When provisions of law are drafted, adequate care is taken to ensure that it does not contradict any other provision in the same statute or in any other statute or at least do not produce unintended or absurd results. Such care is taken because the courts have consistently held that no extra words could be added by them to interpret the statutory provision in a manner other than what is drafted by the Legislature.
To cite an example, Section 80C dealing with deduction for tuition fees uses the expression in sub-section 4 ‘any two children of such individual'. It might prompt a cynic to interpret the expression as mandating the taxpayers to have more than two children so that he can choose tuition fee of ‘any two children' for the purpose of availing deduction.
Deeming provision
When the tax gatherers accept defeat in implementing a tax provision, the Legislature steps in to insert a deeming provision. Section 50C meant to tax transactions of sale of immovable property was inserted by the Finance Act, 2002 and has been in force for almost a decade. It is meant to tax the vendor by adopting stamp duty valuation of the property as the deemed sale consideration for the purpose of computing capital gains. This estopped the vendors from understatement of sale consideration, but the vendees went scot-free.
In the Finance (No.2) Act, 2009 it was thought that the vendees also must be subjected to tax and thus it provided adoption of stamp duty value less apparent consideration as income chargeable under the head ‘other sources'. It became effective from October 1, 2009.
Reversal of law
Again, in Finance Act, 2010 the lawmakers in their wisdom distinguished two aspects viz. absence of consideration vis-a-vis inadequate consideration. Only where the immovable property is transferred without consideration, the transferee was subjected to tax and it is applicable in respect of transaction between non-relatives. Where the transaction is for consideration and it is inadequate, the law did not envisage or empower, taxation of the difference between stamp duty valuation and the apparent consideration. This was retrospectively operational from October 1, 2009.
Yet another flaw or mismatch with regard to Section 50C could be seen where the taxpayer seeks exemption under Section 54F. When any long-term capital asset is transferred and deployed in a residential building, the proportion of apparent consideration vis-a-vis the total consideration will go to provide tax relief in respect of capital gains. When the apparent consideration is less than deemed sale consideration envisaged by Section 50C, taxpayers are left high and dry with no clarity in law.
Only litigations and consequent appellate decisions could throw light on this aspect of law. One such decision could be found in Gouli Mahadevappa v. ITO (2011) 128 ITD 503 (Bangalore) which was in favour of the taxpayer by holding that Section 50C could not be applied where the taxpayer takes shelter under Section 54F.
(The author is an Erode-based chartered accountant.)