Sri Koduru Satya Srinivas,, Vijayawada v. The ACIT, Circle-2(1)., Vijayawada

ITA 556/VIZ/2008 | 2006-2007
Pronouncement Date: 02-07-2010 | Result: Allowed

Appeal Details

RSA Number 55625314 RSA 2008
Assessee PAN AEVPK2425G
Bench Visakhapatnam
Appeal Number ITA 556/VIZ/2008
Duration Of Justice 1 year(s) 7 month(s) 28 day(s)
Appellant Sri Koduru Satya Srinivas,, Vijayawada
Respondent The ACIT, Circle-2(1)., Vijayawada
Appeal Type Income Tax Appeal
Pronouncement Date 02-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 02-07-2010
Assessment Year 2006-2007
Appeal Filed On 04-11-2008
Judgment Text
ITA NO.556 & 557/VIZAG/2008 PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.556/VIZAG/2008 ASSESSMENT YEAR: 2006-07 KODURU SATYA SRINIVAS VIJAYAWADA ACIT CIRCLE-2(1) VIJAYAWADA (APPELLANT) PAN NO: AEVPK 2425G VS. (RESPONDENT) ITA NO.557/VIZAG/2008 ASSESSMENT YEAR: 2006-07 KODURU ANUPAMA VIJAYAWADA ACIT CIRCLE-2(1) VIJAYAWADA (APPELLANT) PAN NO: AFOPP 5059B VS. (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI CA RESPONDENT BY: SHRI G.S.S. GOPINATH CIT(DR) ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THE APPEALS FILED BY THE ASSESSEES ARE DIRECTED AG AINST THE ORDERS PASSED BY LD. CIT(A) VIJAYAWADA AND THEY RELATE TO THE ASSESSMENT YEAR 2006-07. SINCE IDENTICAL ISSUE IS URGED IN THESE T WO APPEALS AND FURTHER THE SAID ISSUE ARISES OUT OF COMMON SET OF FACTS BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER. 2. THE SOLITARY ISSUE URGED IN THESE TWO APPEA LS IS THAT WHETHER THE LEARNED CIT(A) IS RIGHT IN LAW IN CONFIRMING THE AC TION OF THE ASSESSING OFFICER IN INVOKING THE PROVISIONS OF SECTION 50C I N THE CASE OF BOTH THE ASSESSEES. ITA NO.556 & 557/VIZAG/2008 PAGE 2 OF 11 3. THE FACTS RELATING TO THE ISSUE ARE STATED I N BRIEF. BOTH THE ASSESSEES OWNED AN IMMOVABLE PROPERTY LOCATED AT NO.54-11-5 GUDADALS VIJAYAWADA. BOTH THE ASSESSEES SOLD THE SAID PROPE RTY BY EXECUTING SEPARATE CONVEYANCE DEEDS. SHRI K.SATYA SRINIVAS E XECUTED THE DOCUMENT NUMBERED AS 3068/2005 FOR A VALUE OF RS.32 94 720/- WHILE SMT. K.ANUPAMA EXECUTED THE DOCUMENT NUMBERED AS 3067/20 05 FOR A VALUE OF RS.32 94 720/-. BOTH THE DOCUMENTS WERE REGISTERED ON 25.8.2005. HOWEVER FOR THE STAMP DUTY PURPOSES THE SRO DETER MINED THE MARKET VALUE OF THE PROPERTY THAT WAS EXECUTED BY SHRI K.S ATYA SRINIVAS AT RS.55 11 000/-. SIMILARLY THE MARKET VALUE FOR STA MP DUTY PURPOSES WAS DETERMINED AT RS.54 98 000/- IN RESPECT OF THE PROP ERTY EXECUTED BY SMT. K.ANUPAMA. FOR THE PURPOSES OF COMPUTATION OF CAPI TAL GAINS THE ASSESSING OFFICER ADOPTED THE VALUE DETERMINED BY T HE SRO BY INVOKING THE PROVISIONS OF SECTION 50C. THE SAID ACTION OF THE ASSESSING OFFICER WAS CONFIRMED BY LEARNED CIT(A). HENCE BOTH THE ASSESS EES ARE IN APPEAL BEFORE US CONTESTING THE DECISION OF THE TAX AUTHOR ITIES. 4. THE SUBMISSIONS OF THE ASSESSEES ARE THAT:- (A) AN AGREEMENT WAS ENTERED ON 04-6-2005 FOLLOWED BY AN ORAL AGREEMENT ON 19-5-2005 I.E. BEFORE THE SALE OF SAI D IMMOVABLE PROPERTY. AS PER THIS AGREEMENT THE SELLING RATE WAS FIXED A T RS.2 750/- PER SQ. YARD. (B) AT THE TIME OF ENTERING INTO THE AGREEMENT A N ADVANCE AMOUNT OF RS.3 30 000/- EACH WAS RECEIVED BY WAY OF CHEQUE S BY BOTH THE PARTIES. (C) AS PER THE SRO CERTIFICATE THE MARKET VALUE FOR STAMP DUTY PURPOSES WAS RS.2 750/- PER SQ. YARD AS ON 04-6-200 5 AND ALSO ON 31.7.2005. THE SELLING VALUE AGREED TO BY THE ASSE SSEES IS VERY MUCH EQUIVALENT TO THE SRO RATES AS ON THE DATE OF AGREE MENT. (D) HOWEVER WHEN THE CONVEYANCE DEED WAS ACTUALL Y REGISTERED ON 25.8.2005 THE SRO RATES WERE REVISED UPWARDS AND T HE RATE ON THAT DATE WAS FIXED AT RS.4 500/- PER SQ. YARD. (E) SINCE THE CONVEYANCE DEED WAS REGISTERED IN A CCORDANCE WITH THE SALE AGREEMENT AND FURTHER THE SALE VALUE IS EQ UIVALENT TO THE SRO RATES ITA NO.556 & 557/VIZAG/2008 PAGE 3 OF 11 AS ON THE DATE OF AGREEMENT THE PROVISIONS OF SECT ION 50C SHOULD BE APPLIED ONLY ON THE DATE OF SALE AGREEMENT AND NOT ON THE DATE OF ACTUAL REGISTRATION OF CONVEYANCE DEED. 5. LEARNED AUTHORISED REPRESENTATIVE BROUGHT TO OUR NOTICE THAT THIS BENCH OF THE TRIBUNAL HAS DECIDED A SIMILAR ISSUE I N THE CASE OF M/S LAHIRI PROMOTERS IN ITA NO.12/VIZAG/2009 VIDE ITS ORDER D ATED 22.06.2010. THE RELEVANT PORTIONS OF THE SAID DECISION ARE EXTRACTE D BELOW:- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAR EFULLY PERUSED THE RECORD. THE ISSUE AGITATED BEFORE US REVOLVES AROUND SECTIO N 50C OF THE ACT. FOR THE SAKE OF CONVENIENCE WE EXTRACT THE SECTION 50C(1) BELOW: 50C (1) WHERE THE CONSIDERATION RECEIVED OR ACCRUI NG AS A RESULT OF THE TRANSFER BY AN ASSESSEE OF A CAPITAL ASSET BEING LAND OR BUILDING OR BOTH IS LESS THAN THE VALUE ADOPTED OR ASSESSED BY ANY AUTHORITY OF A STATE GOVERNMENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE STAMP VALUATION AUTHORITY) FOR THE PURP OSE OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH TRANSFER THE VALU E SO ADOPTED OR ASSESSED SHALL FOR THE PURPOSES OF SECTION 48 BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUIN G 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 S TAMP DUTY ( HEREINAFTER STAMP DUTY VALUE) IF THE SALE CONSIDERATION DISC LOSED IN THE SALE DEED IS 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 RESPECTIVELY ON 27.3.2003. THE ASSESSEE HAS CITED CERTAIN REASONS FOR NOT EXEC UTING THE SALE DEED IMMEDIATELY WHICH WERE NOT FOUND TO BE FALSE. THER EAFTER THE SALE DEEDS WERE EXECUTED ON 30.6.2005 BY COMPLYING WITH THE TERMS O F THE SALE AGREEMENT. HENCE THE SALE DEED WAS EXECUTED FOR THE CONSIDERAT ION AS AGREED BETWEEN THE PARTIES AS PER THE SALE AGREEMENT. IF WE APPLY THE PROVISIONS OF SECTION 50C LITERALLY THE TAX AUTHORITIES ARE RIGHT IN ADOPTIN G THE VALUE ASSESSED BY THE STAMP AUTHORITY FOR THE PURPOSES OF COMPUTATION OF CAPITA L GAINS. HOWEVER LD AR HAS HEAVILY PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF K.P.VERGHESE VS. ITO REFERRED SUPRA WITH REGARD T O THE PROPER INTERPRETATION OF SECTION 50C IN THE FACTS AND CIRCUMSTANCES OF THE C ASE. ITA NO.556 & 557/VIZAG/2008 PAGE 4 OF 11 10. THE HONBLE SUPREME COURT IN THE CASE OF SHRI K.P. VARGHESE VS. ITO SUPRA HAS OBSERVED THAT WHILE INTERPRETING A PROVISION S TRICTLY LITERAL READING OF SECTION SHOULD NOT BE ADOPTED IF IT LEADS TO MANIFESTLY UNR EASONABLE AND ABSURD CONSEQUENCES. HOWEVER ATTEMPT SHOULD BE MADE TO DIS COVER THE INTENT OF THE LEGISLATURE FROM THE LANGUAGE USED BY IT. THE HON BLE APEX COURT RENDERED THE SAID DECISION IN THE CONTEXT OF THEN EXISTING SEC 5 2(2) OF THE ACT WHICH PROVIDED THAT WHERE A CAPITAL ASSET IS TRANSFERRED AND IF IN THE OPINION OF THE ITO THE FAIR MARKET VALUE OF THAT ASSET EXCEEDS THE FULL VALUE O F THE CONSIDERATION DECLARED BY THE ASSESSEE BY AN AMOUNT OF NOT LESS THAN 15% OF T HE VALUE SO DECLARED THEN THE FULL VALUE OF THE CONSIDERATION SHALL BE TAKEN TO BE ITS FAIR MARKET VALUE ON THE DATE OF ITS TRANSFER. THE REVENUE TOOK THE STA ND 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 CONS IDERATION FOR THE TRANSFER IS UNDER- STATED AND HENCE IT WOULD HAVE NO APPLICATIO N IN THE CASE OF A BONAFIDE TRANSACTION WHERE THE FULL VALUE OF THE CONSIDERATI ON FOR THE TRANSFER IS CORRECTLY DECLARED BY THE ASSESSEE. FOR THE SAKE OF CONVENIE NCE WE EXTRACT BELOW THE RELEVANT OBSERVATIONS OF THE HONBLE APEX COURT ON THE RULE OF INTERPRETATION AND THE LOGICAL CONCLUSION: 5. NOW ON THESE PROVISIONS THE QUESTION ARISES A S TO WHAT IS THE TRUE INTERPRETATION OF S.52 SUB-S.(2). THE ARGUMENT OF THE REVENUE WAS AND THIS ARGUMENT FOUND FAVOUR WIT H THE MAJORITY JUDGES OF THE FULL BENCH THAT ON A PLAIN AND NATURAL CONSTRUCTION OF THE LANGUAGE OF S.52 SUB-S.(2) TH E ONLY CONDITION FOR ATTRACTING THE APPLICABILITY OF THAT PROVISION WAS THAT THE FAIR MARKET VALUE OF THE CAPITAL ASSET TRA NSFERRED BY THE ASSESSEE AS ON THE DATE OF THE TRANSFER EXCEEDE D THE FULL VALUE OF THE CONSIDERATION DECLARED BY THE ASSESSEE IN RESPECT OF THE TRANSFER BY AN AMOUNT OF NOT LESS THAN 15% O F THE VALUE SO DECLARED. ONCE THE ITO IS SATISFIED THAT T HIS CONDITION EXISTS HE CAN PROCEED TO INVOKE THE PROVISION IN S .52 SUB- S.(2) AND TAKE THE FAIR MARKET VALUE OF THE CAPITA L 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 CAPIT AL GAINS ON THAT BASIS. NO MORE IS NECESSARY TO BE PROVED CONT ENDED THE REVENUE. TO INTRODUCE ANY FURTHER CONDITION SUCH AS UNDER- STATEMENT OF CONSIDERATION IN RESPECT OF THE TRANSF ER WOULD BE TO READ INTO THE STATUTORY PROVISION SOMETHING WHIC H IS NOT THERE; INDEED IT WOULD AMOUNT TO RE-WRITING THE SE CTION. THIS ARGUMENT WAS BASED ON A STRICTLY LITERAL READING OF S.52 SUB- S. (2) BUT WE DO NOT THINK SUCH A CONSTRUCTION CAN BE ACCEPTED. IT IGNORES SEVERAL VITAL CONSIDERATIONS W HICH MUST ALWAYS BE BORNE IN MIND WHEN WE ARE INTERPRETING A STATUTORY PROVISION. THE TASK OF INTERPRETATION OF A STATUTOR Y ENACTMENT ITA NO.556 & 557/VIZAG/2008 PAGE 5 OF 11 IS NOT A MECHANICAL TASK. IT IS MORE THAN A MERE RE ADING OF MATHEMATICAL FORMULAE BECAUSE FEW WORDS POSSESS THE PRECISION OF MATHEMATICAL SYMBOLS. IT IS AN ATTEMPT TO DISCOVER THE INTENT OF THE LEGISLATURE FROM THE LAN GUAGE USED BY IT AND IT MUST ALWAYS BE REMEMBERED THAT LANGUAG E IS AT BEST AN IMPERFECT INSTRUMENT FOR THE EXPRESSION OF HUMAN THOUGHT AND AS POINTED OUT BY LORD DENNING IT WOU LD BE IDLE TO EXPECT EVERY STATUTORY PROVISION TO BE DRAFTED WITH DIVINE PRESCIENCE AND PERFECT CLARITY. WE CAN DO NO BETTE R THAN REPEAT THE FAMOUS WORDS OF JUDGE LEARNED 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 ST ATUTE A CONTRACT OR ANYTHING ELSE. BUT IT IS ONE OF THE SUR EST INDEXES OF A MATURE AND DEVELOPED JURISPRUDENCE NOT TO MAKE A FORTRESS OUT OF THE DICTIONARY: BUT TO REMEMBER THA T STATUTES ALWAYS HAVE SOME PURPOSE OR OBJECT TO ACCOMPLISH W HOSE SYMPATHETIC AND IMAGINATIVE DISCOVERY 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 RE GARD TO THE OBJECT AND PURPOSE WHICH THE LEGISLATURE HAD IN VIEW IN ENACTING THAT PROVISION AND IN THE CONTEXT OF THE S ETTING IN WHICH IT OCCURS. WE CANNOT IGNORE THE CONTEXT AND T HE COLLOCATION OF THE PROVISIONS IN WHICH S.52 SUB-S (2) APPEARS BECAUSE AS POINTED OUT BY JUDGE LEARNED HAND IN TH E MOST FELICITOUS LANGUAGE: 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 COLLECTI VELY 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 UNRE ASONABLE AND ABSURD CONSEQUENCES. IT IS TRUE THAT THE CONSEQUENC ES OF A SUGGESTED CONSTRUCTION CANNOT ALTER THE MEANING OF A STATUTORY PROVISION BUT IT CAN CERTAINLY HELP TO FI X ITS MEANING. IT IS A WELL RECOGNIZED RULE OF CONSTRUCTION THAT A STATUTORY PROVISION MUST BE SO CONSTRUED IF POSSIBLE THAT A BSURDITY AND MISCHIEF MAY BE AVOIDED. THERE ARE MANY SITUATIONS WHERE THE CONSTRUCTION SUGGESTED ON BEHALF OF THE REVENUE WOULD LEAD TO A WHOLLY UNREASONABLE RESULT WHICH COULD NE VER HAVE BEEN INTENDED BY THE LEGISLATURE. TAKE FOR EXAMPLE A CASE WHERE A AGREES TO SELL HIS PROPERTY TO B FOR A CERT AIN PRICE ITA NO.556 & 557/VIZAG/2008 PAGE 6 OF 11 AND BEFORE THE SALE IS COMPLETED PURSUANT TO THE AG REEMENT AND IT IS QUITE WELL KNOWN THAT SOMETIMES THE COMPL ETION OF THE SALE MAY TAKE PLACE EVEN A COUPLE OF YEARS AFTE R THE DATE OF THE AGREEMENT THE MARKET PRICE SHOOTS UP WITH THE RESULT THAT THE MARKET PRICE PREVAILING ON THE DATE OF SAL E EXCEEDS THE AGREED PRICE AT WHICH THE PROPERTY IS SOLD BY MORE THAN 15% OF SUCH AGREED PRICE. THIS IS NOT AT ALL AN UNC OMMON CASE IN AN ECONOMY OF RISING PRICES AND IN FACT WE WOULD FIND IN A LARGE NUMBER OF CASES WHERE THE SALE IS COMPLE TED 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 SOLD U NDER THE AGREEMENT. CAN IT BE CONTENDED WITH ANY DEGREE OF F AIRNESS AND JUSTICE THAT IN SUCH CASES WHERE THERE IS CLEA RLY NO UNDER-STATEMENT OF CONSIDERATION IN RESPECT OF THE TRANSFER AND THE TRANSACTION IS PERFECTLY HONEST AND BONAFID E AND IN FACT IN FULFILMENT OF A CONTRACTUAL OBLIGATION TH E ASSESSEE WHO HAS SOLD THE PROPERTY SHOULD BE LIABLE TO PAY TAX ON CAPITAL GAINS WHICH HAVE NOT ACCRUED OR ARISEN TO H IM? IT WOULD INDEED BE MOST HARSH AND INEQUITABLE TO TAX T HE ASSESSEE ON INCOME WHICH HAS NEITHER ARISEN TO HIM NOR IS RECEIVED BY HIM MERELY BECAUSE HE HAS CARRIED OUT THE CONTRACTUAL OBLIGATION UNDERTAKEN BY HIM. IT IS DIF FICULT TO CONCEIVE OF ANY RATIONAL REASON WHY THE LEGISLATURE SHOULD HAVE THOUGHT IT FIT TO IMPOSE LIABILITY TO TAX ON A N ASSESSEE WHO IS BOUND BY LAW TO CARRY OUT HIS CONTRACTUAL OB LIGATION TO SELL THE PROPERTY AT THE AGREED PRICE AND HONESTLY CARRIED OUT SUCH A CONTRACTUAL OBLIGATION. IT WOULD INDEED BE S TRANGE IF OBEDIENCE TO THE LAW SHOULD ATTRACT THE LEVY OF TAX ON INCOME WHICH HAS NEITHER ARISEN TO THE ASSESSEE NOR HAS BE EN RECEIVED BY HIM. IF WE MAY TAKE ANOTHER ILLUSTRATIO N LET US CONSIDER A CASE WHERE A SELLS HIS PROPERTY TO B WIT H A STIPULATION THAT AFTER SOME TIME WHICH MAY BE A COU PLE OF YEARS OR MORE HE SHALL RE-SELL PROPERTY TO A FOR T HE SAME PRICE. COULD IT BE CONTENDED IN SUCH A CASE THAT WH EN 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 TH E MARKET PRICE HAS SHOT UP AND EXCEEDS THE AGREED PRICE BY M ORE THAN 15%. MANY OTHER SIMILAR SITUATIONS CAN BE CONTEMPLA TED WHERE IT WOULD BE ABSURD AND UNREASONABLE TO APPLY S.52 SUB-S (2) ACCORDING TO ITS STRICT LITERAL CONSTRUC TION. WE MUST THEREFORE ESCHEW LITERALNESS IN THE INTERPRETATION OF S.52 SUB-S (2) AND TRY TO ARRIVE AT AN INTERPRETATION W HICH AVOIDS THIS ABSURDITY AND MISCHIEF AND MAKES THE PROVISION RATIONAL AND SENSIBLE UNLESS OF COURSE OUR HANDS ARE TIED AND WE ITA NO.556 & 557/VIZAG/2008 PAGE 7 OF 11 CANNOT FIND ANY ESCAPE FROM THE TYRANNY OF THE LITE RAL INTERPRETATION. IT IS NOW A WELL-SETTLED RULE OF CO NSTRUCTION THAT WHERE THE PLAIN LITERAL INTERPRETATION OF A ST ATUTORY PROVISION PRODUCES A MANIFESTLY ABSURD AND UNJUST R ESULT WHICH COULD NEVER HAVE BEEN INTENDED BY THE LEGISLA TURE THE COURT MAY MODIFY THE LANGUAGE USED BY THE LEGISLATU RE OR EVEN DO SOME VIOLENCE TO IT SO AS TO ACHIEVE THE OBVIOUS INTENTION OF THE LEGISLATURE AND PRODUCE A RATIONAL CONSTRUCTION; VIDE LUKE VS. IRC (1963) AC 557 : (96 4) 54 ITR 692(HL). THE COURT MAY ALSO IN SUCH A CASE READ INT O THE STATUTORY PROVISION A CONDITION WHICH THOUGH NOT E XPRESSED IS IMPLICIT AS CONSTITUTING THE BASIC ASSUMPTION UN DERLYING 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 I NTO IT A CONDITION THAT IT WOULD APPLY ONLY WHERE THE CONSID ERATION FOR THE TRANSFER IS UNDERSTATED OR IN OTHER WORDS THE ASSESSEE HAS ACTUALLY RECEIVED A LARGER CONSIDERATION FOR TH E TRANSFER THAN WHAT IS DECLARED IN THE INSTRUMENT OF TRANSFER AND IT WOULD HAVE NO APPLICATION IN THE CASE OF A BONAFIDE TRANSACTION WHERE THE FULL VALUE OF THE CONSIDERATI ON FOR THE TRANSFER IS CORRECTLY DECLARED BY THE ASSESSEE. THE RE 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 MISCHI EF AND DEFECT WHICH WAS SOUGHT TO BE REMEDIED BY AN ENACTMENT. IN THAT CONN ECTION THE SPEECH MADE BY THE FINANCE MINISTER WHILE MOVING THE AMENDMENT IS EXTREMELY RELEVANT AS IT THROWS A CONSIDERABLE LIGHT ON THE OBJECTIVES AND P URPOSE OF ENACTMENT. HOWEVER AS POINTED OUT BY LD AR THE PURPOSE OF INT RODUCTION OF SEC 50C WAS NOT MENTIONED BY THE FINANCE MINISTER AT THE TIME O F MOVING AMENDMENT. IT WAS ALSO NOT EXPLAINED IN THE NOTES ON CLAUSES AND EXPL ANATORY MEMORANDUM ATTACHED TO THE RELEVANT FINANCE BILL. HOWEVER THE HONBLE MADRAS HIGH COURT IN THE CASE OF K.R. PALANI SWAMY AND OTHERS SUPRA WHI LE UPHOLDING THE CONSTITUTIONAL VALIDITY OF SEC 50C HAD AN OCCASION 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 READING OF THE ABOVE PROVISION AND RATHER IT IS NOT DISPUTED THAT THE SAME IS INSERTED TO PREVENT LARGE SCALE UNDER VALUATION OF THE REAL VAL UE OF THE PROPERTY IN THE SALE DEED SO AS TO DEFRAUD REVE NUE THE GOVERNMENT LEGITIMATELY ENTITLED TO BY PUMPING IN BLACK MONEY. THE IMPUGNED PROVISION HAS BEEN INCORPORATED TO ITA NO.556 & 557/VIZAG/2008 PAGE 8 OF 11 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 TAX IN TERMS OF LAW THE LEGISLATURE STEPS INTO AMEND THE IT LAW TO CATCH 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 PAYMENT OF TAX OR DUTY WHICH THE GOVERNMENT IS ENTITLED TO WHICH IN OUR OPINION IS 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 WHE RE THE COMPLETION OF SALE TOOK PLACE AFTER A COUPLE OF YEARS AFTER THE D ATE OF AGREEMENT. IN THIS CONNECTION IT IS PERTINENT TO EXTRACT THE RELEVANT OBSERVATIONS OF THE HONBLE SUPREME COURT AT THE COST OF REPETITION AS THE SA ID EXAMPLE CONTEMPLATED BY THE HONBLE APEX COURT IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THERE ARE MANY SITUATIONS WHERE THE CONSTRUCTION S UGGESTED ON BEHALF OF THE REVENUE WOULD LEAD TO A WHOLLY UNREASONABLE RESULT WHICH COULD NEVER HAVE BEEN INT ENDED BY THE LEGISLATURE. TAKE FOR EXAMPLE A CASE WHERE A AGREES TO SELL HIS PROPERTY TO B FOR A CERTAIN PRICE AND BEFO RE THE SALE IS COMPLETED PURSUANT TO THE AGREEMENT AND IT IS QUI TE WELL KNOWN THAT SOMETIMES 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 T HE MARKET PRICE PREVAILING ON THE DATE OF SALE EXCEEDS THE AG REED PRICE AT WHICH THE PROPERTY IS SOLD BY MORE THAN 15% OF SUCH AGREED PRICE. THIS IS NOT AT ALL AN UNCOMMON CASE I N 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 TH E MARKET PRICE PREVAILING ON THE DATE OF THE SALE IS VERY MU CH MORE THAN THE PRICE AT WHICH THE PROPERTY IS SOLD UNDER THE AGREEMENT. CAN IT BE CONTENDED WITH ANY DEGREE OF FAIRNESS AND JUSTICE THAT IN SUCH CASES WHERE THER E IS CLEARLY NO UNDER-STATEMENT OF CONSIDERATION IN RESP ECT OF THE TRANSFER AND THE TRANSACTION IS PERFECTLY HO NEST AND BONAFIDE AND IN FACT IN FULFILMENT OF A CONTR ACTUAL OBLIGATION THE ASSESSEE WHO HAS SOLD THE PROPERTY SHOULD BE LIABLE TO PAY TAX ON CAPITAL GAINS WHICH HAVE NOT ACCRUED OR ARISEN TO HIM? IT WOULD INDEED BE MO ST HARSH AND INEQUITABLE TO TAX THE ASSESSEE ON INCOME ITA NO.556 & 557/VIZAG/2008 PAGE 9 OF 11 WHICH HAS NEITHER ARISEN TO HIM NOR IS RECEIVED BY HIM MERELY BECAUSE HE HAS CARRIED OUT THE CONTRACTUAL OBLIGATION UNDERTAKEN BY HIM. IT IS DIFFICULT TO CONCEIVE OF ANY RATIONAL REASON WHY THE LEGISLATURE SHOULD HAVE THOUGHT IT FIT TO IMPOSE LIABILITY TO T AX 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 AT THE RELEVANT POINT OF TIME WAS NOT APPLICABLE TO A HONEST AND BO NA FIDE TRANSACTION WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE WA S CORRECTLY DECLARED OR DISCLOSED BY HIM AND THERE WAS NO CONCEALMENT OR SU PPRESSION OF THE CONSIDERATION. THE HONBLE SUPREME COURT AFTER CO NSIDERING THE SPEECH OF THE FINANCE MINISTER HAS UNDERSTOOD THAT THE OBJEC T OF INTRODUCTION OF SECTION 52(2) WAS TO CURTAIL THOSE TRANSACTIONS OF SALE OF PROPERTY WHERE THE ACTUAL CONSIDERATION RECEIVED WAS UNDERSTATED I N THE SALE DEED. HOWEVER THOUGH THE OBJECT OF INTRODUCTION OF SECTI ON 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 PROVISI ON OF SEC 50C WAS INSERTED IN THE INCOME-TAX ACT TO PREVENT LARGE SCA LE UNDER VALUATION OF REAL VALUE OF PROPERTY IN THE SALE DEED SO AS TO DEFRAU D REVENUE WHICH THE GOVERNMENT IS LEGITIMATELY ENTITLED TO BY PUMPING IN BLACK MONEY. THUS WE CAN SEE THAT THE PURPOSE OF INTRODUCTION OF SECT ION 52(2) EARLIER AND SECTION 50C W.E.F. 1.4.2003 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 ASS ESSEE IS BOUND BY LAW TO CARRY OUT AS PER THE SALE AGREEMENT ENTERED IN M ARCH 2003. NOW THE NEXT QUESTION THAT REQUIRES TO BE ADDRESSED IS WHET HER THERE WAS ANY UNDER STATEMENT OF ACTUAL CONSIDERATION AT THE TIME WHEN THE SALE AGREEMENTS WERE ENTERED INTO. THE ASSESSEE HAS PLAC ED A COPY OF THE CERTIFICATE DATED 16.4.2010 ISSUED BY THE JT. SUB R EGISTRAR VISAKHAPATNAM BY WAY OF ADDITIONAL EVIDENCE. ACCORDING TO THE SA ID CERTIFICATE THE MARKET VALUE OF THE IMPUGNED PROPERTY LOCATED AT ALLIPURAM WARD WAS RS.5000/- AS ON 26.3.2003. ACCORDING TO LD AR THE SALE VAL UE 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 REGISTRA R AT THE TIME THE SALE AGREEMENT WAS ENTERED INTO. THUS ACCORDING TO LD A R THERE IS NO ITA NO.556 & 557/VIZAG/2008 PAGE 10 OF 11 UNDERSTATEMENT OR SUPPRESSION OF ACTUAL CONSIDERATI ON. IT IS ALSO NOT THE CASE OF REVENUE THAT THERE WAS ANY UNDERSTATEMENT O F ACTUAL CONSIDERATION. 12. THUS BY EXECUTING THE SALE DEED IN JUNE 2 005 THE ASSESSEE HAS ONLY COMPLETED THE CONTRACTUAL OBLIGATION IMPOSED U PON IT BY VIRTUE OF THE SALE AGREEMENT. SINCE THE PROCESS OF SALE HAS BEEN INITIATED FROM THE DATE OF SALE AGREEMENTS IN OUR OPINION THE CHARACTER O F THE TRANSACTION VIS-- VIS INCOME TAX ACT SHOULD BE DETERMINED ON THE BASI S OF THE CONDITIONS THAT PREVAILED ON THE DATE THE TRANSACTION WAS INITIALLY ENTERED INTO. ACCORDINGLY THE APPLICABILITY OF THE PROVISIONS OF SECTION 50C SHOULD BE LOOKED AT ONLY ON THE DATE OF SALE AGREEMENT. THE A SSESSEE HAS FILED A CERTIFICATE OBTAINED FROM THE JOINT SUB REGISTRAR VISAKHAPATNAM REGARDING MARKET VALUE OF THE IMPUGNED PROPERTY AS ON THE DAT E OF THE SALE AGREEMENTS. THE SAID CERTIFICATE WAS NOT 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 EXAMI NED BY THE AO WE SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH A DIRECT ION TO COMPUTE THE CAPITAL GAINS ON SALE OF IMPUGNED PROPERTIES AFTER APPLYING THE PROVISIONS OF SECTION 50C AS ON THE DATE OF SALE AGREEMENTS. ACC ORDINGLY THE ORDER OF LD CIT(A) IS REVERSED. 6. IN THE CASES BEFORE US ALSO THERE IS NO DIS PUTE THAT THE ASSESSEES HEREIN ENTERED INTO SALE AGREEMENTS ON 04-6-2005 AN D THE SALE VALUE FIXED ON THAT DATE WAS EQUIVALENT TO THE SRO RATES FIXED FOR STAMP DUTY PURPOSES. THE CONVEYANCE DEED WAS REGISTERED ON 25 .8.2005 I.E. WITHIN A PERIOD OF THREE MONTHS. THOUGH THE SRO RATES HAD B EEN RAISED UPWARDS ON THAT DATE YET AS OBSERVED IN THE ABOVE CITED C ASE THE ASSESSEES HEREIN HAVE FULFILLED A CONTRACTUAL OBLIGATION WHI CH THEY ARE BOUND BY LAW TO CARRY OUT. SINCE THE PROCESS OF SALE HAS BEEN I NITIATED FROM THE DATE OF SALE AGREEMENT WE HAVE HELD IN THE ABOVE CITED CAS E THAT THE APPLICABILITY OF PROVISIONS OF SECTION 50C SHOULD BE LOOKED AT ON LY ON THE DATE OF SALE AGREEMENT. IN THE INSTANT CASES THE QUESTION OF A DOPTION OF A HIGHER VALUE BY INVOKING THE PROVISIONS OF SECTION 50C ON THE DATE OF SALE AGREEMENT DOES NOT ARISE AS THE SALE VALUE FIXED BY THE ASSESSEES WAS EQUIVALENT TO THE SRO VALUE FOR STAMP DUTY PURPOSES . 7. IN VIEW OF THE FOREGOING DISCUSSIONS WE SET ASIDE THE ORDERS PASSED BY LEARNED CIT(A) IN THE HANDS OF THESE TWO ASSESSE ES AND DIRECT THE ITA NO.556 & 557/VIZAG/2008 PAGE 11 OF 11 ASSESSING OFFICER TO DELETE THE ADDITION MADE IN TH E COMPUTATION OF CAPITAL GAINS IN THE HANDS OF BOTH THE ASSESSEES. 8. IN THE RESULT THE APPEALS FILED BY BOTH THE ASS ESSEES ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 02.07.2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM DATE: 2 ND JUL 2010 COPY TO 1 SHRI KODURU SATYA SRINIVAS D.NO.48-15-7/2 NAGAR JUNA NAGAR VIJAYAWADA-8. 2 SMT. KODURU ANUPAMA D.NO.48-15-7/2 NAGARJUNA NA GAR VIJAYAWADA-8 3 ACIT CIRCLE-2(1) VIJAYAWADA. 4 5 THE CIT VIJAYAWADA THE CIT(A) VIJAYAWADA 6 THE DR ITAT VISAKHAPATNAM. 7 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM