The Income Tax Appellate Tribunal (ITAT) Bangalore held, Section 50C of the Income Tax Act can’t be applied in the Year of Registration of Sale Deed without Actual Transfer as the same was merely a Formality.
The assessee, Armatic Engineering (P) Ltd., in order to explore the possibility of commercial conversion of their factory building entered into a Development Agreement with a Developer, Park Inc., for demolishing & constructing a commercial complex to be rented out jointly by the Developer as well as the assessee company. Though Registered Joint Development Agreement (JDA) was entered with M/s. Park Inc. and got the Plan approved for demolishing of an old building and constructing a commercial complex only during Sept.2008. As per the jurisdictional High Court order of Dr. Dayalu, the Capital Gains in respect of the property given under JDA should have been considered as taxable during Asst. The year 2009-10. The assessee submitted that the capital gains should have been taxed in the year of commencement of construction after registering the Joint Development Agreement. The Guideline value prevailing as of that date is much lower than the value adopted by the assessee for determining the Capital Gain. The assessee objected to the Assessing Officer’s (AO) adopting the higher value as per Guidelines assessed by the Stamp Valuation Officer. The assessee contended that on receipt of the objection from the assessee, the AO should have referred the matter to the Valuation Cell to determine the fair market value of the property as on the date of registration of Sale Deed. This is without prejudice of the contention to the assessee that the Capital Gains should have been taxed in the year of sanction of Plan under Joint Development Agreement. However, the AO did not refer the matter to the Valuation Officer. Further, the assessee submitted that it was entitled to deduction under section 54G of the Act, in respect of the reinvestment in the factory land & building near Harohally, which the assessee is rightly entitled to, which was not allowed by the AO.
Judicial member George George K and Accountant Member Chandra Poojari allowed the appeal, “we have already held that capital gain is to be taxed not in this assessment year 2012-13, being so, there is no question of application of section 50C of the Act and the registration of Sale Deed was only for the limited purpose of formalizing the bank request, who financed the assessee as discussed in para 28 of this order. In our opinion, there is no applicability of section 50C of the Act in the assessment year 2012-13 since transfer took place, not in this assessment year. Thus, this issue is only academic as there was no incidence and chargeability of capital gain in AY 2012-13. Therefore, this ground by the assessee is allowed.”
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