S. 50C of Income Tax Act Not Applicable on Compulsory Acquisition of Land: Calcutta HC [Read Order]

In a significant case Calcutta high court held that section 50C of Income Tax Act 1961 was not applicable on compulsory acquisition of land.

Section 50C of Income Tax Act 1961 states the computation of capital gain of the taxpayer on sale of the land or building or both.

The aforesaid Appeal was filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order of Income Tax Appellate Tribunal.

When the assessee/respondent, Durgapur Projects limited after filing their return of income which was selected for scrutiny. After completing the assessment under. The assessing officer added a sum of Rs.5,48,43,584/- to the total income being capital gain on transfer of land to the National Highways Authority of India (NHAI) and also initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act 1961.

The assessee preferred appeal before the Commissioner of Income Tax (Appeals)The appeal was partly allowed further  the  CIT(A) held that the assessing officer was not justified in invoking Section 50C of the Act on the land which was compulsorily acquired for NHAI and directed to re-compute the capital gains without applying Section 50C of the said Act.

The revenue challenged the above order before ITAT but which was dismissed. Against the action of the ITAT revenue filed the writ petition before the Court.

Vipul Kundalia and Amit Sharma counsel for the appellant submits that without considering the fact tribunal passed the order in favor of the assessee. Moreover in case the assessee had not transferred their own property consisting of land and building but had only transferred their right to receive the amount of compensation.

Sumit Ghosh, Anupam Dey, Souradeep Majumdar, and  Bhaskar Sengupta, are  appeared for the assessee,

Counsel for the assessee contended that,

“Section 96 of the Right to Fair Compensation and ReSettlement Act, 2013 and submitted that the said provision states that no income tax or stamp duty shall be levied on any award or agreement made under the said Act except under Section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for the copy of the same”

As per Circular No. 36 of 2016 issued by the Central Board of Direct Taxes states that compensation received by the land owners on account of compulsory acquisition of land under the said provision are not taxable.

After considering the contentions of the both parties the division bench of the Justice T.S. Sivagnanam and Hiranmay Bhattacharyya dismiss the above ground filed by the appellant and observed that,

The transfer of the land was not on account of the agreement between the parties, but it was the case of the compulsory acquisition under the provisions of the Right to Fair Compensation and ReSettlement Act 2013. Therefore, the transaction could not be treated to be a transaction between two private parties where there may be room to suspect the correct valuation and the apparent sale consideration which was reflected in the sale documents.

Thus the purpose of Section 50C of the Income Tax Act 1961  was designed to control the transactions where the correct market value is not mentioned and there is suppression of the correct value by the parties to the transactions.

To Read the full text of the Order CLICK HERE

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