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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
S.J. VAZIFDAR & DEEPAK SIBAL, JJ.
The Pr. Commissioner of Income Tax-2, Chandigarh - Appellant
Versus
M/s Quark Media House India Pvt. Ltd. Mohali - Respondent
Income Tax Appeal No.110 of 2016 (O&M)
Decided On : 24-01-2017
The assessee sold its property to a related party for a consideration of Rs. 25 crores. The Assessing Officer (AO) referred the matter to the District Valuation Officer (DVO) under section 55A of the Income Tax Act, 1961 (the Act) to ascertain the fair market value of the property. The DVO estimated the value of the property at Rs. 70.08 crores. The AO accordingly computed the capital gains by considering the value of the property as Rs. 70.08 crores. The assessee challenged the AO's order before the Commissioner of Income Tax (Appeals) (CIT(A)), who held that the expression "full value of consideration" used in Section 48 of the Act cannot be construed as having a reference to the market value of the asset transferred; that the question of market value does not arise; that what is to be seen is the consideration actually arrived at between the parties for the transaction and that the adequacy or inadequacy of the price bargained between the parties is not relevant. The CIT(A) further held that the AO had erred in considering the fair market value for the purpose of computing the capital gain and that the AO had not shown that the assessee had received any consideration other than that mentioned in the sale deed. The Tribunal agreed with the CIT(A). On appeal by the Revenue, the High Court held that for the purpose of computing the capital gains, the AO is entitled to ignore the consideration stated in the sale deed if he is satisfied that the same is far less than the fair value or the market value thereof. The High Court further held that for the purpose of determining the actual consideration, it was always open to the AO to refer the matter under section 55A to the DVO. The assessee appealed to the Supreme Court.
Fact of the Case:
The assessee sold its property to a related party for a consideration of Rs. 25 crores. The AO referred the matter to the DVO under section 55A of the Act to ascertain the fair market value of the property. The DVO estimated the value of the property at Rs. 70.08 crores. The AO accordingly computed the capital gains by considering the value of the property as Rs. 70.08 crores. The assessee challenged the AO's order before the CIT(A), who held that the expression "full value of consideration" used in Section 48 of the Act cannot be construed as having a reference to the market value of the asset transferred; that the question of market value does not arise; that what is to be seen is the consideration actually arrived at between the parties for the transaction and that the adequacy or inadequacy of the price bargained between the parties is not relevant. The CIT(A) further held that the AO had erred in considering the fair market value for the purpose of computing the capital gain and that the AO had not shown that the assessee had received any consideration other than that mentioned in the sale deed. The Tribunal agreed with the CIT(A). On appeal by the Revenue, the High Court held that for the purpose of computing the capital gains, the AO is entitled to ignore the consideration stated in the sale deed if he is satisfied that the same is far less than the fair value or the market value thereof. The High Court further held that for the purpose of determining the actual consideration, it was always open to the AO to refer the matter under section 55A to the DVO. The assessee appealed to the Supreme Court.
Finding of the Court:
The Supreme Court held that the expression "full value of consideration" used in Section 48 of the Act cannot be construed as having a reference to the market value of the asset transferred; that the question of market value does not arise; that what is to be seen is the consideration actually arrived at between the parties for the transaction and that the adequacy or inadequacy of the price bargained between the parties is not relevant. The Supreme Court further held that the AO had erred in considering the fair market value for the purpose of computing the capital gain and that the AO had not shown that the assessee had received any consideration other than that mentioned in the sale deed.
Issues: Whether the AO was entitled to ignore the consideration stated in the sale deed for the purpose of computing the capital gains.
Ratio Decidendi: The Supreme Court held that the expression "full value of consideration" used in Section 48 of the Act cannot be construed as having a reference to the market value of the asset transferred; that the question of market value does not arise; that what is to be seen is the consideration actually arrived at between the parties for the transaction and that the adequacy or inadequacy of the price bargained between the parties is not relevant. The Supreme Court further held that the AO had erred in considering the fair market value for the purpose of computing the capital gain and that the AO had not shown that the assessee had received any consideration other than that mentioned in the sale deed.
Final Decision: The Supreme Court dismissed the appeal of the Revenue.
S.J. VAZIFDAR, J.
This is an appeal against the order of the Income Tax Appellate Tribunal dismissing the appeal against the order of the Commissioner of Income Tax (Appeals) allowing the assessee’s appeal against the order of the Assessing Officer. The matter pertains to the assessment year 2006-07.
2. According to the appellant, the following substantial questions of law arise:-
(i) Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is right in deleting the addition by holding that the transaction with a related party was not in terms of provisions of Section 40A(2)(b) of the Income Tax Act whereas the provisions of this Section were clearly applicable to the facts of the case?
(ii) Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is right in holding that reference made under section 55A of the Income Tax Act was bad in law whereas the Assessing Officer in the surrounding circumstances, had rightly invoked the provisions of this section to determine the fair market value of the capital asset sold?
(iii) Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is right in holding that the Hon’ble Supreme Court’s decision rendered in the case of McDowell & Co. Ltd. v. CTO 154 ITR 148 is not applicable on the facts of the case?
(iv) Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is perverse in not deciding the specific ground of appeal taken by the appellant at Ground No.2 which is regarding passing of appellate order by the learned CIT(A) without affording an opportunity of being heard to the Assessing Officer which was specifically requested for in the ITNS-51 submitted to the CIT(A)?
However, only questions-2 and 3 were argued before us. The appeal is accordingly admitted in respect of questions No.2 and 3.
3. The respondent-assessee filed its return of income declaring income from other sources at Rs. 37,13,113/- after claiming exemptions in the sum of about Rs. 13.50 crores under section 10-B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). The case was selected for compulsory scrutiny pursuant to which notices under section 143(2) and 142(1) of the Act were issued. A reference was made to the Transfer Pricing Officer (TPO) in view of an international transaction between the assessee and one of its associate enterprises which exceeded Rs. 5 crores.
During the course of the assessment proceedings the Assessing Officer noticed that M/s Quark Media House (India) Pvt. Ltd. i.e. the assessee by a sale deed dated 29.04.2005 transferred to M/s Quark City India Pvt. Ltd. land admeasuring 24000 sq. yards in the industrial area of Mohali together with the building constructed thereon for a consideration of Rs. 25.10 crores. The building comprised of a built up area of 13520.27 sq. meters complete with infrastructure and modern facilities permanently embedded including HVAC system, electrical installation, networking equipment, office equipment, drinking water plant, water treatment plant and a swimming pool.
4. It is not necessary to consider two aspects which the Assessing Officer dealt with in detail, namely, the valuation of the land and the building and the relationship between the assessee and the purchaser thereof viz. M/s Quark Media House (India) Ltd. These aspects were not questioned on behalf of the assessee. We have for the purpose of this appeal proceeded on the basis that the market value of the property sold by the assessee to M/s Quark City India Pvt. Ltd. is about 70 crores and that the assessee and the vendee M/s Quark City India Pvt. Ltd. are inter-connected group companies.
In this regard, it is sufficient, therefore to note two things. By a letter dated 22.10.2009 the Assessing Officer made a reference to the District Valuation Officer (DVO) under section 55-A of the Act to ascertain the fair market value of the land and the building. The D.V.O. by his report forwarded under cover of a letter date
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