2016 (5) TMI 628 - AT - Income Tax

Application of provisions of Section 50C on the transaction entered by assessee by way of sale of agricultural land - Held that - As far as the facts are concerned, there is no dispute that assessee had purchased the property way back in 1984 but failed to mutate the property in his favour in the Revenue records. Assessee purchased only Acr1.20 cents of land from Shri K. Joseph Reddy, however, Shri Mundla Narayana Reddy, Proprietor, Sudha Enterprises has purchased more land, about four acres, vide the registered deed dt. 26-08-1996, got his name entered in the Pahanis in 1999 itself and is in continuous possession of the land. Assessee filed a petition before Special Grade Dy. Collector for mutating the land in his favour. The Ld. Dy. Collector while recording that assessee has prior claim over the land having been registered in 1984, however, stated that there is a title dispute between two parties and therefore, the entries made in the register were set aside and aggrieved parties were directed to seek remedy before the Civil Court. This order was issued in 15th March 2008. Subsequently, an appeal was filed before the Joint Collector by Mr. Mundla Narayana Reddy. In those proceedings, a compromising memo was undertaken wherein it is clearly stated that the respondent (assessee) has received an amount of ₹ 5 Lakhs and executed a registered sale deed bearing Document No. 8799/2008 dt. 26-07-2008 in favour of the Managing Partner of Sudha Enterprises, transferring his right of ownership. It is clear that even though the sale deed is stating that assessee had full ownership and transferred in favour of Shri Mundla Narayana Reddy, what actually transpired between the parties and the claims made before the authorities is that assessee has a title over the property but not complete ownership and possession of the property. It is alleged by the other party i.e., Mundla Narayana Reddy that the documents are fabricated. Whatever may be the contentions before the authorities, the fact is that assessee had indeed settled the issue by accepting the consideration of ₹ 5 Lakhs and parted with the claim of ownership on the said property. The record indicates that assessee is not complete owner of the property as in the Govt. records Shri Mundla Narayana Reddy was already shown as owner of the property and continues to be in possession of the property by virtue of registered sale deed in his favour dt. 26-08-1996. In view of this, we agree with the contentions that assessee has transferred only a right of ownership but not the land and building. Provisions of Section 50C are not applicable in the given case. Accordingly, AO is directed to compute the capital gains on the value received only. - Decided in favour of assessee.

Issues Involved:
1. Application of provisions of Section 50C of the Income Tax Act on the sale transaction of agricultural land.
2. Determination of the status of the assessee (HUF vs. Individual).
3. Disputes over the title and possession of the land.
4. Validity of the additional grounds raised by the assessee.

Issue-wise Detailed Analysis:

1. Application of Provisions of Section 50C:
The primary issue in this appeal is the application of Section 50C of the Income Tax Act to the sale transaction of agricultural land by the assessee. The assessee sold the land on 26-07-2008 for ?5 Lakhs, but the registered sale deed indicated a market value of ?45 Lakhs. The Assessing Officer (AO) invoked Section 50C, which mandates adopting the value assessed by the stamp valuation authority if it is higher than the sale consideration. The assessee contended that the sale deed did not represent an actual transfer but confirmed the title in favor of the buyer, Mr. Mundla Narayana Reddy. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's application of Section 50C, stating that the transfer took place on 26-07-2008, and the provisions were applicable.

2. Determination of Status:
The assessee initially contended that the transaction pertained to the Hindu Undivided Family (HUF) status and not an individual, which was dismissed as the ground was not pressed during the arguments. Consequently, the issue of reopening and the status of the assessee as an individual became final.

3. Disputes Over Title and Possession:
The assessee argued that the land was handed over in 2000 due to disputes and civil litigation, and the sale deed in 2008 was merely a compromise to settle the issue. The CIT(A) noted that the facts were unclear regarding the compromise and the consideration amount, as the assessee failed to provide written agreements. The CIT(A) concluded that the provisions of Section 50C were mandatory and applicable since the assessee did not establish that the transfer occurred in 2000.

4. Validity of Additional Grounds:
The assessee raised additional grounds claiming that the transfer was completed in 2000 and that only disputed rights were surrendered in 2008, making Section 50C inapplicable. The Tribunal rejected the additional ground about the 2000 transfer due to lack of evidence but allowed the ground related to disputed rights for consideration.

Tribunal's Findings:
The Tribunal considered the facts and submissions, noting that the assessee had a title but not possession of the property, which was under the control of Mr. Mundla Narayana Reddy since 1996. The Tribunal agreed that the assessee transferred only the right of ownership, not the land itself, and cited similar cases where Section 50C was deemed inapplicable to limited rights over property. The Tribunal concluded that Section 50C did not apply and directed the AO to compute capital gains based on the actual consideration received.

Conclusion:
The Tribunal allowed the appeal, ruling that the provisions of Section 50C were not applicable as the assessee transferred only the right of ownership and not the land. The AO was directed to compute the capital gains based on the ?5 Lakhs received. The appeal was allowed, and the order was pronounced on 29th April 2016.

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