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The real effect of section 50C of the Income Tax Act, 1961

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     on  11 February 2011    

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Introduction 


Section 50C was inserted by the Finance Act, 2002 with effect from April 1, 2003. It reads as under :


Special provision for full value of consideration in certain cases.(1) Where the consideration received or accruing 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 purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.


(2) Without prejudice to the provisions of sub-section (1), where


    (a)    the assessee claims before any Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer;


    (b)    the value so adopted or assessed by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, Court or the High Court,


the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section


23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act.


Explanation.For the purposes of this section, Valuation Officer shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).


(3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.


Scope and ambit of section 50C 


Sub-section (1) of section 50C seeks to provide that where the consideration received or accruing as a result of 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 for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration received or accruing as a result of such transfer. Sub-section (2) of the said section provides that where the assessee claims before any Assessing Officer that the value adopted or assessed by the authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer and the value so adopted or


assessed by the authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, Court or a High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer, and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and


(7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957, shall, with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A. The Valuation Officer shall be the Valuation Officer as defined in clause (r) of section 2 of the Wealth-tax Act. Sub-section (3) provides that where the value ascertained under sub-section (2) exceeds the value adopted or assessed by the authority referred to in sub-


section (1), the value so adopted or assessed by the authority shall be taken as the full value of the consideration received or accruing as a result of the transfer. Section 50C, which was introduced by the


Finance Act, 2002 with effect from April 1, 2003, contains special provisions for valuation of consideration in certain cases. Section 50C(1) provides that where consideration received or accruing as a result of transfer by an assessee of a capital asset, consisting of land or building or both, is less than the value adopted or assessed by any authority of a State Government (as and when referred to as stamp valuation authority) for the purpose of payment of stamp duty for such transfer, the value so adopted or assessed shall, for the purposes of section 48 of the Act, be deemed to be the full value of consideration received or accruing as a result of such transfer. In other words, when the stated sale consideration of a land or house property is less than stamp duty valuation for the said property, it is the stamp duty valuation which shall prevail for the purpose of computation of capital gains under section 48.


An exception 


This provision is, however, subject to an important exception scheme of which is set out in sub-sections (2) and (3) of section 50C. Section 50C(2) provides that where the assessee claims before the Assessing Officer that the value adopted by the stamp valuation authority, under section 50C(1), exceeds fair market value of the property as on the date of transfer, and unless such valuation is subject-matter of litigation before any authority or the Court, the Assessing Officer may refer the matter of determination of fair market value of the property in question to the DVO and the same shall be taken into account for computation of capital gains. Section 50C(3), however, provides that when fair market value so determined by the DVO is higher than the valuation or assessment as per the stamp valuation authority, the computation of capital gains is to be done with reference to the valuation or assessment as per the stamp valuation authority. In other words, valuation of property by the DVO cannot act to the detriment of the assessee; the assessee cannot be put to any disadvantage in case the matter is referred to the DVO.


Overall effect of section 50C 


The scheme of section 50C can be summarized in this fashion. The normal tenet, thus, is that where stamp duty valuation is higher than the stated consideration on transfer, the same is to be adopted for the purpose of computing capital gains. The exception is that in case the assessee can demonstrate that the fair market valuation is less than the stamp duty valuation, the fair market value is to be adopted. The safeguard is that the assessees challenge to the stamp duty valuation before the tax authorities cannot put the assessee to any disadvantage. In effect, thus, when stamp duty valuation of a property is higher than stated value of sale consideration, only the onus to prove the fair market value has been shifted on to the assessee. As long as an assessee can reasonably discharge this onus, even under the scheme of section 50C, the consideration stated by him cannot be disturbed.


Some Judicial Views 


5. In the case of Ravi Kant  v. ITO [2007] 110 TTJ (Delhi) 297, it was held that:


9. On a perusal of valuation report, however, we find that even the valuation by the DVO has placed too much of emphasis on the assessment or valuation by the stamp valuation authority. This is neither desirable nor permissible. The reason is this. The valuation by the stamp valuation authority is based on the circle rates. These circle rates adopt uniform rate of land for an entire locality, which inherently disregards peculiar features of a particular property. Even in a particular area, on account of location factors and possibilities of commercial use, there can be wide variations in the prices of land. However, circle rates disregard all these factors and adopt a uniform rate for all properties in that particular area. If the circle rate fixed by the stamp valuation authorities was to be adopted in all situations, there was no need of reference to the DVO under section 50C(2). The sweeping generalizations inherent in the circle rates cannot hold good in all situations. It is, therefore, not uncommon that while fixing the circle rates, authorities do err on the side of excessive caution by adopting higher rates of the land in a particular area as the circle rate. In such circumstances, the DVOs blind reliance on circle rates is unjustified. The DVO has simply adopted the average circle rate of residential and commercial area, on the ground that interior area of the locality, where the assessees property is situated, is mixed developed area, i.e., shops and offices on the ground floor and residence on the upper floors. When DVOs valuation required to compare the same with the valuation by the stamp valuation authority, it is futile to base such a report on the circle report itself. Such an approach will render exercise under section 50C(2) a meaningless ritual and an empty formality. In our considered view, in such a case, the DVOs report should be based on consideration stated in the registration documents for comparable transactions, as also factors such as inputs from other sources about the market rates. For the reasons set out above, and with these observations, we remit the matter to the file of the Assessing Officer. The DVO will value the property de novo, in the light of our above observations, and in case the valuation so arrived at by the DVO is less than Rs. 11,42,100, the Assessing Officer shall adopt the fresh valuation so done by the DVO for the purpose of computing capital gains under section 48 of the Act. We direct so. (p. 301)


Registered sale deed 


In the case of Navneet Kumar Thakkar   v. ITO [2008] 110 ITD 525 (Jodh.) it was observed that a deeming provision has been enshrined in section 50C by virtue of which a legal fiction has been created for assuming the value adopted or assessed by any authority of the State Government as the full value of sale consideration received in respect of such transfer. A legal fiction so created is only in respect of the cases where the consideration received by the assessee is less than the value adopted or assessed by the stamp valuation authority of the State Government for the purpose of payment of stamp duty in respect of such transfer. It is a trite law that the legal fiction cannot be extended beyond the purpose for which it is enacted. Section 50C embodies the legal fiction by which the value assessed by the stamp duty authorities is considered as the full value of consideration for the property transferred. It does not go beyond the cases in which the subject transferred property has not become the subject-matter of the registration and the question of valuation for stamp duty purposes has not arisen. Unless the property transferred has been registered by sale deed and for that purpose the value has been assessed and stamp duty has been paid by the parties, section 50C cannot come into operation. In such a situation, the position existing prior to introduction of section 50C would apply by itself and the onus would be upon the revenue to establish that sale consideration declared by the assessee was understated with some clinching evidences. Even the relevant judgment in the case of K.P. Varghese  v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC) and CIT v. Shivakami Co. (P.) Ltd. [1986] 159 ITR 71/25 Taxman 80K (SC) would come into operation and still govern the determination of full value of consideration.


Conclusion 


Section 50C imposes a heavy liability upon the assessee in respect of the full value of sale consideration. The section only provides a sort of statutory presumption and places the burden on the revenue to prove that the under-consideration of the property sold is correct as per above rulings.


Published in Income Tax
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