IT: Section 50C cannot be invoked to a transfer of leasehold rights
IT: Provisions of section 27(iiib) cannot be extended to computation of capital gains
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[2013] 39 taxmann.com 123 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'C'
Income-tax Officer
v.
Pradeep Steel Re-Rolling Mills (P.) Ltd.*
R.V. EASWAR, PRESIDENT
AND B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND B. RAMAKOTAIAH, ACCOUNTANT MEMBER
IT APPEAL NO. 341 (MUM.) OF 2010
[ASSESSMENT YEAR 2003-04]
[ASSESSMENT YEAR 2003-04]
JULY 15, 2011
I. Section 50C of the Income-tax Act, 1961 - Capital gains - Special provision for computation of full value of consideration [Leasehold rights] - Assessment year 2003-04 - Whether section 50C applies only to capital assets being land or building or both; it does not in terms include leasehold rights in land or building within its scope - Held, yes [Para 4] [In favour of assessee]
II. Section 27(iiib), read with sections 45 and 50C, of the Income-tax Act, 1961 - Income from house property - Deemed owner [Scope of provision] - Assessment year 2003-04 - Whether provisions of section 27(iiib) has been expressly limited in its application to sections 22 to 26; it has not been made applicable to computation of capital gains - Held, yes [Para 4] [In favour of assessee]
Ashish Mehta for the Appellant. V.S. Samuel for the Respondent.
ORDER
R.V. Easwar, President - This is an appeal by the Department relating to the asst. yr. 2003-04 and the following ground has been taken :
"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the additions made in view of s. 50C and subsequent disallowance of long-term capital gain of Rs. 39,63,195 and short-term capital gain of Rs. 22,74,094 without appreciating the facts of the case."
2. The brief facts giving rise to the appeal may be noted. The assessee is a private limited company. In the return of income the assessee did not declare any capital gains on account of transfer of certain leasehold rights it had in a plot of land. The rights were transferred to one Smt. Radhadevi on 21st Nov., 2002 under a compromise settlement. The AO therefore called upon the assessee to show cause as to why capital gains on the transfer should not be computed and included in the assessment. The assessee submitted that since the cost of the leasehold rights was incapable of valuation, the charge of capital gain failed and therefore, there is no question of computing the capital gains. This contention of the assessee was overruled and the AO proceeded to compute the capital gains. In doing so, he invoked s. 50C of the IT Act, 1961. This section made special provisions for ascertaining the full value of consideration for the purpose of computing the capital gains on transfer of a capital asset, being land or building or both. It provided that if the consideration received or accruing is less than the value adopted or assessed or assessable by the stamp valuation authority of the State Government for such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value of consideration and the capital gains will be computed accordingly. The assessee's objection to the invocation of s. 50C was that the section would apply only to "a capital asset, being land or building or both" and that it did not apply to any leasehold rights in the land or building and therefore the section was not applicable to the present case where only leasehold rights in the land and building were transferred. This objection was overruled by the AO, who held that the word "land" included freehold as well as leasehold land and since the assessee held leasehold rights, they were also covered by the section. In this view of the matter, he adopted the stamp duty valuation received from the stamp duty authorities of Lucknow, which amounted to Rs. 62,78,195 and proceeded to compute the capital gains accordingly.
3. The assessee appealed to the CIT(A), who examined the facts and recorded the following findings :
| (1) | The assessee had taken a loan from Late Smt. Radhadevi Vaid amounting to Rs. 1,82,501 which was secured by a mortgage of the entire property taken on lease. | |
| (2) | The assessee could not repay the loan with interest. The Hon'ble Bombay High Court awarded a decree that the assessee should pay Rs. 1,93,539 to Smt. Radhadevi in equal monthly instalments of Rs. 10,000 from July, 1984. | |
| (3) | The assessee could not comply with the orders of the Hon'ble Bombay High Court. | |
| (4) | In order to retrieve its leasehold rights, the assessee entered into a compromise settlement on 21st Nov., 2002 with Smt. Radhadevi, under which the leasehold rights in the plot admeasuring 19,301 sq. ft. and the building measuring 7,350 sq. ft. were transferred to Smt. Radhadevi. | |
| (5) | The property was handed over to Smt. Radhadevi in April, 2003 and she released all her claims against the company by letter dt. 24th April, 2003. | |
| (6) | The assessee had acquired l/3rd leasehold rights on the property from Nagar Mahapalika, Lucknow in 1950. The lease was originally for a period of 30 years and was renewed for a further period of 30 years, which was to expire on 28th July, 2010. In the year of transfer of the rights to Smt. Radhadevi, the leasehold remaining was 6 to 7 years. |
After recording the aforesaid facts, the C1T(A) held that s. 50C cannot be invoked to the present case because what the assessee transferred was only the leasehold rights in the land and the building and not the land or building per se. The assessee was not the owner of the land and building but was only the holder of leasehold rights and on the date of transfer the leasehold period remaining was only 6 to 7 years. In support of his conclusion that s. 50C cannot come into operation on these facts, the CIT(A) referred to an order of the Jodhpur Bench of the Tribunal in the case of Navneet Kumar Thakkar v. ITO [2008] 110 ITD 525. He further noted that the settlement deed for transfer of leasehold rights has not been registered nor has there been an assessment by the stamp valuation authority for payment of stamp duty regarding the transfer. In this view of the matter he held that the AO wrongly / invoked s. 50C and directed him to adopt Rs. 81,254 as capital gains as per the entries made in the assessee's books of account.
4. The Revenue is in appeal. We are unable to find fault with the decision of the CIT(A) that s. 50C cannot be invoked to a transfer of leasehold rights. The section (applies only to capital assets being land or building or both. It does not in terms include leasehold rights in the land or building within its scope. The AO's conclusion to the contrary is based on s. 27(iiib) of the Act, which says that a person who acquires any rights, excluding any rights by way of a lease from month to month or for a period not exceeding one year, in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in cl. (f) of s. 269UA, shall be deemed to be the owner of that building or part thereof. Firstly, this provision has been expressly limited in its application to ss. 22 to 26 of the Act, which deal with the computation of the income under the head "income from house property". It has not been made applicable to the computation of capital gains. Secondly, the rights mentioned in the ' provision are rights over the building and any rights over the land have not been included in the section. In any case, since the s. 27(iiib) has not been extended to the computation of capital gains under s. 45 and is limited to the computation of the income under the head "Income from house property", the conclusion of the CIT(A) that s. 50C cannot be invoked where leasehold rights in land or building are transferred, seems to us, to be correct. We accordingly affirm the decision of the CIT(A) and dismiss the appeal filed by the Revenue with no order as to costs.
USPRegards
Prarthana Jalan
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