MAY BE AVOIDE D. THERE ARE MANY SITUATIONS WHERE THE CONSTRUCTION SUGGESTED ON BEHALF OF THE REVENUE WOULD LEAD TO A WHOLLY UNREASONABLE RESULT WHICH COULD NEVER HAVE BEEN INTENDED BY THE LEGISLATURE. TAKE FOR EXAMPLE A CASE WHERE A AGREES TO SELL HIS PROPERTY TO B FOR A CERTAIN PRICE AND BEFORE THE SALE IS COMPLETED PURSUANT TO THE AGREEM ENT AND IT IS QUITE WELL KNOWN THAT SOMETIMES THE COMPLETION OF T HE SALE MAY TAKE PLACE EVEN A COUPLE OF YEARS AFTER THE DATE OF THE AGREEMENT THE MARKET PRICE SHOOTS UP WITH THE RESULT THAT THE MARKET PRICE PREVAILING ON THE DATE OF SALE EXCEEDS THE AGREED P RICE AT WHICH THE PROPERTY IS SOLD BY MORE THAN 15% OF SUCH AGRE ED PRICE. THIS IS NOT AT ALL AN UNCOMMON CASE IN AN ECONOMY OF RIS ING PRICES AND IN FACT WE WOULD FIND IN A LARGE NUMBER OF CASES WH ERE THE SALE IS COMPLETED MORE THAN A YEAR OR TWO AFTER THE DATE OF THE AGREEMENT THAT THE MARKET PRICE PREVAILING ON THE DATE OF THE SALE IS VERY MUCH MORE THAN THE PRICE AT WHICH THE PROPERTY IS S OLD UNDER THE AGREEMENT. CAN IT BE CONTENDED WITH ANY DEGREE OF F AIRNESS AND JUSTICE THAT IN SUCH CASES WHERE THERE IS CLEARLY NO UNDER- STATEMENT OF CONSIDERATION IN RESPECT OF THE TRANSF ER AND THE TRANSACTION IS PERFECTLY HONEST AND BONAFIDE AND I N FACT IN FULFILLMENT OF A CONTRACTUAL OBLIGATION THE ASSESS EE WHO HAS SOLD THE PROPERTY SHOULD BE LIABLE TO PAY TAX ON CAPITA L GAINS WHICH HAVE NOT ACCRUED OR ARISEN TO HIM? IT WOULD INDEED BE MOST HARSH AND INEQUITABLE TO TAX THE ASSESSEE ON INCOME WHIC H HAS NEITHER ARISEN TO HIM NOR IS RECEIVED BY HIM MERELY BECAUS E HE HAS CARRIED OUT THE CONTRACTUAL OBLIGATION UNDERTAKEN BY HIM. I T IS DIFFICULT TO CONCEIVE OF ANY RATIONAL REASON WHY THE LEGISLATURE SHOULD HAVE THOUGHT IT FIT TO IMPOSE LIABILITY TO TAX ON AN ASS ESSEE WHO IS BOUND BY LAW TO CARRY OUT HIS CONTRACTUAL OBLIGATION TO S ELL THE PROPERTY AT THE AGREED PRICE AND HONESTLY CARRIED OUT SUCH A CO NTRACTUAL OBLIGATION. IT WOULD INDEED BE STRANGE IF OBEDIENCE TO THE LAW SHOULD ATTRACT THE LEVY OF TAX ON INCOME WHICH HAS NEITHER ARISEN TO THE ASSESSEE NOR HAS BEEN RECEIVED BY HIM. IF WE MAY TAKE ANOTHER ILLUSTRATION LET US CONSIDER A CASE WHERE A SELLS HIS PROPERTY TO B WITH A STIPULATION THAT AFTER SOME TI ME WHICH MAY BE A COUPLE OF YEARS OR MORE HE SHALL RE-SELL PROPERT Y TO A FOR THE ITA NO.528 OF 09 T.RAMACHANDRAN VISAKHAPATNAM PAGE 6 OF 10 SAME PRICE. COULD IT BE CONTENDED IN SUCH A CASE TH AT WHEN B TRANSFERS THE PROPERTY TO A FOR THE SAME PRICE AT W HICH HE ORIGINALLY PURCHASED IT HE SHOULD BE LIABLE TO PAY TAX ON THE BASIS AS IF HE HAS RECEIVED THE MARKET VALUE OF THE PROPERTY AS ON THE DATE OF RE- SALE IF IN THE MEANWHILE THE MARKET PRICE HAS SH OT UP AND EXCEEDS THE AGREED PRICE BY MORE THAN 15%. MANY OTH ER SIMILAR SITUATIONS CAN BE CONTEMPLATED WHERE IT WOULD BE AB SURD AND UNREASONABLE TO APPLY S.52 SUB-S (2) ACCORDING TO ITS STRICT LITERAL CONSTRUCTION. WE MUST THEREFORE ESCHEW LITERALNES S IN THE INTERPRETATION OF S.52 SUB-S (2) AND TRY TO ARRIV E AT AN INTERPRETATION WHICH AVOIDS THIS ABSURDITY AND MISC HIEF AND MAKES THE PROVISION RATIONAL AND SENSIBLE UNLESS OF COUR SE OUR HANDS ARE TIED AND WE CANNOT FIND ANY ESCAPE FROM THE TYRANNY OF THE LITERAL INTERPRETATION. IT IS NOW A WELL-SETTLED RULE OF CO NSTRUCTION THAT WHERE THE PLAIN LITERAL INTERPRETATION OF A STATUTO RY PROVISION PRODUCES A MANIFESTLY ABSURD AND UNJUST RESULT WHIC H COULD NEVER HAVE BEEN INTENDED BY THE LEGISLATURE THE COURT MA Y MODIFY THE LANGUAGE USED BY THE LEGISLATURE OR EVEN DO SOME V IOLENCE TO IT SO AS TO ACHIEVE THE OBVIOUS INTENTION OF THE LEGIS LATURE AND PRODUCE A RATIONAL CONSTRUCTION; VIDE LUKE VS. IRC (1963) AC 557 : (964) 54 ITR 692(HL). THE COURT MAY ALSO IN SUCH A CASE READ INTO THE STATUTORY PROVISION A CONDITION WHICH THOUGH N OT EXPRESSED IS IMPLICIT AS CONSTITUTING THE BASIC ASSUMPTION UNDER LYING THE STATUTORY PROVISION. WE THINK THAT HAVING REGARD T O THIS WELL RECOGNIZED RULE OF INTERPRETATION A FAIR AND REASO NABLE CONSTRUCTION OF S.52 SUB-S (2) WOULD BE TO READ INTO IT A COND ITION THAT IT WOULD APPLY ONLY WHERE THE CONSIDERATION FOR THE TRANSFER IS UNDERSTATED OR IN OTHER WORDS THE ASSESSEE HAS ACTUALLY RECEI VED A LARGER CONSIDERATION FOR THE TRANSFER THAN WHAT IS DECLARE D IN THE INSTRUMENT OF TRANSFER AND IT WOULD HAVE NO APPLICA TION IN THE CASE OF A BONAFIDE TRANSACTION WHERE THE FULL VALUE OF T HE CONSIDERATION FOR THE TRANSFER IS CORRECTLY DECLARED BY THE ASSES SEE. THERE ARE SEVERAL IMPORTANT CONSIDERATIONS WHICH INCLINE US T O ACCEPT THIS CONSTRUCTION OF S.52 SUB-S.(2). THE HONBLE SUPREME COURT ALSO OBSERVED THAT WHILE INTERPRETING A SECTION IT WOULD BE LEGITIMATE TO CONSIDER WHAT WAS THE MISCHIEF AND DE FECT WHICH WAS SOUGHT TO BE REMEDIED BY AN ENACTMENT. IN THAT CONNECTION THE SP EECH MADE BY THE FINANCE MINISTER WHILE MOVING THE AMENDMENT IS EXTREMELY RELEVANT AS IT THROWS A CONSIDERABLE LIGHT ON THE OBJECTIVES AND PURPOSE OF ENACTMENT. HOWEVER AS POINTED OUT BY LD AR THE PURPOSE OF INTRODUCTION OF SEC 50C WAS NOT MENTIONE D BY THE FINANCE MINISTER AT THE TIME OF MOVING AMENDMENT. IT WAS ALSO NOT EXPLAINED IN THE NOTES ON CLAUSES AND EXPLANATORY MEMORANDUM ATTACHED TO THE RELEVANT FIN ANCE BILL. HOWEVER THE HONBLE MADRAS HIGH COURT IN THE CASE OF K.R. PALANI SWAMY AND OTHERS SUPRA WHILE UPHOLDING THE CONSTITUTIONAL VALIDITY OF SEC 50C HAD AN OCCA SION TO SPELL OUT THE OBJECTIVE OF INTRODUCING SEC 50C. THE RELEVANT OBSERVATIONS ARE EXTRACTED BELOW: 17. LET US CONSIDER THE LEGISLATIVE COMPETENCE OF THE PARLIAMENT IN INSERTING THE PROVISION S.50C IN THE IT ACT. IT IS OBVIOUS FROM THE ITA NO.528 OF 09 T.RAMACHANDRAN VISAKHAPATNAM PAGE 7 OF 10 READING OF THE ABOVE PROVISION AND RATHER IT IS NOT DISPUTED THAT THE SAME IS INSERTED TO PREVENT LARGE SCALE UN DER VALUATION OF THE REAL VALUE OF THE PROPERTY IN THE SA LE DEED SO AS TO DEFRAUD REVENUE THE GOVERNMENT LEGITIMATELY ENTITLED TO BY PUMPING IN BLACK MONEY. THE IMPUGNED PROVISION HAS BEEN INCORPORATED TO CHECK SUCH EVASION OF TAX BY UNDERVALUING THE REAL PROPERTIES. . TAX COULD BE EVADED BY BREAKING THE LAW OR COULD BE AVOIDED IN TERMS OF THE LAW. WHEN THERE IS A FACTUAL AVOIDANCE OF TA X IN TERMS OF LAW THE LEGISLATURE STEPS INTO AMEND THE IT LAW TO CATC H SUCH AN INCOME WITHIN THE NET OF TAXATION. HENCE THE OBJECT OF INTRODUCTION OF SECTION 50C IS TO PREVENT UNDER VALUATION OF THE REAL VALUE OF THE PROPERTY IN THE SALE DEED TO AVOID PAY MENT OF TAX OR DUTY WHICH THE GOVERNMENT IS ENTITLED TO WHICH IN OUR OPINION I S AKIN TO THE OBJECTIVE OF INTRODUCTION OF SECTION 52 WHICH WAS EXISTING EARLIER. 11. IN THE CASE OF K.P. VARGHESE SUPRA THE HONBL E APEX COURT CONTEMPLATED A SITUATION BY WAY OF AN EXAMPLE WHERE THE COMPLETI ON OF SALE TOOK PLACE AFTER A COUPLE OF YEARS AFTER THE DATE OF AGREEMENT. IN TH IS CONNECTION IT IS PERTINENT TO EXTRACT THE RELEVANT OBSERVATIONS OF THE HONBLE SU PREME COURT AT THE COST OF REPETITION AS THE SAID EXAMPLE CONTEMPLATED BY THE HONBLE APEX COURT IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CAS E. THERE ARE MANY SITUATIONS WHERE THE CONSTRUCTION S UGGESTED ON BEHALF OF THE REVENUE WOULD LEAD TO A WHOLLY UNREAS ONABLE RESULT WHICH COULD NEVER HAVE BEEN INTENDED BY THE LEGISLA TURE. TAKE FOR EXAMPLE A CASE WHERE A AGREES TO SELL HIS PROPERTY TO B FOR A CERTAIN PRICE AND BEFORE THE SALE IS COMPLETED PURS UANT TO THE AGREEMENT AND IT IS QUITE WELL KNOWN THAT SOMETIM ES THE COMPLETION OF THE SALE MAY TAKE PLACE EVEN A COUPLE OF YEARS AFTER THE DATE OF THE AGREEMENT THE MARKET PRICE SHOOTS UP WITH THE RESULT THAT THE MARKET PRICE PREVAILING ON THE DATE OF SALE EXCEEDS THE AGREED PRICE AT WHICH THE PROPERTY IS SOLD BY MORE THAN 15% OF SUCH AGREED PRICE. THIS IS NOT AT ALL AN UNCOMMO N CASE IN AN ECONOMY OF RISING PRICES AND IN FACT WE WOULD FINE IN A LARGE NUMBER OF CASES WHERE THE SALE IS COMPLETED MORE TH AN A YEAR OR TWO AFTER THE DATE OF THE AGREEMENT THAT THE MARKET PRICE PREVAILING ON THE DATE OF THE SALE IS VERY MUCH MOR E THAN THE PRICE AT WHICH THE PROPERTY IS SOLD UNDER THE AGREEMENT. CAN IT BE CONTENDED WITH ANY DEGREE OF FAIRNESS AND JUSTICE TH AT IN SUCH CASES WHERE THERE IS CLEARLY NO UNDER-STATEME NT OF CONSIDERATION IN RESPECT OF THE TRANSFER AND THE TRAN SACTION IS PERFECTLY HONEST AND BONAFIDE AND IN FACT IN FULFI LLMENT OF A CONTRACTUAL OBLIGATION THE ASSESSEE WHO HAS S OLD THE PROPERTY SHOULD BE LIABLE TO PAY TAX ON CAPITAL GA INS WHICH HAVE NOT ACCRUED OR ARISEN TO HIM? IT WOULD INDEED BE MOST HARSH AND INEQUITABLE TO TAX THE ASSESSEE ON INCOME WHICH ITA NO.528 OF 09 T.RAMACHANDRAN VISAKHAPATNAM PAGE 8 OF 10 HAS NEITHER ARISEN TO HIM NOR IS RECEIVED BY HIM M ERELY BECAUSE HE HAS CARRIED OUT THE CONTRACTUAL OBLIGATI ON UNDERTAKEN BY HIM. IT IS DIFFICULT TO CONCEIVE OF ANY RATIONAL REASON WHY THE LEGISLATURE SHOULD HAVE THOUGHT IT FI T TO IMPOSE LIABILITY TO TAX ON AN ASSESSEE WHO IS BOUND BY LAW TO CARRY OUT HIS CONTRACTUAL OBLIGATION TO SELL THE PROPERTY AT THE AGREED PRICE AND HONESTLY CARRIED OUT SUCH A CONTRACTUAL OBLIGATION. IT WOULD INDEED BE STRANGE IF OBEDIENCE TO THE LAW SHOULD ATTRACT THE LEVY OF TAX ON INCOME WHICH HAS NEITHER ARISEN TO THE ASSESSEE NO R HAS BEEN RECEIVED BY HIM. 11.2 THE HONBLE APEX COURT IN THE CASE OF K. P.VERGHESE SUPRA HAS HELD THAT THE PROVISIONS OF SECTION 52(2) THAT WAS EXISTING A T THE RELEVANT POINT OF TIME WAS NOT APPLICABLE TO A HONEST AND BONA FIDE TRANSACTIO N WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE WAS CORRECTLY DECLARED OR DISCLOSED BY HIM AND THERE WAS NO CONCEALMENT OR SUPPRESSION OF THE CONSIDERATION. THE HONBLE SUPREME COURT AFTER CONSIDERING THE SPEECH OF THE FINANCE MINISTE R HAS UNDERSTOOD THAT THE OBJECT OF INTRODUCTION OF SECTION 52(2) WAS TO CURT AIL THOSE TRANSACTIONS OF SALE OF PROPERTY WHERE THE ACTUAL CONSIDERATION RECEIVED W AS UNDERSTATED IN THE SALE DEED. HOWEVER THOUGH THE OBJECT OF INTRODUCTION OF SECTION 50C WAS NOT MENTIONED IN THE RELEVANT FINANCE BILL OR IN THE SP EECH OF THE FINANCE MINISTER YET THE HONBLE MADRAS HIGH COURT IN THE CASE OF K .R. PALANI SWAMY AND OTHERS SUPRA HAS STATED THAT THE PROVISION OF SEC 50C WAS INSERTED IN THE INCOME-TAX ACT TO PREVENT LARGE SCALE UNDER VALUATION OF REAL VALU E OF PROPERTY IN THE SALE DEED SO AS TO DEFRAUD REVENUE WHICH THE GOVERNMENT IS LE GITIMATELY ENTITLED TO BY PUMPING IN BLACK MONEY. THUS WE CAN SEE THAT THE P URPOSE OF INTRODUCTION OF SECTION 52(2) EARLIER AND SECTION 50C W.E.F. 1.4.20 03 ARE FOR THE PURPOSE OF ACHIEVING SIMILAR OBJECTIVES. 11.3 IN THE INSTANT CASE ALSO THE ASSESSEE HER EIN HAS FULFILLED A CONTRACTUAL OBLIGATION ON 30-6- 2005 WHICH THE ASSESSEE IS BOU ND BY LAW TO CARRY OUT AS PER THE SALE AGREEMENT ENTERED IN MARCH 2003. NOW THE NEXT QUESTION THAT REQUIRES TO BE ADDRESSED IS WHETHER THERE WAS ANY UNDER STAT EMENT OF ACTUAL CONSIDERATION AT THE TIME WHEN THE SALE AGREEMENTS WERE ENTERED I NTO. THE ASSESSEE HAS PLACED A COPY OF THE CERTIFICATE DATED 16.4.2010 ISSUED BY THE JT. SUB REGISTRAR VISAKHAPATNAM BY WAY OF ADDITIONAL EVIDENCE. ACCOR DING TO THE SAID CERTIFICATE THE MARKET VALUE OF THE IMPUGNED PROPERTY LOCATED A T ALLIPURAM WARD WAS RS.5000/- AS ON 26.3.2003. ACCORDING TO LD AR TH E SALE VALUE AGREED TO BY THE PARTIES AS PER THE SALE AGREEMENT ENTERED INTO ON 27-03- 2003 WAS MORE THAN THE MARKET VALUE FIXED BY THE JT. SUB REGISTRAR AT THE TIME THE SALE AGREEMENT WAS ENTERED INTO. THUS ACCORDING TO LD AR THERE I S NO UNDERSTATEMENT OR SUPPRESSION OF ACTUAL CONSIDERATION. IT IS ALSO NO T THE CASE OF REVENUE THAT THERE WAS ANY UNDERSTATEMENT OF ACTUAL CONSIDERATION. 12. THUS BY EXECUTING THE SALE DEED IN JUNE 2 005 THE ASSESSEE HAS ONLY COMPLETED THE CONTRACTUAL OBLIGATION IMPOSED UPON I T BY VIRTUE OF THE SALE AGREEMENT. SINCE THE PROCESS OF SALE HAS BEEN INIT IATED FROM THE DATE OF SALE ITA NO.528 OF 09 T.RAMACHANDRAN VISAKHAPATNAM PAGE 9 OF 10 AGREEMENTS IN OUR OPINION THE CHARACTER OF THE TR ANSACTION VIS--VIS INCOME TAX ACT SHOULD BE DETERMINED ON THE BASIS OF THE CONDIT IONS THAT PREVAILED ON THE DATE THE TRANSACTION WAS INITIALLY ENTERED INTO. ACCORD INGLY THE APPLICABILITY OF THE PROVISIONS OF SECTION 50C SHOULD BE LOOKED AT ONLY ON THE DATE OF SALE AGREEMENT. THE ASSESSEE HAS FILED A CERTIFICATE OBTAINED FROM THE JOINT SUB REGISTRAR VISAKHAPATNAM REGARDING MARKET VALUE OF THE IMPUGN ED PROPERTY AS ON THE DATE OF THE SALE AGREEMENTS. THE SAID CERTIFICATE WAS N OT PRODUCED BEFORE THE TAX AUTHORITIES. WE HAVE ALREADY HELD THAT THE PROVISI ONS OF SECTION 50C SHOULD BE APPLIED TO THE IMPUGNED SALE TRANSACTIONS AS ON THE DATE ON WHICH SALE AGREEMENTS WERE ENTERED INTO. SINCE THE APPLICABIL ITY OF SECTION 50C AS ON THE DATE OF SALE AGREEMENTS IS REQUIRED TO BE EXAMINED BY THE AO WE SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO COM PUTE THE CAPITAL GAINS ON SALE OF IMPUGNED PROPERTIES AFTER APPLYING THE PROVISIONS O F SECTION 50C AS ON THE DATE OF SALE AGREEMENTS. ACCORDINGLY THE ORDER OF LD CIT( A) IS REVERSED. 6. IN THE CASES BEFORE US ALSO IT IS EVIDENCED THAT THE ASSESSEES HEREIN HAD ENTERED INTO AN ORAL SALE AGREEMENTS IN THE MONTH O F APRIL 2005 AND THE SALE VALUE FIXED ON THAT DATE WAS MORE THAN THE SRO RATE S FIXED FOR STAMP DUTY PURPOSES. THE CONVEYANCE DEEDS HAVE BEEN REGISTERE D IN THE MONTH OF JULY 2005 I.E. WITHIN A PERIOD OF THREE MONTHS. THOUGH THE SRO RATES HAD BEEN RAISED UPWARDS ON THAT DATE YET AS OBSERVED IN THE ABOVE CITED CASE THE ASSESSEE HEREIN HAS FULFILLED A CONTRACTUAL OBLIGATION WHIC H HE IS BOUND TO FULFILL AS PER LAW. SINCE THE PROCESS OF SALE HAS BEEN INITIATED FROM T HE DATE OF SALE AGREEMENT WE HAVE HELD IN THE ABOVE CITED CASE THAT THE APPLICAB ILITY OF PROVISIONS OF SECTION 50C SHOULD BE LOOKED AT ONLY ON THE DATE OF SALE AGREEM ENT. 7. AT THE TIME OF HEARING THE LEARNED D.R SUBM ITTED THAT THE RECEIPT OF ADVANCE AMOUNTS AS MENTIONED IN THE CONVEYANCE DEED S NEED TO BE VERIFIED BY THE ASSESSING OFFICER SINCE THERE IS NO WRITTEN SA LE AGREEMENT. AS NOTICED EARLIER THE EXISTENCE OF ORAL SALE AGREEMENT COULD BE PRESU MED FROM THE CONVEYANCE DEEDS WHERE IT HAS BEEN MENTIONED THAT THE ADVANCE AMOUNTS HAVE BEEN PAID IN THE MONTH OF APRIL 2005. HOWEVER THE GENUINENESS OF SAID RECEIPTS HAS NOT BEEN VERIFIED BY THE TAX AUTHORITIES. SINCE DECISION ON THE IMPUGNED ISSUE RESTS UPON THE ACTUAL RECEIPT THE ADVANCE PRIOR TO THE DATE OF REVISION OF SRO RATES WE AGREE WITH THE SUBMISSIONS OF LEARNED D.R IN THIS REGARD. ACCORDINGLY WE REMIT THE INSTANT ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR THE PURPOSE OF VERIFICATION OF RECEIPT OF ADVANCE AMOUNTS. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE CAPITAL GAINS BY ADOPTING THE SALE CONSIDERATION AS RS.1.02 CRORES AFTER SATISFYING ITA NO.528 OF 09 T.RAMACHANDRAN VISAKHAPATNAM PAGE 10 OF 10 HIMSELF ABOUT THE RECEIPT OF ADVANCE AMOUNTS PRIOR TO THE DATE OF REVISION OF SRO RATES. IF IT IS PROVED THAT THE ASSESSEE HAS NOT R ECEIVED THE IMPUGNED ADVANCE AMOUNTS PRIOR TO THE DATE OF REVISION OF SRO RATES THE ORDER OF LEARNED CIT(A) SHALL STAND. WE ORDER ACCORDINGLY. 8. IN THE RESULT THE APPEALS FILED THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 24 TH DECEMBER 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE:24-12-2010 COPY TO 1 SHRI T. RAMACHANDR A N D.NO.31 - 35 - 36 VIVEKANANDA COLONY VISAKHAPATNAM 2 THE ADD.CIT RANGE - 1 VISAKHAPATNAM 3 4. THE CIT 1 VISAKHAPATNAM THE CIT(A) VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM