2012 (3) TMI 47 - AT - Income Tax

Surrender of leasehold rights invocation of Section 50C - CIT(A) deleted addition made on account of LTCG on the ground that Section 50C has no application on transfer of leasehold right in building Held that - Provisions of Section 50 C will apply on receipt of consideration on transfer of a property, being land or building or both, and not in case of transfer or surrender of tenancy rights. Lessee s rights cannot be treated as ownership rights. There is nothing on the record to suggest that the assessee was owner of the property in question. Further, cost of acquisition of the tenancy rights, in view of the specific provisions of Section 55(2)(a), should have been taken as nil . This aspect is however tax neutral since qualifying investment u/s 54F is more than the consideration for surrender of these tenancy rights Decided against the Revenue.

Summary

Issues Involved:
- Challenge to deletion of addition of long term capital gain
- Applicability of Section 50C on transfer of leasehold right in building
- Consideration of alternative ground under Section 54F

Analysis:
1. The appellant Assessing Officer challenged the deletion of addition of Rs 14,64,692 on account of long term capital gain by the learned Commissioner (Appeals). The Assessing Officer contended that Section 50C should apply to the transfer of leasehold right in a building. The cross objection filed by the assessee raised the issue of the applicability of Section 50C when the full value of consideration is invested under Section 54F.

2. The grievances raised in the appeal and cross objections revolve around the treatment of capital gains on the sale of a property with tenancy rights. The material facts were undisputed, involving the sale of a property where the assessee had leasehold rights. The Assessing Officer applied Section 50C based on stamp duty valuation, resulting in the computation of long term capital gain and a subsequent deduction under Section 54F.

3. The CIT(A) held that the assessee, being a tenant in the property sold, received the amount on surrendering tenancy rights, not subject to Section 50C. The CIT(A) rejected the alternative ground related to Section 54F, as the primary ground was allowed. Both parties were dissatisfied with the CIT(A)'s decision, leading to the appeal and cross objection.

4. The Tribunal analyzed the nature of the receipt in the hands of the assessee, emphasizing the distinction between ownership rights and tenancy rights. The Tribunal agreed with the CIT(A) that Section 50C does not apply to the transfer of leasehold rights, as it pertains to land or building. The Tribunal upheld the CIT(A)'s decision on this aspect.

5. Furthermore, the Tribunal noted the calculation discrepancies in the cost of acquisition and directed the consideration for capital gains to be based on actuals, not stamp valuation. Despite the academic nature of the cost of acquisition for tenancy rights, the Tribunal concluded that the assessee had no taxable capital gain due to the qualifying investment under Section 54F exceeding the consideration for surrendering tenancy rights.

6. Ultimately, the Tribunal dismissed the appeal and cross objection, upholding the relief granted by the CIT(A). The cross objection was deemed as not pressed, given the Tribunal's decision. The judgment was pronounced on 29th February 2012 by the Appellate Tribunal ITAT, Kolkata.