2015 (10) TMI 2245 - AT - Income Tax

Addition in respect of capital gains - non-applicability of section 50C - Held that - A deeming provision can be applied only in respect of the situation specifically given and hence cannot go beyond the explicit mandate of the section. Turning to section 50C, it is seen that the deeming fiction of substituting adopted or assessed or assessable value by the stamp valuation authority as full value of consideration is applicable only in respect of land or building or both . If the capital asset under transfer cannot be described as land or building or both , then section 50C will cease to apply. From the facts of this case narrated above, it is seen that the assessee was allotted lease right in the Plot for a period of sixty years, which right was further assigned to P in the year in question. It is axiomatic that the lease right in a shop plot neither is land or building or both as such, nor can be included within the scope of land or building or both . Considering the fact that dealing with special provision for full value of consideration in certain cases under section 50C, which is a deeming provision, the fiction created in this section cannot be extended to any asset other than those specifically provided therein. As section 50C applies only to a capital asset, being land or building or both, it cannot be made applicable to lease rights in a land. As the assessee transferred lease right for sixty years in the Plot and not land itself, the provisions of section 50C cannot be invoked. Addition made in respect of mortgage expenses incurred for obtaining credit facilities for business purposes - Held that - It is observed that the appellant has taken loans. The appellant fairly submits that some of the loans have been taken to invest in properties relating to business. The Ld.AR submits that the loan from the Urban Co- Operative Bank, Sonipat has been taken for availing funds from the bank for business. However the ld.AO has not established any nexus between the loans taken with the business activity carried on by the appellant.We are therefore inclined to send this issue back to the file of ld.AO for establishing nexus if any and then to consider the claim of the appellant. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Jurisdiction and selection of the case for scrutiny.
2. Addition of Rs. 3,37,540/- as capital gains.
3. Addition of Rs. 40,003/- on account of mortgage expenses.
4. Addition of Rs. 22,900/- for household expenses.

Detailed Analysis:

1. Jurisdiction and Selection of the Case for Scrutiny:
The appellant challenged the selection of their case for scrutiny under the CBDT's Action Plan for the financial year 2008-09. The tribunal did not interfere with the guidelines issued by the CBDT, as other grounds raised by the appellant were dealt with on merits.

2. Addition of Rs. 3,37,540/- as Capital Gains:
The appellant claimed a capital gain loss on the sale of a shop plot in Sonepat, initially purchased for Rs. 6,54,500/- and sold for Rs. 7,00,000/-. The appellant argued that no conveyance deed was entered into, and no possession was transferred, thus the sale did not constitute a "transfer" under Section 2(47) of the Act. However, the Assessing Officer (AO) calculated the long-term capital gain by considering the indexed cost of the plot and the average sale rate, resulting in a capital gain of Rs. 3,37,540/-. The CIT(A) upheld this view, considering the appellant in constructive possession of the plot and thus liable for capital gains tax.

The tribunal noted factual inconsistencies, particularly that the appellant was not allotted the plot on an ownership basis but on a lease basis. The tribunal emphasized that Section 50C, which substitutes the declared full value of consideration with the value assessed by the stamp valuation authority, applies only to land or buildings. Since the appellant transferred lease rights, not the land itself, Section 50C was deemed inapplicable. Consequently, the tribunal allowed the appellant's ground on this issue.

3. Addition of Rs. 40,003/- on Account of Mortgage Expenses:
The appellant incurred Rs. 40,003/- as mortgage expenses for obtaining credit facilities for business purposes. The AO disallowed these expenses, stating they were unrelated to the appellant's business. The tribunal observed that the appellant had taken loans, some of which were for business-related properties. However, the AO did not establish a clear nexus between the loans and the business activities. The tribunal remanded the issue back to the AO to establish this nexus and reconsider the appellant's claim.

4. Addition of Rs. 22,900/- for Household Expenses:
The appellant did not press this ground during the appeal. Consequently, the tribunal dismissed this ground of appeal.

Conclusion:
The appeal was partly allowed. The tribunal ruled in favor of the appellant regarding the capital gains issue, remanded the mortgage expenses issue back to the AO for further examination, and dismissed the ground related to household expenses. The order was pronounced in the open court on 23.09.2015.