COMMISSIONER OF INCOME TAX Vs. NILOFER I. SINGH

JUDGEMENT

(1.) THE revenue has filed this appeal against the order passed by the Income Tax Appellate Tribunal on 23 -2 -2007 in respect of the assessment year 1998 -99. The learned counsel for the appellant proposed several questions but essentially two issues were canvassed before this Court. The first issue was with regard to the Tribunal deleting the addition of Rs. 34,72,000 on account of capital gains made by the Assessing Officer on the basis of the Valuation Officers' reports. The second issue was with regard to the Tribunal deleting the disallowance of Rs. 1,74,55,243 made by the Assessing Officer on account of bad debts claimed by the assessee.

(2.) INSOFAR as the first issue is concerned, the facts are that the assessee sold two properties and disclosed capital gains of Rs. 21,17,357. One of the properties was a residential flat at Tilak Nagar, Dharti Co -operative Society, Chembur, Bombay and the other was a building bearing No. 227A, Sant Nagar, East of Kailash, New Delhi. The Bombay flat was sold for a consideration of Rs. 10,00,000. The Delhi property was sold at the price of Rs. 23,50,000. In the course of the assessment proceedings under Section 143(3) of the Income Tax Act, 1961 (hereinafter to be referred as "the Act"), the Assessing Officer was of the view that the sale consideration of the two properties did not reflect the fair market value and, therefore, he referred the matter to the Valuation Officers as according to the Assessing Officer the sale consideration appeared to be on the lower side. The Valuation Officers indicated the fair market value of the property at Bombay to be Rs. 14,55,200 and the property at Delhi to be Rs. 53,73,000.

(3.) CAPITAL gains are subjected to tax in view of Section 45 of the said Act. Section 45(1) of the Act provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to Income Tax under the head "Capital gains". It stipulates that capital gains shall be computed by deducting from the "full value of consideration" received or accruing as a result of the transfer of the capital asset, the amount of expenditure incurred wholly and exclusively in connection with such transfer as also the cost of acquisition of the asset and the cost of any improvement thereto. From a combined reading of Section 45(1) and Section 48 of the said Act, it is apparent that when a sale of property takes place, the capital gains arising out of such a transfer has to be computed by looking at the full value of the consideration received or accruing as a result of such transfer. From the said full value of the consideration, the amount of expenditure incurred wholly and exclusively in connection with such transfer as also the cost of acquisition of the asset and the cost of any improvement thereto have to be deducted. In the present case, there is no dispute with regard to the expenditure incurred in connection with the transfer or with regard to the cost of acquisition of the asset and the cost of any improvement. The entire dispute centres upon the expression "full value of consideration". According to the revenue, the full value of consideration refers to the full market value. However, according to the assessee, the expression "full value of consideration" cannot have any reference to the fair market value.