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Tax Publishers Trincas Vinimay (P) Ltd. v. ITO [I.T.A. No. 316/Kol/2020, dt. 18-12-2020] : 2020 TaxPub(DT) 5491 (Kol-Trib) Deemed capital gains under section 50D on transfer of a right to property with consideration thru a self-made affidavit *Facts:* Assessee a corporate entity had entered into a purchase agreement with a real estate entity to acquire two flats post construction. Prior to possession the assessee transferred the said rights in the two property to two other buyers vide a self-made affidavit and thus on a consideration of Rs. 52.85 + Rs. 48.59 lakhs offered capital gains of Rs. 2.65 lakhs. The assessing officer held that the assessee has not offered the actual consideration and thus invoked under section 50D by deeming the fair value of the said transferred property and then arrived at the FMV (fair market value) of the two properties as Rs. 79.94 + Rs. 55.19 lakhs and taxed the difference of Rs. 34.75 lakhs as capital gains. On appeal; the plea of the assessee before Commissioner (Appeals) was the applicability of under section 50D is possible only if the consideration could not be "ascertained or cannot be determined" and since the records and accounts of the assessee and statements were produced under section 50D cannot be invoked. Commissioner (Appeals) upheld views of the assessing officer. On higher appeal by the assessee -- Held in favour of the assessee that under section 50D cannot be applied in their case there was enough information before the assessing officer to determine the consideration which was not done by the assessing officer. *Editorial Note:* It is worth revisiting this section 50D as under -- "50D. Fair market value deemed to be full value of consideration in certain cases.--Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or cannot be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset-on the date-of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer." As per the Finance Bill of 2012, relating to direct taxes seeking to amend the Income Tax Act, the following insertion was proposed (pertaining to section 50D) -- Extract from the Memorandum explaining the provision (section 50D) in the Finance Bill, 2012 :-- "FAIR MARKET VALUE TO BE FULL VALUE OF CONSIDERATION IN CERTAIN CASES Capital gains are calculated on transfer of a capital asset, as sale consideration minus cost of acquisition. In some recent rulings, it has been held that where the consideration in respect of transfer of an asset is not determinable under the existing provisions of the income tax act, then as the machinery provision fails, the gains arising from the transfer of such assets is not taxable. It is, therefore, proposed that where in the case of a transfer, consideration for the transfer of a capital asset's is not attributable or determinable then for purpose of computing income chargeable to tax as gains, the fair market value of the asset shall be taken to be the full market value of consideration. Accordingly, it is proposed to insert a new provision (section 50D) in the Income Tax Act to provide that fair market value of the asset shall be deemed to be the full value of consideration if actual consideration is not, attributable or determinable. This amendment will take effect from 1-4-2013 and will accordingly apply to assessment year 2013-14 and subsequent assessment years. [Clause 17]" From a bare reading of the provision and the memorandum of the Finance Bill, 2012, explaining the insertion of the new provision (section 50D), it is amply clear that for its applicability there has to be a factual situation where the consideration "is not ascertainable or cannot be determined". Thus, its applicability and any subsequent addition under this provision cannot be accommodated by the Revenue Department in a case where the quantum of consideration is ascertainable or can be determined.

Tax Publishers

Trincas Vinimay (P) Ltd. v. ITO [I.T.A. No. 316/Kol/2020, dt. 18-12-2020] : 2020 TaxPub(DT) 5491 (Kol-Trib)

Deemed capital gains under section 50D on transfer of a right to property with consideration thru a self-made affidavit

Facts:

Assessee a corporate entity had entered into a purchase agreement with a real estate entity to acquire two flats post construction. Prior to possession the assessee transferred the said rights in the two property to two other buyers vide a self-made affidavit and thus on a consideration of Rs. 52.85 + Rs. 48.59 lakhs offered capital gains of Rs. 2.65 lakhs. The assessing officer held that the assessee has not offered the actual consideration and thus invoked under section 50D by deeming the fair value of the said transferred property and then arrived at the FMV (fair market value) of the two properties as Rs. 79.94 + Rs. 55.19 lakhs and taxed the difference of Rs. 34.75 lakhs as capital gains. On appeal; the plea of the assessee before Commissioner (Appeals) was the applicability of under section 50D is possible only if the consideration could not be "ascertained or cannot be determined" and since the records and accounts of the assessee and statements were produced under section 50D cannot be invoked. Commissioner (Appeals) upheld views of the assessing officer. On higher appeal by the assessee --

Held in favour of the assessee that under section 50D cannot be applied in their case there was enough information before the assessing officer to determine the consideration which was not done by the assessing officer.

Editorial Note: It is worth revisiting this section 50D as under --

"50D. Fair market value deemed to be full value of consideration in certain cases.--Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or cannot be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset-on the date-of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer."

As per the Finance Bill of 2012, relating to direct taxes seeking to amend the Income Tax Act, the following insertion was proposed (pertaining to section 50D) --

Extract from the Memorandum explaining the provision (section 50D) in the Finance Bill, 2012 :--

"FAIR MARKET VALUE TO BE FULL VALUE OF CONSIDERATION IN CERTAIN CASES

Capital gains are calculated on transfer of a capital asset, as sale consideration minus cost of acquisition. In some recent rulings, it has been held that where the consideration in respect of transfer of an asset is not determinable under the existing provisions of the income tax act, then as the machinery provision fails, the gains arising from the transfer of such assets is not taxable. It is, therefore, proposed that where in the case of a transfer, consideration for the transfer of a capital asset's is not attributable or determinable then for purpose of computing income chargeable to tax as gains, the fair market value of the asset shall be taken to be the full market value of consideration.

Accordingly, it is proposed to insert a new provision (section 50D) in the Income Tax Act to provide that fair market value of the asset shall be deemed to be the full value of consideration if actual consideration is not, attributable or determinable.

This amendment will take effect from 1-4-2013 and will accordingly apply to assessment year 2013-14 and subsequent assessment years. [Clause 17]"

From a bare reading of the provision and the memorandum of the Finance Bill, 2012, explaining the insertion of the new provision (section 50D), it is amply clear that for its applicability there has to be a factual situation where the consideration "is not ascertainable or cannot be determined". Thus, its applicability and any subsequent addition under this provision cannot be accommodated by the Revenue Department in a case where the quantum of consideration is ascertainable or can be determined.