A single member ruling by the Ahmedabad Bench of the Tribunal has held that the amendment by the Finance Act 2016 to rigour of the valuation mechanism under section 50C is retrospective in nature. The ruling was rendered in the case of Mr.Dharamshibai Sonani.

The Amendment to S.50C by Finance Act, 2016

Section 50C of the Income-tax Act provides that where the sale value of immovable property is less than the guideline value adopted for stamp duty purposes, then the guideline value would be deemed to be the sale value for the purpose of levying Capital gains tax.

This created hardship for Taxpayers in those cases where the sale consideration was fixed through an “agreement to sell” while the actual registration of the sale deed happened at a later date. In such cases, the Tax authorities adopted the stamp valuation as per the sale deed which was often higher than that prevalent at the time of agreement to sale, when the consideration was fixed.

The above hardship faced by Taxpayers was recognized by The committee for simplification of Taxation provisions headed by Justice RV Easwar. Based on recommendation of the committee, Finance Act introduced an amendment to Section 50C to provide that where the sale consideration has been fixed vide an agreement to sell and atleast a part of the consideration has also been paid through banking channels, then the stamp duty valuation as on the date of agreement for sale may be applied.

The Ruling

The Tribunal noted that the amendment by Finance Act 2016 was to correct an incongruity in law which was causing hardship to Taxpayers, and held that the amendment is retrospective in nature. The Tribunal relied on principles laid down by the Delhi High Court in the case of CIT Vs. Ansal Landmark Township Pvt Ltd. [377 ITR 635] and SC verdict in the case of CIT Vs. Alom Extrusions [319 ITR 306] in support of its rationale.

The Tribunal also took note of the possibility that in a scenario of declining real estate values, adopting a valuation prevalent as on earlier date could even be prejudicial to the Taxpayer and went on to hold that the application of the proviso is optional – although the said issue did not arise in the appeal decided. This was perhaps to buttress the point that the amendments were to be interpreted in the light of the underlying intent of providing relief to Taxpayer, as also the fact that the language used by legislature in the amendment was “may” and not “shall”.