2012 (2) TMI 520 - AT - Income Tax

Sale value in respect of transfer of tenancy rights for the purpose of computation of capital gain - stamp duty value adoption - sec 50C applicability - Held that - Assessee had shown value of 55.00 lacs in respect of transfer of tenancy rights relating to about 1800 sq.ft. area of factory godown. Capital gain has to be computed on the basis of sale consideration received or accruing to the assessee. Even if the document was not registered the capital gain has to be computed on the basis of the sale consideration shown and received by the assessee unless there was material to show that the sale consideration was understated. Market value cannot be substituted for sale consideration while computing capital gain. Only for the limited purpose of computation of capital gain in respect of sale of land and building stamp duty value has to be substituted for sale consideration in view of specific provisions of section 50C. Therefore provisions of section 50C can not be applied in case of transfer of tenancy rights in respect of land or building or both. In this case admittedly the document was not registered and no stamp duty had been paid. Therefore stamp duty value can not be adopted for the purpose of computation of capital gain and the value shown in the agreement has to be adopted as there is no material to show that the assessee had understated the sale consideration. We therefore see no infirmity in the order of CIT(A) and the same is therefore upheld.

Summary

Issues:
Dispute over sale value in transfer of tenancy rights for capital gain computation.

Analysis:
The appeal before the ITAT Mumbai concerned the assessment year 2007-08 regarding the sale value in the transfer of tenancy rights. The AO contended that the unregistered deed of assignment for the transfer of a factory godown's tenancy right could not be accepted as valid evidence, leading to the substitution of market value for the sale consideration. Additionally, the AO applied section 50C provisions, adopting stamp duty value for capital gain computation due to the prime location of the property and alleged understatement of sale consideration.

The CIT(A) disagreed, stating that tenancy rights were not akin to land and building, hence section 50C did not apply. The CIT(A) found the sale consideration reasonable based on market value, stamp duty reckoner value, and the split consideration between the owner and tenant. Therefore, the CIT(A) deleted the AO's addition, prompting the revenue's appeal before the Tribunal.

During the proceedings, the revenue argued that tenancy rights transfer equated to ownership rights, justifying section 50C application. In contrast, the assessee's representative supported the CIT(A)'s decision, citing precedents where section 50C did not apply to unregistered documents or transfers of land/building rights.

The Tribunal analyzed the dispute, emphasizing that the capital gain computation should be based on the actual sale consideration received by the assessee, even if the document was unregistered. Market value could not replace the sale consideration unless understated. Notably, section 50C provisions were inapplicable to tenancy rights transfers, as supported by previous Tribunal decisions. Since the document was unregistered and no stamp duty paid, the Tribunal upheld the CIT(A)'s decision to use the sale value disclosed by the assessee for capital gain computation.

Conclusively, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision. The judgment clarified the application of section 50C and the significance of actual sale consideration in capital gain computation for tenancy rights transfers.