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Section 55A of the Income-tax Act, 1961 related Capital gains and Reference to Valuation Officer

Sep 2, 2009 Income Tax Case Laws

SUMMARY OF CASE LAW

Whether by invoking section 55A, Assessing Officer can disturb sale consideration – Held, no -

Whether for invoking section 55A there has to be a claim made by assessee, before Assessing Officer can record opinion either under clause (a) or clause (b) of section 55A to make a reference to Valuation Officer – Held, yes -

Whether where reference to Valuation Officer was made before filing of return by assessee and, hence, on date of making reference by Assessing Officer no claim was made by assessee and Assessing Officer could not have formed any opinion as to existence of prescribed difference between value of asset as claimed by assessee and fair market value, impugned reference made by Assessing Officer was without jurisdiction and de hors provisions of Act and, therefore, was liable to be quashed – Held, yes

CASE LAW DETAILS

Decided by: HIGH COURT OF GUJARAT,  In The case of: Hiaben Jayantilal Shah v. Income-tax officer, D.A. MEHTA AND Z.K. SAIYED, JJ.,Appeal No.: SPECIAL CIVIL APPLICATION NO. 9293 OF 1997, Assessment year 1996-97, Decided on: APRIL 21, 2008

RELEVENT PARAGRAPH

Pursuant to the sale of a property, the assessee filed her return on 27-8-1996 for the relevant assessment year showing capital gain worked out on the basis of valuation report of registered valuer whereunder the cost of acquisition of the property was arrived at in terms of the option exercised under section 55(2). Thereafter, in the first week of October, 1997, the assessee received an undated notice from the DVO informing that on 26-4-1996 a reference had been made by the Assessing Officer under section 55A to him. The DVO, therefore, proposed to estimate the market value of the property as on 1-4-1981 at Rs. 3,97,000 as against Rs. 6,25,000 shown by the assessee and to estimate the fair market value of the property as on the date of execution of the sale deed. The assessee filed writ petition challenging the aforesaid reference on the ground when no assessment was pending on date of making reference, reference was bad, in law; and that section 55A did not permit the authority to find out the fair market value of the property on the date of the sale.

Held

In terms of section 55(2)(b), for arriving at the taxable figure of capital gain, while deducting the cost of acquisition, an assessee may adopt the figure of cost of acquisition actually incurred or the fair market value of the property as on 1-4-1981. It is only in this fact situation, that with a view to ascertain the fair market value of the capital asset, the Assessing Officer may refer the valuation of the capital asset to the Valuation Officer. [Para 9]

Under clause (a) of section 55A, the Assessing Officer is entitled to make the reference to the Valuation Officer in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by the registered valuer and the Assessing Officer is of the opinion that the value so claimed is less than the fair market value. In any other case, as provided under clause (b) of section 55A, the Assessing Officer has to record an opinion that : (i) the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage or by more than such an amount as may be prescribed; or (ii) having regard to the nature of the asset and other relevant circumstances, it is necessary to make such a reference. [Para 10]

In the instant case, the assessee had claimed the value of property as per the registered valuer’s report. Therefore, under clause (a) of section 55A, the Assessing Officer was required to form an opinion that the value claimed by the assessee as per the registered valuer’s report was less than the fair market value. The estimated value proposed by the DVO was less than the fair market value shown by the assessee as on 1-4-1981. Therefore, clause (a) of section 55A could not be made applicable. Clause (b) of section 55A can be invoked only in any other case, namely, when the value of the asset claimed by the assessee is not supported by an estimate made by a registered valuer. In the facts of the instant case, clause (b) of section 55A also could not be invoked. Therefore, there was no question of having recourse to sub-clause (ii) of clause (b) of section 55A. [Para 11]

Further, for invoking section 55A, there has to be a claim made by the assessee, before the Assessing Officer can record opinion either under clause (a) or clause (b) of section 55A to make a reference to the Valuation Officer. In the instant case, the reference was made on 26-4-1996, whereas the return of income had been filed by the assessee only on 27-8-1996. Hence, on the date of making the reference by the Assessing Officer, no claim had been made by the assessee and the Assessing Officer could not have formed any opinion as to existence of prescribed difference between the value of the asset as claimed by the assessee and the fair market value. Therefore also, the provisions of section 55A could not have been resorted to by the Assessing Officer. [Para 12]

Apparently, the Assessing Officer had at no point of time formed an opinion that the fair market value, in substitution of the cost of acquisition as claimed by the assessee, was required to be disturbed because prescribed parameters were fulfilled. In fact, the only ground on which reference was made to the Valuation Officer was that the value declared by the assessee as on the date of the execution and registration of the sale deed was lower by more than 25 per cent. There is no provision in the Act which permits the Assessing Officer to disturb the sale consideration and at least section 55A cannot be invoked for the said purpose. [Para 14]

Hence, no case was made out by the revenue for upholding the reference made under section 55A. The said reference, being without jurisdiction and de hors the provisions of the Act, was liable to be quashed and set aside. [Paras 15 & 16]

S.N. Soparkar and Varun K. Patel for the Applicant. Manish R. Bhatt for the Respondent.

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Tags: CAPITAL GAIN, case law, Income Tax, registered valuer, section 55, valuation report