Where adoption of stamp duty valuation is objected section 50C(2) shall be invoked

What is section 50C of the Income Tax Act?

Section 50C of the Income Tax Act provides that if the value stated in the instrument of transfer is less than the valuation adopted, assessed or assessable by the stamp duty authorities, the valuation as adopted, assessed or assessable by the stamp duty authorities will be considered for the purpose of computation of capital gains arising on transfer of land or building or both.

However, Budget 2018 brought an amendment in section 50C whereby no adjustments shall be made in a case where the variation between stamp duty value and the sale consideration was not more than 5% of the sale consideration. This was introduced in order to minimize hardship in case of genuine transactions in the real estate sector.

In simple words, the full value of consideration will be higher of:

actual consideration received

stamp duty value

Provided, Stamp Duty Value does not Exceed 105% of Actual Consideration

Illustration to Understand Section 50C

Property	Actual Consideration	Stamp Duty Value (SDV)	110% of Actual Consideration	Value to be considered
1	1,00,000	1,10,000	1,05,000	1,10,000
2	1,00,000	80,000	1,05,000	1,00,000
3	1,00,000	1,03,000	1,05,000	1,00,000

However, in section 50C of the Income-tax Act, in sub-section (1), in the third proviso, for the words “5%”, the words “10%” shall be substituted with effect from the 1st day of April, 2021.

Fact and Issue of the case

Aforesaid appeal has been filed by the assessee challenging the order dated 7th January 2016, passed by the learned Commissioner (Appeals)–4, Mumbai, pertaining to the assessment year 2011–12.

Brief facts are, for the impugned assessment year the assessee filed its return of income on 19th September 2011, declaring total income of ` 12,94,930. In the course of assessment proceeding while examining the return of income filed by the assessee, the Assessing Officer noticed that in the previous year relevant to the assessment year under dispute, the assessee has sold a flat in Galaxy Heaven, JVPD Scheme, Vile Parle, Mumbai, for a declared sale consideration of ` 1.75 crore. After reducing the cost of acquisition of the property as on 20th February 2008 amounting to ` 1,54,72,963, the assessee has offered short term capital gain of ` 20,27,037. After calling for information from the Registrar’s Office at Andheri–2, Mumbai, and examining the registered sale deed, the Assessing Officer noticed that stamp valuation authority has determined the value of the property sold for stamp duty purpose at ` 2,51,45,500. Therefore, he called upon the assessee to explain why short term capital gain should not be computed by adopting the value determined by the stamp valuation authority for the property sold as the deemed sale consideration as per section 50C(1) of the Act. Though, the assessee vide letters dated 7th March 2014 and 25th March 2014, objected before the Assessing Officer against adopting stamp duty value as deemed sale consideration for computing the capital gain on sale of property, However, the Assessing Officer rejecting the objections of the assessee proceeded to compute capital gain by adopting the value of the property determined by the stamp valuation authority as the deemed sale consideration as per section 50C(1) of the Act. After allowing the cost of acquisition as claimed by the assessee, he ultimately determined the taxable short term capital gain at ` 96,72,537.

Observation of the court

The Tribunal has considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. There is no dispute between the parties with regard to the primary fact that as against declared sale consideration of ` 1.75 crore shown by the assessee the Assessing Officer has adopted the value determined by the stamp valuation authority at ` 2,51,45,500, as deemed sale consideration under section 50C(1) of the Act. Against the adoption of the value determined by the stamp valuation authority as deemed sale consideration, assessee’s argument is twofold. Firstly, on the face of objection raised by the assessee against adoption of stamp duty value, the Assessing Officer should have made a reference to the DVO for determining the value of the property. Secondly, the stamp duty valuation cannot be adopted as the deemed sale consideration considering the fact that the property was encumbered. Insofar as the first contention of the assessee with regard to making a reference to the DVO is concerned, on a schematic interpretation of section 50C of the Act as a whole, it appears that, though, under section 50C(1) of the Act the value determined by the stamp valuation authority is to be treated as deemed sale consideration and has to be substituted for the declared sale consideration, however, in a case where the assessee objects to adoption of stamp duty valuation, as per sub–section (2) of section 50C of the Act the Assessing Officer is required to make a reference to the DVO for determining the value of the property. Now, the issue before us is, whether as per section 50C(2) of the Act, it is mandatory on the part of the Assessing Officer to make a reference to the DVO to determine the value of the property. In our view, on a careful reading of the provisions contained under section 50C of the Act and the legislative intent for enacting such a provision, it becomes clear that in a case where the assessee objects to the adoption of stamp duty value as the deemed sale consideration, the Assessing Officer is duty bound to make a reference to the DVO for determining the value of the property and thereafter proceed to compute capital gain by following the provisions of sub–section (3) of the Act. In the facts of the present appeal, undisputedly, in the course of assessment proceedings the assessee has objected to adoption of stamp duty value as the deemed sale consideration for whatever may be the reason.

That being the case, it was the duty of the Assessing Officer to make a reference to the DVO for determining the value of the property sold. The contention of the Department that the reference to DVO was not made because the assessee raised the objection before the Assessing Officer purposefully at the fag end to see to it that the proceeding gets barred by limitation, in our view, is unacceptable. Further, at the first appellate stage also learned Commissioner (Appeals) could have directed the Assessing Officer to get the valuation of the property done by the DVO and thereafter proceeded in accordance with law. In case of S. Muthuraja v/s CIT, [2014] 369 ITR 483 (Mad.), the Hon’ble Madras High Court has held that where the assessee objects to the adoption of stamp duty valuation as deemed sale consideration during the assessment proceedings, the Assessing Officer is duty bound to make a reference to the DVO to determine the value of the property as per section 50C(2) of the Act. The other decisions cited by the learned Authorised Representative also express similar view. In fact, the Hon’ble Calcutta High Court in Sunil Kumar Agarwal v/s CIT, [2015] 372 ITR 83 (Cal.), have gone a step further to observe that valuation by the DVO is contemplated under section 50C of the Act to avoid miscarriage of justice. It was held that when the legislature has taken care to provide adequate machinery to give a fair treatment to the tax payer, there is no reason why the machinery provided by the legislature should not be used and the benefit thereof should be refused. The Hon’ble Court has observed that even in a case where no request is made by the assessee to make a reference to the DVO, the Assessing Officer while discharging a quasi judicial function is duty bound to act fairly by giving the assessee an option to follow the course provided by law to have the valuation made by the DVO.

The assessee’s case stands in a much better footing as in the course of assessment proceedings, the assessee had objected to adoption of stamp duty value as the deemed sale consideration. Thus, in such circumstances, in our considered opinion, the Assessing Officer should have followed the mandate of sub–section (2) of section 50C of the Act by making a reference to the DVO to determine the value of the property sold. The Assessing Officer having not done so and the learned Commissioner (Appeals) also failing to rectify the error committed by the Assessing Officer, we have no hesitation in restoring the issue to the Assessing Officer with a direction to make a reference to the DVO to determine the value of the property sold in terms of section 50C(2) of the Act and thereafter proceed to compute capital gain in accordance with law. In view of our decision herein above, we do not intend to delve into the other aspect of the issue relating to the actual value of the property on account of certain prevailing conditions like encumbrance, etc. All these issues are available to the assessee for agitating in the course of proceedings before the DVO. With the aforesaid observations, we set aside the impugned order of learned Commissioner (Appeals) and restore the issue to the Assessing Officer for fresh adjudication in terms of our direction herein above. Grounds are allowed for statistical purposes.