Section 50D and 55A of the Income Tax Act deals with computation of Fair Market Value and reference to valuation officer in certain cases. While Studying the section 50d of IT Act, one should also read the provision of section 55A. Section 50D and 55A are one of the widely popular sections among the tax circles. Also, Section 50D and 55A are on of the oldest provisions in the Income Tax Act. Section 50D hasn’t changed much in the recent years, but Section 55A have seen few amendments. In this post, we will analyse the Actual Provision of Section 50D and 55A, Case laws relating to Section 50D and 55A etc.
Section 50D Scope under Income Tax Act
Capital gains are calculated on transfer of a capital asset, as sale consideration minus cost of acquisition. In some recent rulings, it has been held that where the consideration in respect of transfer of an asset is not determinable under the existing provisions of the Income-tax Act, then, as the machinery provision fails, the gains arising from the transfer of such assets is not taxable.
Purpose of Section 50D
Section 50D has been inserted to provide that fair market value of the asset shall be deemed to be the full value of consideration if actual consideration is not attributable or determinable.
Valuation Officer Section 55A Income Tax Act
With a view to ascertaining the fair market value of a capital asset, the concerned Assessing Officer may refer the valuation of the capital asset to a Valuation Officer appointed by the Income-tax Department in the following cases:
(a) Where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer (who works in a private capacity under a licence issued by the Board and his valuation is not binding on the Assessing Officer), but the Assessing Officer is of the opinion that the value so claimed is less than its fair market value (upto june 30, 2012) w.e.f 1st july 2012, the Assessing Officer is enabled to make a reference to the Valuation Officer where in his opinion the value declared by the assessee is at variance from the fair market value [Section 55A(a)].
(b) Where the Assessing Officer is of the opinion that the fair market value of the asset exceeds the value of the asset by more than Rs.25,000 or 15 per cent of the value claimed by the assessee whichever is less [Section 55A(b)(i) read with Rule 111AA].
(c) Where the Assessing Officer is of the opinion that, having regard to the nature of an asset and relevant circumstances, it is necessary so to make a reference to the Valuation Officer [Section 55A(b)(ii)]
It may be noted that in a case where the assessee has opted for substitution of the cost of acquisition of an asset by its fair market value as on 1.4.1981, the fair market value as claimed by him may be higher than its actual fair market value. The provisions of Section 55A(a) and (b)(i) are, therefore, not applicable to such a case. It is, however, open to the Assessing Officer to make a reference to the Valuation Officer under Section 55A(b)(ii).
Note that in cases covered by Section 55A(a) and (b)(i) above it is the duty of the Assessing Officer to refer the valuation of the capital asset in question to the Valuation Officer attached to the department and not to decide the question of the valuation on his own.
Notes for Above Problem – Section 50D & 55A
1. If the net income (other than long-term capital gain) is below the amount of first slab which is not taxable (i.e. ` 2,50,000), then the long-term capital gain is to be reduced by the amount by which the total income (other than long-term capital gain) falls short of the maximum amount which is not chargeable tax.
2. In this case, net income (other than long-term capital gain is (–)Rs.24,000 which will be allowed for carried forward i.e. not to be deducted from Rs.2,50,000. Therefore, long-term capital gain shall be reduced by Rs.2,50,000. Thus, no tax shall be leviable on long-term capital gain.