2014 (2) TMI 1028 - AT - Income Tax

Applicability of Section 50C of the Act - Whether the provisions of section 50C of the Act are applicable or not to the sale of development rights Held that - The decision in The decision in ITO Versus SHRI CHANDULAL P PATEL 2013 (12) TMI 946 - ITAT MUMBAI followed - during the course of assessment proceedings for earlier year i.e. assessment year 2006-07, the AO, himself observed that the assessee was in the business of construction and development rights purchased by the assessee is part of stock in trade - the property was affected with innumerable court proceedings and the assessee could not get possession of the said property till the date the assessee transferred his rights in the property -the assessee was never in possession of the said property. The assessee has not claimed any benefit of indexation in the cost of acquisition - the assessee has treated the said property as stock in trade - There is no dispute to the fact that if a property is in the nature of stock in trade, the provisions of section 50C are not applicable as it applies only in respect of capital assets being land or building or both - On perusal of above section 50C, shows that the provisions are applicable only in respect of capital asset, being land or building or both and there is no reference that the said provisions is applicable to stock in trade - There is no infirmity in the order of the CIT(A) to hold that the provisions of section 50C are not applicable to the property under consideration - The department has also not brought any material on record that the sale value as per agreement for sale of development rights under the facts and circumstances of the case is not genuine thus, the order of the CIT(A) upheld Decided against Revenue.

Summary

Issues Involved:
- Applicability of section 50C of the Income-tax Act, 1961 to the sale of development rights.

Analysis:
1. The appeal was filed by the department against the order of the Commissioner of Income-tax (Appeals)-35, Mumbai, regarding the applicability of section 50C of the Income-tax Act, 1961 to the sale of development rights. The assessee had transferred her share of development rights in a property, which was under litigation and had various negative factors, to M/s.Jajodia and Patel Properties. The Assessing Officer (AO) invoked section 50C and determined the fair market value at Rs.1,30,91,000, resulting in long term capital gains for the assessee.

2. The assessee contended that the property was subject to litigation and had a defective title, leading to a higher stamp duty valuation. The learned CIT(A) referred to relevant judgments and held that section 50C was not applicable to the sale of development rights, directing the AO to adopt the sale value at Rs.3,07,000 as per the agreement. The CIT(A) also noted discrepancies in ownership rights and physical possession of the property.

3. The ITAT Mumbai considered the submissions and material on record, including agreements, court orders, and the nature of the property. Referring to a similar case, the ITAT upheld the CIT(A)'s decision that section 50C does not apply to stock in trade, confirming that the property in question was treated as stock in trade by the assessee. The ITAT emphasized that section 50C pertains to capital assets like land or buildings, not stock in trade.

4. Given the similarity of facts with the previous case, the ITAT dismissed the department's appeal, relying on the decision from the earlier case. The ITAT concluded that section 50C was not applicable to the sale of development rights, as the property was considered stock in trade by the assessee. The appeal was thus dismissed, upholding the CIT(A)'s order.

This detailed analysis highlights the key arguments, judgments, and decisions made in the legal judgment regarding the applicability of section 50C of the Income-tax Act, 1961 to the sale of development rights.