Fwd: P&H high court on section 48 etc concept of full value of consideration explained in highly subjective manner dehors SC decision in K.P.Varghese and P.V.Kalyansundram & P&H Paramjeet Singh 345 ITR 288 case & held "..Take for instance a case where the property worth crores of rupees is sold for merely ` 1 lakh and there is no explanation for the same despite the parties being at arms length. The Assessing Officer is not bound to accept the statement in the sale deed unless he can prove that additional consideration was paid.."

[P.D.RUNGTA]

---------- Forwarded message ----------
From: CA.KAPIL Goel <kapilnkg...@gmail.com>
Date: Tue, Jan 24, 2017 at 9:38 PM
Subject: P&H high court on section 48 etc concept of full value of consideration explained in highly subjective manner dehors SC decision in K.P.Varghese and P.V.Kalyansundram & P&H Paramjeet Singh 345 ITR 288 case & held "..Take for instance a case where the property worth crores of rupees is sold for merely ` 1 lakh and there is no explanation for the same despite the parties being at arms length. The Assessing Officer is not bound to accept the statement in the sale deed unless he can prove that additional consideration was paid.."
To: "CA. Kapil Goel" <kapilgo...@gmail.com>, Kapil Goel <kgoela...@gmail.com>

P&H high court on section 48 etc concept of full value of consideration explained in highly subjective manner dehors SC decision in K.P.Varghese and P.V.Kalyansundram case & held "..Take for instance a case where the  property worth crores of rupees is sold for merely ` 1 lakh  and there is no explanation for the same despite the parties  being at arms length. The Assessing Officer is not bound to  accept the statement in the sale deed unless he can prove  that additional consideration was paid.."

Gist

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH 

 

Income Tax Appeal No.110 of 2016 (O&M) 

 DATE OF DECISION: 24.01.2017 

 

 

 

The Pr. Commissioner of Income Tax-2, Chandigarh. 

 

…..Appellant 

versus 

 

M/s Quark Media House India Pvt. Ltd. Mohali. 

 .....Respond

The first and the main question concerns the ambit 

and the meaning of the words “full value of the consideration 

received or accruing as a result of the transfer of the 

capital asset”. On behalf of the assessee it is contended 

that these words and especially the words “full value of the 

consideration received or accruing” refer to the 

consideration arrived at between the parties and not the fair 

market value thereof. On behalf of the revenue it was 

contended otherwise. 

Considering the language of sub section (2) of 

Section 12B of the 1922 Act, we are of the opinion that the 

judgment (Commissioner of Income Tax, West v. George 

Henderson and Co. Ltd. (1967) 66 ITR 622) applies to Section 48 of the 1961 Act. The language 

of sub section (2) in this regard is similar to the language 

of the opening part of Section 48 of the Act. 

The judgment, however, does not support Mrs. 

Suri’s further submission that the price stated in the 

sale-deed must irrespective of anything also be considered to 

be the sale price for the purpose of computing the capital 

gain. In our view this absolute proposition is not well 

founded. The Assessing Officer must determine whether the 

price stated in the agreement for sale is infact the price 

bargained for by the parties thereto. In other words, the 

full value of the consideration is neither the market value 

nor necessarily the price stated in the document for sale but 

the price actually arrived at between the parties to the 

transaction. If therefore it is found that the price actually 

arrived upon between the parties is not the price reflected 

in the document, it is the price bargained for by the parties 

to sale that must be considered for determining the capital 

gain under section 48. The Supreme Court did not hold that 

inferences cannot be drawn by the Assessing Officer from the 

facts established. In fact in paragraph-5 the Supreme Court 

observed that there was no inferential finding that the 

shares were sold at the market price of ` 620/- per share. 

This read with the operative part of the order in paragraph-6 

remanding the matter to record a finding as to the actual 

price received makes it clear that the finding can be based 

on inferences as well. In paragraph-6 the assessee is given 

an opportunity to explain the unusual nature of the 

transaction. It cannot be suggested that even if there was no 

explanation by the assessee, the Assessing Officer was bound 

not to draw an adverse inference.

Even on principle we see no reason to denude the 

Assessing Officer the right to draw an inference especially 

an irresistible inference. Take for instance a case where the 

property worth crores of rupees is sold for merely ` 1 lakh 

and there is no explanation for the same despite the parties 

being at arms length. The Assessing Officer is not bound to 

accept the statement in the sale deed unless he can prove 

that additional consideration was paid. The initial burden to 

prove the same is undoubtedly on the Department. But in such 

a case the onus clearly shift upon the assessee. If the 

assessee is unable to offer an explanation, the Department 

must be taken to have discharged the burden. 

 The judgment certainly does not hold that the 

price mentioned in the document is sacrosanct and that the 

same must be considered to be the price bargained between the 

parties to the transaction. That would indeed result in an 

absurdity for the parties could then by merely stating an 

incorrect price in the sale deed avoid the tax on capital 

gains altogether. 

The full value of consideration referred to in 

Sections 45 and 48 of the Act refers to the full value 

actually received or accruing and not what the parties merely 

state or declare in the sale deed as was paid or payable and 

received or accruing. Such a view would as we mentioned 

earlier enable a party to avoid the liability to tax on 

account of capital gains by merely stating the incorrect 

price to be the consideration for sale or transfer of the

asset. That could not have been the intention of the 

legislature.

The price to be considered is the consideration 

received or accruing as a result of the transfer and not 

necessarily the price that the assessee states that it 

received or which has accrued to it. At the cost of 

repetition a view to the contrary would lead to the absurdity 

of enabling an assessee to avoid capital gains merely by 

stating that an incorrect price as having been received by it 

or accruing to it. 

In the case of related parties, there is yet 

another aspect. The presumption against the value being 

understated (not undervalued) is greater where parties are 

connected or related. Their relationship is a factor which 

could justify a price lower than the market price. Where 

parties are strangers there must be some explanation for an 

undervaluation.

We must, therefore, proceed on the basis that it 

is not the case of the revenue that the assessee received any 

amount other than what was mentioned in the sale agreement. 

In this view of the matter and in view of the judgments 

referred to earlier especially the judgments of the Supreme 

Court it must follow that there was no occasion for the 

Assessing Officer to determine the fair market value. The 

Assessing Officer was only concerned with the amounts 

actually received by the assessee. The amount actually 

received was admittedly the amount mentioned in the sale 

agreement. 

The reliance upon Section 50C is of no assistance 

to the Revenue either. Mrs. Dugga’s submission that the 

Assessing Officer’s can be supported under section 50C is not 

well founded. Even assuming that the Assessing Officer was 

entitled to invoke Section 50C to have the fair market value 

determined, it would make no difference. In view of sub 

section (3) the rate adopted, assessed or assessable by the 

Stamp authority would prevail. It is common ground that in 

this case the consideration stated in the sale document is 

even higher than the valuation by the Stamp authority. 

As we noted earlier it is not the case of the 

Revenue that the actual consideration is higher than that 

stated in the sale deed. The Assessing Officer was, 

therefore, bound to consider the actual consideration. He was 

not entitled to take the market value of the property on the basis of the judgment in McDowell’s case for that would be 

contrary to the judgment which specifically dealt with 

question (ii). 

 Question (iii) is, therefore, also answered in the 

affirmative in favour of the assessee and against the 

appellant.

Warm Regards: 
Pramod Dayal Rungta   

M.Com., LL.B., ACMA., DISA(ICAI)., FCA

Past Chairman: EIRC of ICAI (2015-16)

Managing Partner: P.D.Rungta & Co., Chartered Accountants 

Board : 3028 2500 / 1, Direct Line: 3028 2502/3, Cell :98310 07253 , Email:  pdru...@gmail.com

Head Office: 21, Hement Basu Sarani, 3rd Floor , Room .No.317, Kolkata-700 001,West Bengal,

Branches : Bhagalpur | Khatima | Mumbai | Ahemdabad | Banglore | Delhi

Homepage : http://www.pdrungta.co.in/

“Save Paper! Save Trees! Before printing, Think about the environment”
"A Candle loses nothing by lighting another candle" 

DISCLAIMER NOTICE: The information in this email and attachments is confidential, proprietary to sender and is intended solely for the use of the individual to whom it is addressed. It may contain privileged or confidential information and should not be circulated or used for any purpose other than for what it is intended. If you have received this message in error, please notify the originator immediately. If you are not the intended recipient, you are notified that you are strictly prohibited from using, copying, saving, altering or disclosing the contents of this message. 

WARNING: Computer viruses can be transmitted via email. sender has taken every reasonable effort to minimize this risk but the recipient should check this email and any attachments for the presence of viruses. sender accepts no liability for any damage caused by any virus transmitted by this email.