Section 50C applicable Only on Transfer of Immovable Property Compared with Stamp Duty Value: ITAT [Read Order]

Suvarna Chandrakant Bhojane,appellant-assessee, had entered into a Development Agreement with a builder to receive a specified number of flats in exchange for land. As the builder failed to complete the construction and hand over the flats within the agreed period, the assessee received a compensation of Rs. 1.85 crore, which was offered as long-term capital gains.

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The department treated the transaction as one attracting Section 50C of the Act and substituted the stamp duty valuation of Rs. 3.51 crore for computing capital gains. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this view, leading the assessee to file an appeal before the tribunal.

The assessee counsel argued that the assessee had received 50% of the compensation from the builder, while the remaining 50% was received by her husband in a similar transaction. In her husband’s case, the CIT(A) had held that Section 50C of the Act did not apply to cash compensation, as it was relevant only when land or building was actually transferred. The Department had not challenged that decision.

Since both cases involved identical facts and amounts, the counsel contended that a different view could not be taken. It was further submitted that the compensation was received for extinguishment of rights in the land, not for transfer of property, and therefore the addition made by the Assessing Officer (AO ) should be deleted.

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The departmental representative, on the other hand, referred to the Bombay High Court’s decision in Vidarbha Veneere and the Supreme Court’s ruling in

Kartikeya Sarabhai v. CIT, arguing that Section 50C covered rights in property, including development rights. He maintained that the compensation received was taxable as capital gains and that Section 50C applied to the transaction.

The two member bench comprising Beena Pillai (Judicial Member) and Omkareshwar Chidara (Accountant Member) heard both sides and noted that the issue was whether Section 50C of the Act applied to cash compensation. It observed that the section applied only when immovable property was transferred and its value was compared with the stamp duty valuation.

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In this case, the assessee had received cash compensation as interest at 12% per annum for delay in handing over the flats, which was neither a transfer of property nor a right in property.

The appellate tribunal also noted that in the assessee’s husband’s case, the CIT(A) had already held that Section 50C was not applicable, and that decision had not been challenged by the Department. Therefore, it held that applying Section 50C in the assessee’s case was not correct.

Accordingly the appeal was allowed.

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