2018 (11) TMI 1904 - AT - Income Tax

Short term capital loss on transfer of right in leasehold property in a shop owned by a state government body namely Rajmata Viajyaraje Sindhia Krishi Upaj Mandi Samiti Jodhpur - Applicability of provisions of section 50C - HELD THAT - The perusal of section 50C manifest that it applies only to the land or building or both. Section 50C can come into play only in a situation where the consideration received or accrue as a result of transfer by a appellant of a capital asset being land or building or both is less than the value adopted or assessed or assessable for the purpose of payment of stamp duty in respect of such transfer. It is settled legal position that deeming provision can be applied only in respect of the situation specifically given and hence cannot go beyond the explicit mandate of this section. Therefore it is essential for application of section 50C that transfer may not be of a capital asset being land or building or both. The assessee has transferred is lease holding rights in land and building. The ld.Counsel further relied in the case of Atul Puranik Vs ITO 2011 (5) TMI 576 - ITAT MUMBAI wherein it was held that section 50C applies only to a capital asset being land or building or both it cannot be made applicable to lease holding rights in a land as the assessee transferred leasing right for 60 years in the plot and not land itself the provisions of section 50C cannot be invoked. Further the decision of Hon ble Bombay High Court in the case of Green Field Hotels Estate (P) Ltd. 2016 (12) TMI 353 - BOMBAY HIGH COURT Smt Devindraben I.Barot 2016 (7) TMI 275 - ITAT AHMEDABAD also applicable to present case. Thus we hold that provisions of section 50C are deeming provisions and same were applicable only in this situation where a capital asset being a land or building or both is transferred. Therefore we hold that the Lower Authorities were not justified in taxing short term capital gain in respect of transfer of leasehold rights hence same is therefore deleted. Appeal of assessee allowed.

Summary

Issues:
- Interpretation of section 50C of the Income Tax Act, 1961 regarding the transfer of right in leasehold property.

Detailed Analysis:

Issue 1: Interpretation of section 50C of the Income Tax Act
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the addition of Rs.3,68,289 under section 50C of the Act on the transfer of right in leasehold property. The Assessee contended that section 50C applies only to the transfer of land or building, not leasehold rights. However, the Commissioner upheld the addition, stating that leasehold rights are also considered capital assets under the Act. The Assessee further argued that legal fiction created by section 50C should not be extended beyond its intended purpose, citing relevant case laws. The Assessee emphasized that section 50C is applicable only to land or building, not leasehold rights. The Senior Departmental Representative supported the Lower Authorities' orders.

Issue 2: Application of section 50C to leasehold rights
The Tribunal analyzed the provisions of section 50C, which apply to the transfer of a capital asset being land or building. The Tribunal noted that for section 50C to be applicable, the consideration received from the transfer of a capital asset must be less than the value adopted for stamp duty purposes. The Tribunal emphasized that deeming provisions like section 50C can only be applied within the specific situations provided for in the section. Therefore, the Tribunal concluded that section 50C is not applicable to the transfer of leasehold rights in land and building. The Tribunal referred to relevant case laws and held that section 50C does not apply to leasehold rights, ultimately deleting the short term capital gain addition of Rs.3,68,289 made by the Lower Authorities.

Conclusion:
The Tribunal allowed the appeal of the Assessee, ruling that the provisions of section 50C are deeming provisions applicable only to the transfer of a capital asset being land or building. The Tribunal held that the Lower Authorities were not justified in taxing the short term capital gain on the transfer of leasehold rights and deleted the addition of Rs.3,68,289.