2016 (11) TMI 1501 - AT - Income Tax

Addition of transfer of lease hold rights in the property under section 50C - capital gain computation - Held that - Issue under consideration is covered by the number of decisions of ITAT-Mumbai Bench in case of Atul G.Puranik 2011 (5) TMI 576 - ITAT Mumbai and Pradeep Steel Re-Rolling Mills (P) Ltd. (2011 (7) TMI 1101 - ITAT MUMBAI) wherein it was held that Section 50C applies only to capital assets being land or building or both it does not in terms include leasehold rights in land or building within its scope. Allowing set off loss against income from other sources - AO s initiated in allowing set of off loss against long term capital gains - Held that - As per the provisions of Section 71(2) assessee is entitled to set off current year business loss against income from other sources since assessee was also having long term capital gains. Accordingly we do not find any infirmity in the order of CIT(A) for allowing set off of loss in the very same year against income from other sources so that assessee can enjoy special rate of 10% tax on long term capital gains in terms of CBDT circular No.26 (LXXVI-3) (F.No.4(53)-IT/54).

Summary

Issues:
1. Addition under section 50C for transfer of leasehold rights
2. Set off of loss against income from other sources

Analysis:
1. The first issue pertains to the addition of ?41,47,204 made by the Assessing Officer (AO) under section 50C of the IT Act for the transfer of leasehold rights. The Appellate Tribunal noted that the assessee acquired leasehold rights and subsequently assigned them to another party due to financial difficulties. The AO considered this as a transfer of rights in an immovable property and invoked section 50C to make the addition. However, the CIT(A) deleted the addition citing precedents from ITAT-Mumbai and Kolkata benches. The Tribunal further referred to various decisions, including the Hon'ble Bombay High Court judgment in Heatex Products Pvt. Ltd., which clarified that section 50C applies only to capital assets like land or building, not leasehold rights. Consequently, the Tribunal upheld the CIT(A)'s decision, stating that section 50C is not applicable to the transfer of leasehold rights.

2. The second issue revolves around the set off of loss against income from other sources instead of long-term capital gains. The AO allowed the set off against long-term gains, but the assessee claimed it should be against income from other sources. The CIT(A) supported the assessee's claim based on a CBDT Circular from 1955, directing the Revenue to adopt the mode of set off that benefits the assessee the most. The Tribunal analyzed the provisions of Section 71(2) and agreed that the assessee could set off current year business loss against income from other sources, especially when having long-term capital gains, to avail the special tax rate. Therefore, the Tribunal upheld the CIT(A)'s decision to allow the set off of loss against income from other sources.

In conclusion, the Appellate Tribunal dismissed the appeal filed by the Revenue and the Cross Objection filed by the assessee, emphasizing that section 50C does not apply to the transfer of leasehold rights and supporting the set off of loss against income from other sources for maximum benefit to the assessee.