Section 50C can be applied only to Capital Assets not to Leasehold Rights: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) has held that Section 50C of the Income Tax Act, 1961 can be applied only to capital asset not to leasehold rights.

Shivdeep Tyagi, the appellant/assessee, a salaried employee, filed his Income Tax Return ( ITR ) for the relevant assessment year 2011–12 on February 17, 2012, declaring income, which was processed under Section 143(1). The AO found that the assessee who sold a leasehold property did not offer the capital gains.

Since the appellant or assessee did not file any proof of the cost of acquisition of the leasehold property during the assessment proceedings, the consequential reopened assessment was completed at income under Section 147/143(3) by taxing the entire sale consideration for stamp duty purposes as against the actual sale consideration. The appellant or assessee did not succeed in the first appeal. Therefore, the assessee filed the appeal before the Tribunal.

The assessee contended that Section 50C, being a deeming provision, was not applicable in the case of the transfer of leasehold rights. As per the provisions of Section 50C, it has been specifically mentioned that Section 50C is applicable to capital assets only, which are land, buildings, or both. The department admitted that there is no judicial pronouncement holding that the provisions of Section 50C are applicable to leasehold property.

The tribunal found that the leasehold rights in a plot of land are neither 'land or building or both' as such nor can be included within the scope of 'land or building or both'. The distinction between a capital asset being 'land or building or both' and any 'right in land or building or both' is well recognized under the Act.

A two member bench of Kul Bharat (Judicial Member) and Avdhesh Kumar Mishra (Accountant Member) has observed that only if a capital asset, be it land, a building, or both, is transferred and the consideration received or accruing as a result of such transfer is less than the value adopted, assessed, or assessable by the stamp valuation authority, the deeming fiction under Section 50C (1) shall be activated to substitute the adopted, assessed, or assessable value as the full value of the consideration received or accruing as a result of the transfer.

While partly allowing the appeal, the ITAT held that as Section 50C applies only to a capital asset, be it land, a building, or both, it cannot be made applicable to lease rights in land.

To Read the full text of the Order CLICK HERE

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