The Income Tax Appellate Tribunal, Mumbai bench has recently held that section 50C of the Income Tax Act covers the “Transfer of Development Rights” also. The Tribunal further found that section 50C applies to development agreements subject to a condition that the entire land with ownership rights are transferred through thesaid agreement read with the conveyance agreement.
The Assessee is a partnership firm engaged in the business of builders and developers. The Assessing Officer disallowed the claim of assessee under section 50C by holding thattransfer of development rights are covered by section 50C and thereby made addition of Rs. 2,49,20,949/- under the head capital gains. The assessee claimed that the said amount must be consider as the income/loss offered under the head business since the land is held by the assessee as “stock-in-trade” and not as “investment”.
On appeal, the Commissioner of Income Tax (Appeals)deleted the addition by deciding the case in favour of the assessee. While allowing the appeal, the CIT(A) observed that, “that the intention of the assessee regarding the head of income in which profit is assessable is to be gathered from various clauses of the agreement and not based on the nomenclature used in the balance sheet and although the assessee had shown the expenses incurred only under the head investment in properties in the balance sheet but this alone will not decide the nature of asset as to whether it is business or investment.” Hence, the Revenue preferred an appeal before the Appellate Tribunal.
Before the Tribunal, the assessee argued that they arenot the owner of the land since they are engaged in the business of builders and developers. The assessee has sold the development right as part of its business and therefore, their income must be assessed as business income and provisions of Section 50C of the Act has no application in the instant case.
While upholding the validity of the order-in-original the Tribunal observed that “keeping in view the ratio of decisions cited by learned DR as detailed above and overall facts and circumstances of the case in totality, we also find that section 50C of the Act is clearly applicable even to the sale of development rights in the land as was held in the decisions relied upon by the learned DR as detailed above , more-so we have already held that in-fact the assessee has not only sold development rights in the land but the assessee sold the entire land with ownership rights in the land if the development agreement are read in conjunction with deed of confirmation / conveyance executed by the assessee which are placed in paper book filed with the Tribunal. Thus, the land which was sold during the previous year by the assessee, thus keeping in view our above discussions in the light of facts and circumstances of the case, was a capital asset within the provisions of Section 2(14) of Income Tax the Act and the valuation of the land as per stamp duty valuation authorities as per section 50C of the Act was rightly adopted by the AO as full value of consideration but in our considered view the gains arisen to the assessee in the instant case thereon shall however be long term capital gains as the interest and title in the land has been acquired by the assessee in the year 1994 itself from Rebello family and the assessee shall also be entitled for benefit of cost inflation indexation while computing cost of acquisition and improvement thereon as per provisions of Section 48 of the Income Tax Act”.
Read the full text of the order below.
