The Calcutta High Court has held that Section 50C of the Income Tax Act, 1961 cannot be applied to the compulsory acquisition of a capital asset.
M/s. The Durgapur Projects Limited, the respondent assesee filed its original return of income on 28.09.2015 declaring a loss of 591,64,96,295/-.Subsequently, a revised return was filed on 16.01.2017 declaring a loss of 581,04,07,134/-. The assessing officer completed the assessment under Section 143(3) of the Act wherein added a sum of Rs. 5,48,43,584/- to the total income being capital gain on the transfer of land to the National Highways Authority of India (NHAI) and also initiated penalty proceedings under Section 271(1)(c) of the Act.
He further disallowed the claim towards the shortage of coal amounting to Rs. 7,41,00,000/- and disallowed the claim towards the shortage of imported coal amounting to Rs. 16,36,000/- and added the same to the total income and also initiated penalty proceedings under Section 271(1)(c) of the Act. On appeal, the Commissioner of Income Tax (Appeals), 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. Further, the addition made towards the shortage of coal was also deleted. The revenue challenged the said order by filing an appeal before the tribunal, which was dismissed by the impugned order.
The appellant contended that the tribunal affirmed the decision of the CIT(A) to hold that the assessing officer was not justified in invoking Section 50C of the Act without noting that the said decision cannot be applied to the facts of the case as in the said case the assessee had not transferred therein own property consisting of land and building but had only transferred their right to receive the amount of compensation.
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 2013 Act. Therefore, the transaction cannot 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. It is common knowledge that when compensation is determined by the authorities under the said Act, it is invariably lesser than the market value of the property as the determination is done in a particular manner by taking note of several factors.
In the case of Southern Steels, the facts were slightly different, it was held that the scope of Section 50C of the Act and the purpose for introducing the said provisions in the statute namely to curb the menace of unaccounted cash being infused in the real estate transaction.
The principle which was culled out by the Hyderabad tribunal is a correct interpretation of the provisions of Section 50C in the case of the compulsory acquisition of land. Thus, the findings rendered by the CIT(A) as affirmed by the tribunal on this issue do not call for any interference.
A two-judge bench comprising Justice T S Sivagnanam and Justice Hiranmay Bhattacharyya held that in case of compulsory acquisition of a capital asset being land or building or both, the provisions of Section 50C cannot be applied as the question of payment of stamp duty for effecting such transfer does not arise.
The property was acquired under the provisions of the National Highways Act, of 1956. The property vests by operation of the said statute and there is no requirement for payment of stamp duty in such vesting of property. As such there was no necessity for an assessment of the valuation of the property by the stamp valuation authority in the case on hand. It was held that the provisions under Section 50C of the Income Tax Act cannot be applied to the case on hand.
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