Provisions of section 50C not applicable on leasehold rights in land – Pune ITAT


Kancast Pvt. Ltd v ITO (ITA No.1265/PN/2011 dated 19.01.2015) – Pune ITAT 

Background:

The assessee transferred factory land, building and shed for a consideration of Rs.3,12,04,000/- for land and building and Rs.47,96,000/- for other fixed assets. Out of the consideration of Rs 3,12,04,000 for land and building, amount of Rs 77,00,000 pertained to leasehold rights in land. The Assessing Officer noted that the value of land and building adopted by the registering authority for the purposes of stamp duty valuation under section 50C for the purpose of computing capital gains based on the Ready Reckoner rates of the State Government was Rs.5,75,93,000/-. The assessee  contended that section 50C of the Act was not applicable as the assessee was only holding leasehold rights in the land and was not owner of the land.  However, the Assessing Officer considered the stamp duty value of the consideration for land under section 50C at Rs.4,98,93,000/- (Rs.5,75,93,000/- minus Rs.77,00,000/-). 

In the first level appellate proceedings, the assessee reiterated that it did not transfer any land because it was not owning the land and therefore transfer of leasehold rights in land did not invite the provisions of section 50C of the Act. Reliance was placed on the ruling of Mumbai ITAT in the case of Atul G. Puranik vs. ITO vide ITA No.3051/Mum/2011 dated 13.05.2011. The CIT(A) dismissed the submission of the assessee and held that the Explanation below section 269UA(d)(i) of the Act makes it clear that the land, building, etc. included in the phrase ‘immovable property’ also includes any rights therein. Therefore, he upheld that the order of Assessing Officer was justified in applying the provisions of section 50C. 

HELD:

  • Provisions of section 50C is only applied to “a capital asset, being land or building or both”. The moot question before us is as to whether such expression would cover the transfer of a capital asset being leasehold rights in land or building. 
  • Leasehold right in land is also a capital asset and we find no fault with this stand of the Revenue. 
  • However, every kind of a ‘capital asset’ is not covered within the scope of section 50C of the Act for the purposes of ascertaining the full value of consideration. There is a significance to the expression “a capital asset, being land or building or both” contained in section 50C of the Act. 
  • The meaning of the expression “immovable property” contained in section 269UA(d) of the Act has been referred to in section 2(47) of the Act only in relation to sub-clause (v) and (vi) thereof. 
  • Further, from the meaning of expression “immovable property” contained in section 269UA(d) of the Act, the only thing that can be inferred is that even leasehold rights in land is a capital asset. However, the said inference does not justify the inclusion of a transaction involving transfer of leasehold rights in land within the purview of section 50C of the Act. 
  • Therefore, section 50C of the Act does not come into operation in the present facts where what is transferred by the assessee is only the leasehold rights in land which were acquired by it from Maharashtra Industrial Development Corporation (i.e. MIDC) on a 99 years lease basis.

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