Section 50C applicable on transfer of leasehold rights over land – Mumbai ITAT


Shavo Norgren (P) Ltd Vs DCIT ITA No.8101/Mum/2011 dtd 14.12.2012 [Mumbai ITAT]

Background:

Assessee had taken a plot of land on lease from MIDC in the year 1967 for a lease of 95 years commencing from 1st January, 1967. Assessee had also paid premium to MIDC as per their rules prevalent at that time. In the previous year 2007-08 assessee entered into a MOU for transfer of part of the said land on 9th April 2007, received an advance of Rs.30 lacs and applied to MIDC for their consent. The two plots together with Building thereon were transferred for a total sum of Rs.2,01,57,606. Assessee worked out capital gain of Rs.1,60,38,687 after deducting the value of building at Rs.14,30,220/- and the market value as on 1/4/1981 increased by indexation cost to Rs.26,88,699.

The AO applied Sec. 50C of the Income tax Act and considered the market value of the plot of land at Rs.2,39,91,000 and considered this as long term capital gain for the purpose of computation of income.

Assessee’s contentions:

  • Only the leasehold rights in the property were transferred and therefore, provisions of section 50C are not applicable as the said provisions was applicable only for ‘land and building’ and not for the rights in the land and building.
  • Reliance was placed on the decision of Atul G. Puranik vs. ITO (2011) 11 ITR 120 (Trib.) (Mum.), wherein it was held that the leasehold rights in a plot of land cannot be included within the scope of land or building or both and those in the case of transfer of leasehold rights in land, provisions of section 50C cannot be invoked.
  • Without prejudice, it was submitted that AO has wrongly taken the valuation under section 50C as on 07.03.2008 i.e. the date of registration whereas the stamp duty rate should have been adopted as on 09.04.2007 i.e. date of Memorandum of Understanding (MoU).
  • At the time of acquisition and subsequently the registration, assessee had paid the premium for leasehold right and this value was shown in the fixed asset schedule of the company account as “leasehold assets”. Therefore, assessee is entitled for the claim of cost of acquisition on the proportionate amount of premium paid, valued as on 01.04.1981

Revenue’s arguments:

  • Assessee has constructed the building after the agreement to submit that assessee not only transferred plot of land but also building.
  • ITAT in the case of Arif Akhatar Hussain vs. Income Tax Officer in ITA No.541/Mum/2010 upheld invoking provisions of section 50C on transfer of development rights.

HELD:

  • Even though the deed is held as lease agreement, the perusal of the terms indicates that substantial rights were transferred to assessee including the rights to construct building.
  • Deeds of assignment specify that assessee transferred the rights in the plots as well as rights in the building. Accordingly, the transfer of property in question do attract provisions of section 50C.
  • The report of the valuation placed on record from page Nos.95 to 99 indicate that the valuation was undertaken as plot of land and not as ‘leasehold rights’.
  • The matter was remanded to ascertain whether the assessee has only leasehold right or complete rights over the property so that provisions of section 50C are attracted.

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