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January 23, 2023

Transfer of Leasehold Interest Does Not Justify Invoking Section 50C (1)

by CA Shivam Jaiswal in Income Tax

Transfer of Leasehold Interest Does Not Justify Invoking Section 50C (1)

Fact and issue of the case

The facts borne out the case records are;

The assessee is a resident individual and partner in certain firms carrying out businesses like manufacturing of C.I. casting, mobile, electrical goods, builders and developers etc., has for the AY 2014-15 filed his return of income [for short “ITR”] declaring total income of ₹23,74,800/- with a claim of long term capital loss [for short “LTCL”] of ₹34,20,711 arisen on transfer of immovable property consisting of land and villa. The ITR of the assessee was picked up for limited scrutiny through CASS regime by service of notice u/s 143(2) of the Act, wherein the Ld. AO pointing out the transfer of property at a value lower than the value adopted for stamp duty valuation, invoked the provisions of section 50C and brought to tax the differential amount of ₹1,12,97,440/-.

Aggrieved by the impugned addition, the assessee preferred an appeal before the first appellate authority [for short “FAA”] and reiterating the contention put forth before the Ld. AO submitted that by virtue of condition of lease agreement between the assessee and original lessor it was incumbent upon him to transfer the villa and land together. The submission of the assessee rendered futile, resultantly the impugned addition was upheld by the Ld. FAA. Aggrieved thereby appellant came before the Tribunal alleging that, both the Ld. TAB erred in facts and law in invoking the provisions of section 50C in case of transfer of lease rights in the immovable property.

During the course of physical hearing the learned authorised representative for the assessee [for short “AR”] reiterated almost all the contention put forth before both the Ld. TAB and vehemently urged that, the provisions of section 50C are self-contained which calls for no addition thereto or subtraction therefrom, hence utterly land and building or both only falls within the realm of section 50C, thus it expunges all other assets from its terrain, however both the Ld. TAB erred in holding the transfer of leasehold property is a subject matter of section 50C and carried out the addition without appreciating the facts in sprit of correct law and brought to tax the differential value which needs to be turn-downed. Per contra the learned departmental representative [for short “DR”] strongly supported the orders of Ld. TAB tossing that the land & building irrespective of whether leasehold or freehold falls with the ambit of section 50C, as it make no distinction while defining the class of assets falling within its purview, for this reasons the order of Ld. TAB deserves countenance.

Observation by the tribunal

The tribunal has heard the rival contentions of both the parties; and subject to the provisions of rule 18 of Income Tax Appellate Tribunal Rules, 1963 [for short “ITAT, Rules”] perused the material placed on records till the date of conclusive hearing and duly considered the facts of the case in the light of settled legal position and forewarned to parties present.

In so far as it is relevant for adjudication, section 50C(1) of the Act, prescribes that where the sale consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than value adopted by the Stamp Valuation Authority for the purposes of payment of stamp duty, then the value so adopted by the Stamp Valuation Authority be deemed to be the full value of the consideration received or accruing as a result of the transfer for the purposes of computing Capital Gains in the hands of the seller u/s 48 of the Act. Before us, the case sought to be made out by the assessee is that Section 50C, being a deeming provision, has to be strictly interpreted, a proposition which is quite acceptable; and, according to the assessee, section 50C(1) covers a capital asset being land or building or both whereas in the instant case, what is transacted is merely leasehold rights in land and building, which is a distinct Capital Asset. The distinction sought to be made by the assessee is well-founded, and such distinction can be gauged from the Act itself. Ostensibly, in Section 54D(1) of the Act, the Capital Asset has been understood to be land or building or any right in land or building, thereby supporting the distinction sought to be canvassed before us.

On the contrary, the phraseology in section 50C(1) of the Act only covers exclusively land or building or both and does not refer to any right in land or building. Thus, the expression land or building in its coverage is quite distinct from the expression any right in land or building. The legislature, in its wisdom, for the purpose of section 50C without referring to section 2(14) of the Act, has used the expression land or building or both in section 50C(1) of the Act itself, and without the expression of any right in therein i.e. land or building. Therefore, the precise use of one expression would exclude the other, a legal premise which is supported by the judgment of Hon’ble Apex Court in the case of “GVK Industries Ltd. Vs ITO” reported in 4 SCC 36.

In this view of the matter, in our considered opinion, the point sought to be raised by the Ld. AR deserves to be upheld. Such a distinction also has found approval of the Hon’ble Jurisdictional Bombay High Court in the case of “CIT Vs Greenfield Hotels & Estates Pvt. Ltd.” Reported in 389 ITR 68.

In view of the aforesaid factual position and in law, we find that the present transaction of transfer of leasehold right in question does not warrant invoking of section 50C(1) of the Act, as the property in question is not of the explicitly covered by section 50C(1) of the Act, for the reason, we set aside the order of the Ld. FAA and direct the Ld. AO to delete the impugned addition.

Resultantly, the appeal of the appellant assessee is ALLOWED in terms of aforestated observation. In terms of rule 34 of ITAT Rules, the order is pronounced in the open court on this Friday 09th of December, 2022.

Conclusion

The tribunal has ruled in favour of the assessee and dismiss the appeal.

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